Bill Cara: Some answers on U.S. Gold, Thurs., Sept. 14, 2006, 9:45 AM

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September 14, 2006

Some answers on U.S. Gold, Thurs., Sept. 14, 2006, 9:45 AM

The name of the game when speculating in the shares of the junior exploration companies is to bet the jockey. In the case of U.S. Gold, that person is Rob McEwen, keynote speaker at the Denver Gold Forum coming up later in the month.

I am getting a lot of mail regarding this company because I have recommended it strongly in the past. The price is falling quickly on much higher volume, and readers are talking about the pain involved in catching falling knives.

It's time to ignore the pain and get serious about business.

The Company has a lot going on. First there was a major announcement in March (at PDAC on the day I met with Rob McEwen) of a "hostile" simultaneous bid for four Canadian prospecting companies that held ground near U.S. Gold's property. McEwen wanted to put them all together for obvious reasons.

Then the SEC called and asked if these companies were going to be helping create the financial documents needed for a normal course bid. Unfortunately they replied that yes the intended targets had later agreed to help. Then the SEC said that the rules would therefore require a registration statement be filed before the bid could be launched. Ouch!

The SEC had made the interpretation that U.S. Gold was in effect launching a friendly bid, which requires the lining up of a lot of ducks in a row before proceeding.

Moreover, of the four Canadian companies being acquired, only two had filed foreign 12g statements with the SEC in order to have their shares traded by Americans. So the U.S. Gold bid required all four to have filed, which as you know is time-consuming.

So all that work is proceeding. Don't worry about it.

Then the company did a major financing at Cdn $4.50, which included a part warrant. The warrant is what the buyers of private placements want because it gives them a call on stock.

The problem with these private placements is that the stock that is acquired is restricted stock " meaning there is a hold period required until a registration statement is filed with the authorities. In the case of the U.S. Gold financing, that filing requirement was completed a week ago Monday. So in effect a lot of new free trading stock became available with a cost-base of Cdn $4.50.

Unfortunately, for those of you who didn't get in on the institutional private placement, it turns out that the gold market was looking rather shaky a week ago Monday, and afterward, so a lot of that stock hit the market. The sellers cleared a nice profit, which paid for the residual warrant. So now they have a "free" call on future stock. That's effective money management! And not any reflection on the prospects for U.S. Gold.

Finally, the company has started to report results of its very extensive Nevada drill program. Read the news on Sept 6.

Apparently there were 19 holes pulled and assay results ready for the first five. Not being a professional analyst, I haven't an ability to give you more than a cursory explanation or judgement on the quality of the results. In fact, I'm going to hold that for now. Geologists, feel free to opine in the comments section.

All in all, I think that now is the time to buy the shares of U.S. Gold (U.S. OTCBB: USGL) and TSX: UXG. I think this stock will be a major winner, and I'm betting on the McEwen silks. McEwen Capital is a winning stable.

Posted by Posted by Bill Cara on September 14, 2006 09:45:46 AM | Category: Gold Explorers

Discourse

Thanks Bill. No pain, no gain.

Posted by: EJStockman at September 14, 2006 10:12 AM [link]

Wheeee thanks Bill and may I add: 'Ka-jing'

(Of course I never doubted;)

Posted by: C.Note at September 14, 2006 10:18 AM [link]

May I ask a dumb question? Why is the OTC price different from Toronto? Are the shares different?

Posted by: Jim S at September 14, 2006 10:45 AM [link]

Re price in TO and OTC: USD versus CAD

Posted by: tinman at September 14, 2006 11:18 AM [link]

Bill,

thank you very much for this additional (and somewhat comforting) information, amidst this scary sell-off.
Do you, or anyone else, have thoughts on IAMGOLD, which also is in free fall today after aquiring Cambior? I know I am currently swimming against the tide, but similar to your assessment of USGL, this might be an attractive opportunity. Based on TD's report you provided us with, IAG was their highlighted PM stock with a target price of $ 16, so we are now talking 77% vs 42% expected return if everything will be fine in the end...

Posted by: Nick K at September 14, 2006 3:09 PM [link]

im wondering what the plunge in share price does to the takeovers?

Posted by: QQQBall at September 14, 2006 3:25 PM [link]

Nick K:

Sold IAG a on 8/29 and pocketed a nice profit of 20+% or if figured APR would be 250.05% I kid you not.

Didn't think it would get this low so soon and have done the right thing and bought some more based on the review you speak of and other investment houses such as UBS have targeted simularly.

This is a race horse in my books with more GOLD to dig with this latest purchase.

Long IAG

Posted by: C.Note at September 14, 2006 3:27 PM [link]

"Thanks Bill. No pain, no gain."

Correction:

LOTS of pain, and absolutely NO gain.

Bill's efforts and prior comments notwithstanding because he has given so much valuable information to the masses. But this is an utter and absolute debacle. The stock has absolutely fallen out of bed. I do not in ANY way hold ANYONE responsible for this stock declining in the manner in which it has = falling like a boulder off a cliff.

But the fact that USGL has dropped from a 2006 high of $10.30 to $4.35 is evidence that someone other than ourselves has much more inside information and has acted on it accordingly.

The "little" people lose again. Say whatever you will, but it is what IT is.

The stock (USGL) may or may nor come back to old highs given what gold bullion does.

But this last 2 weeks ain't no picnic for the USGL longs.

This isn't fun.

Posted by: Todd at September 14, 2006 3:46 PM [link]

Todd,

If you had bought USGL/UXG on margin and have a margin call, then you have real pain. If you bought the shares without margin and where the price is based on $550-600 gold, you have little to worry about, in my view.

This company does not yet produce gold. It is an exploration drilling program that most exploration geologists familiar with it, have confidence McEwen is going to find a major ore body there. It's a long-term, very speculative play. That's why I said I like the McEwen silks and was betting the jockey. I couldn't make that more clear.

I also told you that just prior to the smashing of the gold price this month, the company completed a huge financing of shares and warrants priced at Cdn $4.50, which happens to be about US$4.05. I told you that many of the financial institutions that bought the stock had been selling the newly registered stock since a week ago Monday in order to take the profit and cover the cost of their warrant. That leaves them a free ride.

I don't know if you truly understand the market, but I explained it all to you right there. It's about money management. When risk levels rise, you sell assets to reduce risk. You constantly work your portfolio to where your cost base of your remaining holdings is minimized. If you ever get a free ride, you take it. God didn't promise free rides in this life. Do you understand: you take it because somebody else was giving it.

Todd, do you realize who was giving those financial institutions a free ride? You were my friend.

So you played poker with a smarter, wealthier player than you, and you lost a hand or two. But unless you came into the game loaded with debt, you can win it all back, and then some. That's why we're here.

This experience cost you a lot of money, but so too did an MBA or whatever it is you did at school. But when you lose money, you should be learning the art of trading and portfolio management, and not making these mistakes repeatedly.

It takes time to learn how to trade successfully. Trading is not a gift. You have to earn your success.

Posted by: Bill Cara at September 14, 2006 4:09 PM [link]

What happens to the takeover with USGL depressed. it was $6 on monday morning & went to $7 pretty quickly, so CGREF was worth +/-$4.25?

Posted by: QQQBall at September 14, 2006 4:09 PM [link]

i should add, monday morning after merger/takeover was announced sunday night.

Posted by: QQQBall at September 14, 2006 4:12 PM [link]

I think any gold/PM longs are experiencing much pain right now, which is is some respects similar to the doldrums of May and June. But isn't the message to sit tight. I'm not about to sell while the stock is red. I bought at what I thought were bargain prices, and will hold now that the stock has fallen even farther. As for the other miners, unless we see gold fall off the table and never recover, they will come back, too, just like they did in July and August...

Posted by: EJStockman at September 14, 2006 7:28 PM [link]

I would offer the following words to Todd:

Having traded many years, please be assured that all of us have paid the same dues.

I don't know that you necessarily made a bad trade. Prices always drop much futher than you think is possible, but will also rise much further than you think. When the tide turns (and it always does), try taking satisfaction in hanging on longer than you would have otherwise.

Posted by: 2nd_ave at September 14, 2006 9:17 PM [link]

Todd,
11 months ago I felt like you. I was in a lot of oil stocks and oil royalty trusts and took a beating in October. Got out with mental stop losses and was very glad I did. Then started buying back -- after the stocks were back up quite a bit. Then early this year I started to piece a few things together:
Bill Cara - high percentage cash
Todd Harrison, John Succo at minyanville.com - high percentage cash
Some of the traders on realmoney.com - high percentage cash

So I started questioning, "If I'm still 100% invested, am I smarter than those professionals?" The obvious answer was "No". Therefore I took a lot off the table. I still believe that gold/silver/oil are the winners long term but as you said, "this last 2 weeks ain't no picnic". The difference this year though is I'm only about 30% invested so it is a lot easier to think with a clear head when we have days like today.

So for a large part of this year I believe the above traders still had a large cash percentage. Then I see Cannacord estimating the downside for the TSX being 15-20% and for the S&P 500 being 10-20%. Their portfolio strategy is now to have up to 50% cash, 30% in Reverse Participation Notes (short), and only envision 10-15% of stocks going up in the next down cycle.

Then we have the two reports with links here. The UBS Sep 11 market viewpoint expects a broad rally by year end with the S&P 500 being up by about 12%. The RBC Fall Strategy report also expects the S&P 500 to be about 1400 by year end. Added to that is the Elaine Garzarelli forecast of a gain of 20% in the Dow.

Todd Harrison is going long precious metals and oil options and short financial options. One of the above analyst reports (too lazy to go back and determine which one) recommending going long banks and financials and out of gold. Bill Cara is promoting gold for the long term.

If all the above professionals have such wide ranging forecasts, I have trouble making any wholesale bet on the actual direction we take. It seems to me that capital preservation at this point is way more important than risking large amounts on either direction.

Sure I don't like that my US Gold and a lot of the other stocks have dropped. But I lumped Crystallex and US Gold as similar in that Bill was indicating the risk for the potential reward was favorable - given that certain factors come together. Crystallex in the last few days has gone one direction -- UGX/USGL the other. We don't know Bill was right on KRY because the permits haven't been issued yet, but at least the price is moving the right direction. But we don't know Bill was wrong on UGX, only that he was early. Those are two very different things though they feel the same right now.

I don't know if this or the previous posts help, but it is through Bill and this blog combined with all the reports we are provided with and insights by other traders that makes us all better at navigating these obviously treacherous waters.

Posted by: bobj at September 14, 2006 10:48 PM [link]

Bill,

Thanks for your reply.

Posted by: Todd at September 15, 2006 5:03 AM [link]

Nick K:

Please accept this revision to my post yesterday. What I said has been bugging me, so I went back and checked my records again and the info should have read:

IAG sold 9/1/06
14.101% profit
Profit APR=42.303%

Sorry for the misinformation

Still Long IAG

Posted by: C.Note at September 15, 2006 11:01 AM [link]