12-27-2011 TUESDAY AFTER LUNCH MONEY MEMO
1st Law of prognostication: For every prognosticator, there is an equal and opposite prognosticator. 2nd Law of Prognostication: Both are likely to be wrong.
I have a friend who just ran into some new IRA money. She asked for prognostications. I began scribbling to her, mentioning companies I’d talked to at the 
San Francisco Hard Asset Show at Thanksgiving. Half way through the letter, I said, HEY, this could be a Happy New Year prediction letter. And so it is.
So here’s my list of candidates for investing new money. I would prefer them for a regular brokerage account where Uncle Sam can share in losses, but the safest ones can go into a pension account. The rules are: NEVER invest in less than five (5) PM stocks. Heck, 12 companies gets you 99% of the safety you’d get with a mutual fund. Not all of these are precious metals companies, but the same rule applies. Think about equal amounts of money in at least the first 5 or 6.
Prices are as of today, and may continue until January 2nd, when lots of new pension money may come in and ignite things. Tax selling will have stopped in January…and the stomping of gold and silver prices will have ended for the year, so if you’re going to buy any of these, the best prices could be this week! They’re all good companies; they just won’t be as attractively priced.
Most PM stocks are volatile, rather than risky. I mean, many of these have suffered this year, but they’ve gone up over the past decade. Gold and gold stocks will continue to go up, but they most assuredly will not go up in a straight line. I put these in the order of most acceptable to my conservative friend, so the safest are at the top of the list. So, consider the following selections:
1. Gamco Global Gold etc. (GGN) is a closed end gold fund that owns mining companies, and sells options against them. Yield is a steady 14 cents a month, or almost 13%. The stock is at $14.50. This has gold potential, diversification, and a great yield.
2. US Global Investors Inc. (GROW) is a San Antonio fund company that manages mutual funds, mostly of hard assets. I’ve listened to their CEO Frank Holmes talk at various gold shows. Stock is at $6…it was at $10. Yield is over 3%. If gold does well, the company that sells mutual funds of gold shares will certainly do well too. It’s like buying Levi Strauss who sold blue jeans to the miners, or mining equipment companies instead of the mining companies themselves. Below is a picture of what’s called a correction in a bull market:
3. Silver Wheaton (SLW) is a royalty company, that gives money to little miners and then gets a royalty on part of their production when the junior gets going. They have perhaps 15 employees, they’re based in the Caymans, and they pay no taxes. The stock is about $29 now. It was above $40. Yield will be 1% of revenues. They have deals with dozens of mining companies by now, so there’s very diversified operational risk, and they’re scheduled to produce over 40 million ounces of silver by 2015. Gold Stock Analyst (known as GSA in the trade) has SLW on their Top Ten list, and says it’s going to $70. (The Top Ten list is up 43% per year over the past 10 years, and 30% a year for the past 15 years, when there was no gold bull market at all. I’m a GSA subscriber, and am allowed to splash GSA recs about after they’ve been given to subscribers.)
4. Veolia (VE) is a French water services company. They’ve been running at $50 billion in annual revenues, but the stock has been hammered by perceptions of Euro difficulties. They serve cities and governments…who, I suspect, will continue to appreciate clean water. Wall Street thinks revenues will suffer a bit, but hardly disappear. The stock was $30, and now it’s $11. The dividend is insane at this price, nearly 14%. They may cut it…to 5%? (They’re not likely to call me first.) Still a steal.
5. The Global X Uranium ETF (URA) is an Exchange Traded Fund of various uranium producers and developers. Price was $22…now $9. Fukushima may have killed nuke plant construction, but the 450 nuke plants in the world will have to continue to use uranium. They can’t fire up those plants with lighter fluid. The deal with Russians, who are supplying 40% of U.S. uranium currently, will END in 2013, and it’s unlikely they’ll renew it. The Russkies are smarter than we are about energy. They’ll keep their uranium at home or sell it on the world market. Needless to say, if you don’t like nukes, don’t buy this one, buy the next one.
6. The Guggenheim Solar ETF (TAN) was a $30 dollar stock now selling for $3. China has a firm grip on the solar industry, and 60% of the companies in the fund are Chinese. Think the Chinese are gonna let their solar industry go tits up? This fund will be fine. Both energy ETFs will do well as energy plays as oil continues to rise. Solar installations will continue…
Ok, those are the hopefully safe ones. The following outfits look like victims of tax selling to me, and seem like genuine bargains.
7. Silver Standard Resources (SSRI) was formerly a storage vault for seven substantial projects, and now have one mine open (in Argentina), and are working diligently to build the others. Help me out here, the stock was at $35 when they didn’t have any production at all, and now it’s $13? What happened? Argentina did impose a troublesome return of capital tax on the miners, but they can deal with it, and the stock got clocked by two thirds?
8. Kinross (KGC) now sports a totally silly price of $11.56. The stock was above $26 in 2007 when gold was at about $900. (You may have noticed gold is higher now.) KGC already produces over a million ounces a year, with another million on the way with three new mines under development. This price is truly nuts!
9. US Gold Corp. (UXG) is run by that natty Napoleon, Rob McEwen, the guy who gave me a hat at a gold show, and also built Goldcorp into a behemoth. He’s trying to do the same with deposits in Nevada. Stock is now $3.16…and was at $9.87. No news that something has gone wrong, so I’d assume tax selling now. McEwen is a winner, and he’s built up a sizable land package in Nevada by joining up with four other gold miners…located near a passel of other gold mines. Nevada is still the biggest gold producing state in the US, and this is a good explorer/developer.
10. New Gold (NGD) is a Vancouver company with 390,000 ounces of gold production in 2011, and building a gold mine at Mt. Milligan in British Columbia that will give them another 500,000 ounces by 2018 or so. The price is about $10, and it’s on GSA’s Top Ten List…believed to be a possible double from here.
Now we get to the even more exciting outfits. You should not start with these. (I see you drooling out there.) Master geologist Laurence Roulston says, almost everyone should have some high flyer prospects in a portfolio. The ones below have some institutional support and are followed by analysts in Toronto and Vancouver. They are unlikely to go out of business, and are likely to do “well” (Don’t pin me down…) from these prices. All are moving ahead.
11. Silvercorp (SVM) is a Vancouver company producing in China now with 4 silver/lead/zinc mines. They’re a billion dollar company now that was a three 
billion dollar company previously. They were the victim of savage short selling recently. While once they traded at $16, they’re now an easy on the wallet $6.50 or so. If I’ve got to do tiny, I’m on the table dancing…to recommend these guys.
12. Minco Silver (MISVF.PK) is a Vancouver company waiting for a permit to mine in China, which has been delayed because of a cave-in somewhere in China. Lots of mining companies there have had to comply with new rules…all normal mining industry delay stuff. Stock is under $2. I owned it a year ago at $5.50…sold it at a loss, and liked the story well enough to have bought it back.
13. Great Panther Silver (GPL) is a Vancouver company that owns a couple of producing silver mines in Mexico – 2-3 million ounces a year. They had operational problems that short sellers pounced on…but that’s over now. The stock was at $5…now $2. Also a tax selling casualty this month, but still a bargain.
14. Golden Queen Mining Co. (GQMNF.PK) is a Vancouver Company developing old gold diggings outside Bakersfield. Final permits have been issued, and somebody is no doubt looking over the drill results to make a bid. Also on GSA’s Top Ten list. Price is now $2.90 or something. Could go out at $5. (As you may have gathered from this list, many mining companies are outside America.)
Next we have the apparently crazy situations below, which represent classic big risk, big reward companies where the bang for the buck can be 5 to 10 fold. You should think about owning a few of these, but diversify by country.
And you should know where in the mine cycle you’re buying them.
Spread out your risk.
15. Explor Resources (EXSFF.PK) had interesting drill results near the Timmons camp in upper Ontario. Stock is now 34 cents; 1000 shares would cost you all of $340, plus Schwab’s piddly commission. This is one of the ones that Mike Ballanger, the investment banker from Union Securities in Toronto, walked me through at the SF Gold Show. Explor has base metals under the gold, so, the cost of whatever gold they get would be low cost. Realization of all this will take 5+ years, and a bit more money than they have currently in the Treasury.
16. Tinka Resources (TKRFF.PK) is another Ballanger pick, now at 30 cents. A terrific property in Peru was sold to Tinka without the CEO of a big Mexican miner’s (Penoles) knowledge. And they’d like it back. I talked to the CEO of Tinka…he said the stock was worth $1.25 right now, but he’s not selling. They’re still drilling. There’s lots of silver in Peru, and a takeout possibility from Penoles down the road.
17. Gran Columbia (TPRFF.PK). Columbia is one of the two hottest spots on the planet for gold hunting; the other is the Yukon. (Below) GC has a “bulk” deposit so far, which means lots of dirt is shoveled into a mill to get gold, as opposed to high grade “veins” of gold being mined. Gran Columbia may have 6-8 million ounces of gold down there. The stock is at 37 cents. It was above $2 earlier this year. U.S. Global (Frank Holmes above) own this one. See http://www.forbes.com/sites/greatspeculations/2011/10/17/which-gold-miners-are-your-best-buys-now/?partner=yahootix
18. Strategic Metals Ltd (SMDZF.PK) is a Yukon miner that owns some good properties, along with pieces of about nine other miners drilling in the Yukon. We call this a prospect generator, and are thereby quite pleased when one of their little projects discovers a pile of gold or silver. Strategic actually owns about 9% of ATAC, a respectable Yukon miner, and a decent investment all by itself. SM has been as high as $4.46 this year…now a bargain at $1.44.
19. Merrex Gold (MXGIF.PK) is little miner in West Africa sitting next to a bigger miner, IAM Gold. Decent drill results are coming, according to the PR guy at the SF Gold Show. IAM buys guys like this if the drilling shows anything. Big guys like to “control the camp.” Stock is at 28 cents. It was in the 65 cent range earlier this year. The tax selling winds have blown strongly against these guys. There’s lots of gold in West Africa. It’s the part of world that was next to Venezuela before the continents decided to divorce, and under President Chavez, Venezuela now owns lots of gold mines. Chavez seized them.
20. Miranda Gold (MRDDF.OB) is another prospect generator, with a dozen projects joint-ventured or farmed out in Nevada and the Yukon. I like CEO Ken Cunningham and have been talking to him for years at gold shows. He just hasn’t hit a big one yet, but he has drill results coming next quarter. Meanwhile, the stock is sitting in the bargain bin at 27 cents, having fallen from 71 cents.
Well, there you are, these are good investment options. They’re good companies and they’re all on sale. And they’re exciting enough for any portfolio. At the very least, put these ticker symbols on a portfolio (as I will) on Yahoo along with their current prices. Then…if, as, and when one of my picks goes up, you can say, “Hey, I could have owned that stock.”
Have a Happy New Year.
Assume FF owns all of the above…because at times he has.