It has been a long year since the correction in gold and gold stocks set in. Back in August 2020, the yellow metal peaked at $2063, AIM-listed Ariana Resources (AAU) at 6.4p, fully-listed Centamin (CEY) at 232p, Golden Prospect at 72.5p and my minnow explorer, Standard-Listed Panther Metals (PALM) reached a then peak of 13.75p. Now those prices respectively are $1787, 4.7p (plus a dividend of 0.35p on the way), 91.4p (plus two dividends totalling 7 US cents), 48.5p and 12.875p. Ouch! With hindsight selling up last August would have been better than holding on but I have no crystal ball and nobody can reliably sell up at the peak all of the time. Instead, with an eye on fundamentals such as central bank printing presses spewing freshly printed magic cash all around, government largesse including helicopter money for the masses and the fundamental instability of huge swathes of debt - corporate, personal and public - and an eye on history which tells me that printing money will eventually destroy currencies, I held on for more gains in the longer term.
Right now I look foolish: gold and gold stocks are down but equities in general have been riding high (with the notable exception of the FTSE100). But I firmly believe that equities in general have only been riding high because of the central banks and their versions of QE, which works by buying government (and other) paper in the market, thereby artificially depressing yields which in turn makes investors search elsewhere for yield, such as the stockmarket. There is also a new army of private investors who think they are bullet-proof and were not around in the 1970s, were probably still at primary school or in nappies when the dot.com bubble burst and haven’t looked back at what was going on in the global financial crisis. They think they know best, history teaches them nothing because it does not have a Twitter account and they continue to pile into things just because they are going up. It is a recipe for disaster. When the correction/bear market comes along - as surely it will as night follows day - they will be burnt. When is the last time you saw anyone make reference to The Intelligent Investor by Benjamin Graham? Graham is the guy who taught Warren Buffett and this tome is a seminal work which everybody should read. But he doesn’t have a Facebook page, so is irrelevant. Except he is not. He characterises the market as a manic-depressive. He describes in painful detail what happens in a bubble, how the madness of the crowds pushes things ever higher, sucking everybody in. And he describes the wisdom of old-fashioned things, such as portfolio balance (stocks versus bonds) and ways to play the negative correlation between them. But now, of course, bonds are at a peak at the same time as equities because the central banksters are buying. So what to do? Find an alternative to bonds with negative correlation to what is going on now? I’d love to know – but it doesn’t seem to be an issue in the wider market: just buy the dips, the Fed has your back.
In that context, the only thing not in a massive bubble right now is gold – and gold stocks. My contention is that when the inevitable correction comes around, as it always does, the negative correlation will play into my hands. I just have to wait. On my Gold stocks, all of which are current tips from me, this is a good month. No, the prices haven’t shot through the roof, but dividends from Ariana (0.35p per share, now confirmed as due on 24th September) and Centamin (4 US cents due on 30th) mean I will have a useful war-chest to put to work. And I have my eye on a stock……
That stock is a favourite of Tom Winnifrith and Steve Moore on HotStockRockets, Bluebird Merchant Ventures (BMV) of the Standard List. I had a holding in this before and did quite well out of it, but dumped the stock when its then apparent partner at the Kochang and Gubong projects in South Korea, Southern Gold (ASX - SAU) dropped out, necessitating a drawn out sale process when we had expected the next news would be funding to bring the two mines back into production. That deal has now been done, with Southern Gold taking an equity stake in Bluebird in exchange for its former holdings in the two mines and although there is a boat-load of paperwork involved and a prospectus will need to be issued for the settlement shares, the company’s funding partners in Korea are apparently delighted with the settlement deal with Southern Gold. On the ground, the first job will be at Kochang where the main entrance is to be refurbished and a second outlet for ventilation and safety is to be installed. The aim is for an initial 10,000 oz gold production, eventually rising to 100,000 – the fly in the ointment being timescale, on which the company is being a little vague due to problems associated with Covid, including travel restrictions, equipment ordering and personnel. Timescale clarity should improve as construction work progresses, but this appears to me to be the major risk here. As far as project economics are concerned, we are told that average cash-cost per ounce of Gold will come in at $576 per oz over the first three years. Compared to the current Gold price of $1787, that leaves a good $1200 margin. Even at an initial rate of 10,000 oz Gold per year, that means around $12 million of cashflow (approx. £8.7 million) from operations. For a company with a prospective market capitalisation of around £20 million once all the new shares have been issued, one can see the attractions, even if the timeline is woolly at the moment. With the shares now down to 3.1p, my hope is that there is no clarity at all over timings until those dividends from Ariana and Centamin arrive!
Filed under: gold, Bluebird Merchant Ventures, Umuthi fraud, i-nexus Global, Verditek, HotStockRockets
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