Bill Cara: Follow-up to gold juniors seen at PDAC, Wed., Mar. 29, 2006, 11:42 AM

« Exogenous event in Brazil, Wed., Mar. 29, 2006, 8:23 AM | Main | What's better: the miners or the metal?, Wed., Mar. 29, 2006, 4:18 PM »

March 29, 2006

Follow-up to gold juniors seen at PDAC, Wed., Mar. 29, 2006, 11:42 AM

Early on March 9, while at PDAC 2006, I wrote an article "GDM as an ETF". GDM is still not trading, but traders have been accumulating the beneficiaries of this soon-to-be popular index ETF. After a reprint of the March 9 article, look below to see the performance.

The Amex Goldminer's Index (AMEX: GDM) is a market cap weighted index of gold and silver producers that are listed on the AMEX and NYSE. GDM is about to become an ETF. All the biggest U.S. listed goldminers are there, including Newmont (NEM), Barrick (ABX), AngloGold Ashanti (AU), Goldfields (GFI), Goldcorp (GG), Glamis Gold (GLG), Kinross (KGC) Freeport-McMoRan Copper & Gold (FCX), and Harmony Gold (HMY).

But so too are much smaller goldminers that are in fact too small to qualify for trading by many of the mutual funds and pension funds. And many of these smaller companies would be ignored by the typical individual trader as being too risky.

With the arrival of GDM as an ETF, all that goes away. Interesting to me is that none of these companies senior officers who I spoke directly to yesterday were even aware, but they were all certainly interested after I broke the news.

So the significant beneficiaries of GDM will be the small and mid-cap goldminers like Taseko Mines (TGB), Seabridge Gold (SA), Orezone Resources (OZN), Nevsun Resources (NSU), Metallica Resources (MRB), Miramar Mining (MNG), Crystallex International (KRY), Hecla Mining (HL), Desert Sun Mining (DEZ), Northgate Minerals (NXG), Northern Orion Resources (NTO), Tan Range Exploration (TRE), and Goldenstar Resources (GSS).

We're still waiting on GDM to be listed, but the interest is there in these stocks for the reasons most will be in the ETF, which gives the fund managers a chance to buy them.

Suppose you opened a position in all 13 of these stocks a couple minutes after I published the article on March 9, and then closed all 13 at yesterday's closing price, what would be your performance? Actually, if you did it right now it would be higher by 2 or 3-pct, but a 14-day gain of +11.4-pt is not bad.

You can also put the following string into the Investertech.com summary window and get to see more info.
TGB SA OZN NSU MRB MNG KRY HL DEZ NXG NTO TRE GSS

Or you can check 12 of the charts at this link.

Ka-ching!

Posted by Posted by Bill Cara on March 29, 2006 11:42:17 AM | Category: Goldminer Producers

Discourse

Correct me if I'm wrong but I believe your spreadsheet and your writeup has a typo. Goldenstar is not GSS. It is GSC. It's a nice write up with useful ideas thus, I thought I would help to take away any errors.

Posted by: dinov at March 29, 2006 12:05 PM [link]

HL Hecla is also a silver play...

Posted by: g034 at March 29, 2006 12:06 PM [link]

GSS on the AMEX
GSC on the TSE

Posted by: g034 at March 29, 2006 12:31 PM [link]

Geez, were getting very picky today. What happened to a simple 'thank you' for telling you that we'd have a "precious sunrise"... about two hours before sunrise... or last night telling you that the almost triple-digit Dow loss was a non-starter for today... or...?

Here is the Yahoo Finance summary for Hecla (NYSE: HL), which is considered primarily a silverminer but is also a gold producer. Hecla's 2004 production at today's spot price for gold and silver would equal $77.3 million for Silver and $108.3 million for Gold. So there!! :-)

My point is that the AMEX goldminer ETF (when issued) will include HL.

http://finance.yahoo.com/q/pr?s=HL

There is no metals mining company I know that is a pure producer. All of them produce a variety of metals from their ore, which must be separated.

So the final calculation for a goldminer is typically made in gold-equivalent ozs.

If you deduct the revenue of Goldcorp's non-gold metals production value from the cost to produce an oz of gold, you will find a negative number. So, Goldcorp could also be called a copper miner!

As to the other "correction", I hate to correct a correction of a CFA nonetheless :-) but the ticker symbol of Golden Star is GSS in the U.S., which is what I was writing about, and GSC in Canada, which is what I would have been writing about had I written about the TSX gold ETF (XGD).

But maybe you think the ticker for Goldcorp is G and not GG. Both are correct, depending on the exchange.

Posted by: Bill Cara at March 29, 2006 12:34 PM [link]

Folks, he's got me there. I do like to keep him on his toes. You win this round Cara.

Posted by: dinov at March 29, 2006 1:00 PM [link]

Dear Bill-

I just rec'd an urgent email from a newsletter writer telling me that he expects the sell-off in the miner stocks to be over by May. He will tell me the perfect entry point if only I subscribe at $69 for 6 months. Sounds too good to be true! What should I do?

Signed,

Too Much Junk Coming Into My Email Box

Posted by: MarkM at March 29, 2006 1:17 PM [link]

Bill, I'm not being picky, I'm just adding another reason that you give (bullish on silver) to a possible HL positive.

I used to own HL for clients, before the firm I was at made me sell it, boy did that make me look good...

Posted by: g034 at March 29, 2006 1:35 PM [link]

Major squeeze in progress.PM,techs .You name it.LVLT
is the biggest benefactor.

Posted by: Marp at March 29, 2006 1:36 PM [link]

To MarkM,

Keep your $69 and spend it on a Tim Hortons coffee & donut daily over the next 40 trading days - to be consumed while you read Bill's blog. Doing this will likely produce a more profitable outcome on the miners.

Posted by: TerryC at March 29, 2006 1:36 PM [link]

For those of us that bought into the recent gold miner sell off, now would be an opportunity to lighten up or write calls against purchased stock. Stocks such as HMY and RGLD have had nearly 20% gains from the reccommended accumulation zones. Would still hold on to NEM and look for call writes (or lighten up stock postions) around the 53 area. Put sales should be closed or use a tight stop to lock in profits.

Posted by: optionoracle at March 29, 2006 1:48 PM [link]

optionoracle et al-

Bought in 3/10, 3/24 and 3/27 as readers know. I respect your opinion/strategies as your calls have been very interesting. Don't mind entertaining the notion on non-cores (GLD) but what are you thinking/seeing? That it's had a nice run? That seasonal weakness still applies? That Fed is going to 5.5%? That meteor strikes Earth tomorrow? What?

Posted by: MarkM at March 29, 2006 1:58 PM [link]

MarkM-Opinions are a dime a dozen. I prefer to let market action dictate my trading activities. One should always have extra risk capital for special situations. If gold is in a long term bull move, then extreme price weakness is an opportunity to add to positions by selling puts or accumulating stock at depressed levels. When the RSI dropped below 20 and gold stocks neared support areas investors were encouraged to put on a position. Now that the RSI for HMY is over 70 and RGLD is 85 profits should be booked. Could they go higher? Sure-and maybe they will. But now the odds of further gains are much less, and I don't like the risk reward for this trade any longer. I will now look for other opportunities to deploy capital. With the solar eclipse today, and the end of March time period having marked important stock market turns over the past 6 years, I'm interested in shorting equities but the tape is telling me be patient. From past painful experience (short too soon in 1987 and 2000), I can assure you it doesn't pay to be early when initiating positions. When prices break down, an alert trader will have plenty of time to get short. Parabolic price patterns usually continue further than one anticipates so you need to wait for evidence the top is in before you short. Institutions need time to liquidate-and their foot prints will be all over the tape. Oils are an interesting juncture-one needs to follow the action closely. Good luck.

Posted by: optionoracle at March 29, 2006 3:42 PM [link]

optionoracle-

Thanks for sharing. Agree that oils are at interesting juncture. Interested in how they also affect gold price (and hence miners). Am following RSIs and Stochastics on both. I exited a NatGas position today.

Your recent call to accumulate miners and strategy would have been very profitable.

Posted by: MarkM at March 29, 2006 3:55 PM [link]

Is the price of gold going over 600 this time or the top callers are going to be able to contain below 580?

Posted by: Marp at March 29, 2006 4:10 PM [link]

Can anyone point me to the entry where optionoracle set out his strategy? I'd be interested in reviewing it again. Must have been around Feb lows or March lows or both but I can't find it. Thanks.

Posted by: MarkM at March 29, 2006 4:22 PM [link]

heavy metal movement....will be interesting to see how far north this move goes.?...i missed aapl bounce today though...oh well...caught me snoozing on this one.

Posted by: Bullring at March 29, 2006 4:22 PM [link]

rimm...erts...look ok....actually a lot of things look ok

Posted by: Bullring at March 29, 2006 4:49 PM [link]

MarkM..did you try a google search? Is this what you were looking for?

http://www.billcara.com/archives/2006/03/pdac_day_3_tues.html

Posted by: RJ at March 30, 2006 1:57 AM [link]

RJ-

Thanks! I was using Bill's search function then figured out the Goog search method from your post.

Posted by: MarkM at March 30, 2006 7:09 AM [link]