Hyperinflation

Coeur d'Alene: Mining for Money

The Derivatives loss will be a one time write down in this case, but should they engage in any commodity or currency hedging, it could certainly happen again. As far as earnings go, they will report their quarterly results both with and without the derivatives gain. It is considered a one time item so analysts covering the stock will likely ignore it.

GDXJ: Who Belongs, Who Should Be Replaced

Good picks, I'm surprised your only long one oil stock. Have you looked into any canadian oil trusts. Some of them such as Penn growth (PGH) off production growth and a 8.5% yield. Talisman (TLM) is also worth taking a look into.


On Dec 09 10:45 AM Mihalis wrote:

> Very nice article Hyperinflation.
> I decide to buy some metal and agriculture stocks after the
> yesterday sell off.
> Your article has helped me a lot...Thanks!
>
> Miners:
> ======
> RBY
> PAL
> NG
> CDE
> AUY
> FRMSF
> NXG
> EXK
> EGO
> GBG
> IAG
> HL (ready to sell)
>
> Agriculture
> ======
> POT
> MOS
> AGU
> MON
>
> Oil:
> ===
> STO
>
> Clean Enargy:
> ==============
> STP
> ABAT

Diversifying Geo-Political Risk: Metal Miners for Every Region of the World

I agree 100% as mining is an inherently risky industry. I would definitely recommend having at least 25%-50% (depending on your knowledge of the industry and individual miners) in gold and silver royalty companies(as far as your allocation to these miners go). My largest position is in Silver Wheaton (SLW), with Franco Nevada (FNNVF.PK) / (FNV.TSX) being my 5th largest.

If I wanted exposure to the appreciation in gold and silver via mining equities, I would own both a gold and silver royalty company, the GDX and GDXJ ( giving you exposure to a diversified group of Senior, Mid-Tier, Junior and to a lesser extent exploration companies), as well as a few individual miners which catch your eye for whatever reason ( valuation, potential, growth, etc).

This is just my personal opinion but these are my personal favorites in each class of miners, all of which I own.

Senior Producers - I think Goldcorp is without a doubt the best Senior producer, being one of the few actually growing production as opposed to miners such as Barrick and Newmont. Barrick and Newmont have to engage in new flagship operations ( which require a few billion in capital requirements) just to replace the mines soon to go offline.

Mid-Tier - Picking a favorite in this group is much more difficult as my four favorites are all unique. That being said, this is how I would rank them.
Yamana (AUY) - They have finally started to get their act together and will likely be the first current mid-tier producer to reach the 2m oz/annum level ( with the exception of Newcrest). They also have a great portfolio of projects, which diversifies some mining risk. Furthermore, it is a great way to play South America (more specifically Argentina, Brazil, Chile).

2) El-Dorado Gold - (EGO) El-Dorado has been reporting great drilling results lately, which coupled with their acquisition of Sino Gold, makes them a great way to play China.

3) Agnico - Highest production growth profile of the mid-tier group ( from 580k in 2009 to an estimated 2m oz by 2013-2104. I would rank Agnico much higher given it has substantial exposure to mining friendly Canada, but it has also tended to trade with a rich valuation on all fronts.

4) Lihir Gold - A great turnaround story that doesn't get much attention. Their flagship mine, Lihir Island, is among the best in the world. Proven reserves nearly reaching 40m oz and a large resource base ( reserves are likely to increase substantially given the quality of this mine and the size of the resource base). But Lihir stands out a valuation play both in future cash flows as well as other metrics i.e reserve ratio.

Junior Miners-
1) Jaguar - Has a nice mining portfolio, one of the best 5 year growth profiles and incredible valuation.
2) Kirkland Lake - I will be writing an article on Kirkland Lake Gold as it is also a great story ( discussed in the article), incredible potential, great growth profile ( nearly 10 fold over the next 3-4 year based on current estimates which will likely be guided higher as they have conducted some very impressive drilling results). It is also focused solely on Canada, one of the friendliest mining countries.
3) There are numerous other, some of which are mentioned in the article and others by those leaving comments i.e Great Basin Gold.

Royalty Companies -
1)Silver Wheaton - ( 270% production growth from 2009 to 2013/2014), fixed inputs costs ( giving it 100% protection from inflation), royalty contracts with the two largest gold producers, largest contracts lasting in excess of 20 years. It also has additional upside potential in the several interests it has with the like of Aquilene ( to be acquired by Pan American).
2) Franco Nevada- More diversified, slightly better growth profile and better valuation than Royal Gold. It also has the added advantage of having an incredibly strong balance sheet, which will likely be used to fund future growth.
3) Royal Gold

Silver-
1) Silver Wheaton
2) Coeur d' Alene mines
3) Silver Standard
4) First Majestic
5) Silvercorp
6+) Fortuna, Pan American, Hecla, ECU, MAG silver

Hope this was of any help -

On Nov 27 05:16 PM User 422955 wrote:

> Good work, Hyperinflation! Your spelling, grammar and syntax are
> better than I've seen. Keep up the good work.
>
> The difficult task is to figure out which one(s), out of so many
> gold and silver miners, to buy. This article doesn't help with that.

Diversifying Geo-Political Risk: Metal Miners for Every Region of the World

I haven't yet been to South Africa, but have a few friends that live there, which along with non-stop mining accidents or killings has made tend to avoid it. They just tell me how bad it is and some experiences they have had, making me more bias against SA.
If they can get it together, owning mining companies in South Africa would be extremely lucrative due to the higher grade ore and bi-products like rhodium, palladium, etc instead of the typical base metals. What are your thoughts on West Africa?


On Nov 25 08:59 AM Marco G. wrote:

> Hello Hyperinflation,
> I see may favorite, Great Basin Gold, did not make your list. See
> my report:
> seekingalpha.com/artic...
>
>
> Maybe, that is good as they will soon jump to mid tier gold producer
> status with ~ 400k oz Gold equivalent production. They are under
> radar presently with just 110k production from Hollister in Nevada.
> Burnstone is a brand new mine in South Africa commissioning startup
> in June 2010. It is a shallow low risk mine, the first new mine
> in Witwatersrand in 30 years. But, I know South Africa is not your
> cup of tea. The time will come for South Africa to come back into
> favor.
>
> Great article, as I agree with most of your comments and thanks.

Diversifying Geo-Political Risk: Metal Miners for Every Region of the World

I'm also familiar with BTO and it is another miner I could have listed. I think Kinross will end up buying them out as they have been increasing their ownership stake on a consistent basis, plus it would also help them reduce their reliance on their Russian operation.


On Nov 25 03:10 PM mjrcme wrote:

> Thanks Hyper:
> Check out B2 Gold (BGLPF) (BTO.TO)

Diversifying Geo-Political Risk: Metal Miners for Every Region of the World

I familiar with great basin, but its hard to put every emerging junior (under 1m oz of annual production) in any one article. Have you taken a look at Kirkland Lake? Its quite an interesting story as they basically bought a handful of mines that were thought to been cleaned out years ago, only to find multiple gold deposits. They recently finished some diamond drilling with great results. They are set to produce just 48k oz this year, jumping up to 500k by 2013 (though it will likely be higher as drilling results continue to show more and more reserves and total resources).

I guess I chose Kirkland because they not only have a 3 year production growth profile of 1000%, reaching approx 470-490k oz by 2013 from just 48k in 2009, but because the ongoing drilling results provide several potential catalysts for the stock. Should I have focused on Canada or the America's in general, great basin would surely be on there.


On Nov 25 08:59 AM Marco G. wrote:

> Hello Hyperinflation,
> I see may favorite, Great Basin Gold, did not make your list. See
> my report:
> seekingalpha.com/artic...
>
>
> Maybe, that is good as they will soon jump to mid tier gold producer
> status with ~ 400k oz Gold equivalent production. They are under
> radar presently with just 110k production from Hollister in Nevada.
> Burnstone is a brand new mine in South Africa commissioning startup
> in June 2010. It is a shallow low risk mine, the first new mine
> in Witwatersrand in 30 years. But, I know South Africa is not your
> cup of tea. The time will come for South Africa to come back into
> favor.
>
> Great article, as I agree with most of your comments and thanks.

GDXJ: Who Belongs, Who Should Be Replaced

Apologies, I could have made this much more clear. I was thinking about what I would really remove and replace if it were up to me. The following is the current composition of the GDXJ can be seen here in a previous article:
seekingalpha.com/artic...
and given the disappointing news out of New Gold mentioned above, this is how I would re-arrange/ replace some of the components:
Jaguar Mining 6.60%
Coeur d'Alene mines 6.20%
Kirkland Lake Gold 6.06%
Silver Wheaton 5.95%
Red Back Mining 5.20%
Silver Standard Resources 5.10%
Hochschild 5.00%
First Majestic 4.90%
Franco-Nevada 4.88%
Aurizon Mines 4.66%
Silvercorp 4.20%
Royal Gold 4.09%
Endeavor Silver 3.95%
Great Basin Gold 3.88%
Yamana Gold 3.77%
Andean 3.20%
Kingsgate Consolidated 3.13%
Rubicon 3.10%
EL-Dorado 3.09%
New Gold 2.40%
Hecla 2.20%
ECU Silver 1.80%
Fortuna Silver 1.81%
Semafo 1.31%
Detour Gold 1.22%
Ventana 1.05%
Mag Silver 0.80%
Colossus Minerals 0.25%
CGA Mining 0.20%

This is not a small/ mini cap ETF but would be composes of 15% of royalty companies ( to reduce some volatility), 44% gold miners, 41% silver miners. 52% small/ emerging juniors, 10% exploration and 38% mid-cap ( though 15% of those are royalty companies). There are a slightly smaller number of companies than a typical ETF, but many like Hochschild is a play both on the parent company, and 40% of lake shore gold of which it owns.
Just my two cents

I'm interested in how other people would compose of gold and silver mining ETF, if anyone wants to give it a shot.


On Nov 20 07:28 AM Jabalong wrote:

> Interesting article, though I wish it was clearer which were the
> additions and deletions. Five clearly say they are deletions (Alamos,
> Gammon, Golden-Star, Northgate, San Gold) - is there a sixth? And
> which are the additions?

GDXJ: Who Belongs, Who Should Be Replaced

I will definitely take a look into that. I like Van Eck in general and was rather impressed at GDXJ at first glance, but there are numerous components I would take out and replace. The alternative mentioned above is just to show it is not to difficult to improve on GDXJ. If I were really to make an ETF I would have spent much longer choosing all the components. I imagine there will be several more gold and silver mining etfs coming out over the next several years, so maybe someone will develop one taking a sizable position in.


On Nov 18 11:20 PM User 13464 wrote:

> As a large shareholder in the Van Eck Worldwide Hard Assets Fund,
> I am amazed these guys neglected to include Apollo Gold (AGT) in
> their fund. The company is Jay Taylor's "favorite gold stock."
> The world class Black Fox mine is rumored to hold over 7-8 million
> ounces of gold while their Huizopa mine in resource rich Mexico is
> next to Minefinders' Dolores project. With a veteran management
> that has worked tirelessly to bring Black Fox into production, Apollo
> Gold is currently working its way into mid-tier status as it is projected
> to produce 120,000 ounces gold in 2010! AND THE STOCK IS ONLY 51
> CENTS!!!!!

GDXJ: Who Belongs, Who Should Be Replaced

Your spot on saying " smaller miners are more strongly correlated to fluctuations in the price of gold " as the % increase/decrease in underlying profit, free cash flow and Net Asset Value tend to be greater, but we have yet to see that reflected in the market prices. The Senior and Mid-tier producers have outperformed the exploration and junior miners ( relatively speaking ), but I think the junior miners ( at least the higher quality miners are due for a violent move upward), assuming the gold price remains over $1,000/oz. The same scenario was present during the inflationary days of the 70's and several juniors produced 0000's % return. That being said, I expect GDXJ to outperform GDX by a wide margin if you measured their performance 3 and 5 years from now. But as I indirectly mention in the article, I think the best returns will come by taking a combination of mid-tier , Junior and exploration companies. Off the top of my head I have 0% in senior producers, 50% in Mid-tier ( mostly Silver Wheaton, Franco Nevada, Royal Gold, Yamana, Lihir ) 35% or so in Junior miners ( Red Back, Jaguar, Coeur d'Alene, Kirkland Lake Gold, Silver Standard, First Majestic and others) , and equally split as a % in explorations companies, and GDX puts as a hedge against volatility. My best performer has been Jaguar, Yamana, Silver Wheaton, Redback, Coeur d'Alene and First Majestic so it has been pretty evenly split for me among the different classes. Though I have calculated the difference my combination of mid tier and Juniors has outperformed the seniors by a large margin. I will keep track of the performance of the etf created above, GDXJ, and GDX to compare volatility, return and the best combination as GDX is Senior/Mid tier, GDXJ is Junior/exploration and mine is Junior/Mid-tier.

Franco-Nevada: Building Up a Royalty War Chest

Yeh I am long the 2012 warrants as well as the common stock for franco nevada. I split it about 75% CS and 25% Warrants. As Franco increased their dividend 33%, I expect that to happen again in the coming year due to weakning of the USD, Strength in Gold, Oil and given the fact they already have a very ample cash balance. As for Silver Wheaton, I initiated the majority of my position from last Nov- Jan, making it unnecessary to increase what is already my largest holding. But that is a great strategy if you got into at higher prices or are looking to get in it now. I have been fairly active with warrants in First Majestic, ECU Silver, Great Basin Gold and others.
-Cheers


On Nov 16 08:01 PM dlweld wrote:

> Good article! I'm sure you know, but readers might not, that Franco
> Nevada has warrents available on the Toronto Stock exchange. One
> is the right to buy the stock for $32 CDN until Mar 13 2012 (2 yrs
> 4 mo) and the other is the right to buy at $75 CDN until Jun 16 2017
> (8 yrs 6mo). The stock right now is about $30, and the first warrent
> is 5.90 (all time value). If the stock gets to $45 (up 40%) anytime
> in the next 2 years the warrent will have a base value of $13 and
> probably some time value too. Seems like a dead cert double as a
> minimum and maybe a lot more. Any thoughts on this? Long FNV.wt and
> SLW.wt.b

Franco-Nevada: Building Up a Royalty War Chest

I have only one concern about Royal Gold, which is the potential hurdles they may face at Andacallo as its account for approx 25% of their NAV going forward. I'm sure it will be resolved, but any news regarding this stream could bring some volatility back into Royal Gold.


On Nov 16 08:52 AM MILESCFA wrote:

> RGLD is creeping up; however, the great thing for me is it does so
> slowly. You can sell 2+ mn straddles on it and collect a LOT in time
> premium! (Sh Don't tell anybody though)

Silver Unmasked

That's true, and oh boy could the hunt brothers have made an enormous profit had they liquidated their positions in time. But you can also take the record gold price back then $850 and use historical ratios to see what the range would have been w/o the impact of the hunt brothers. Using a 30-45:1 ratio, silver would have been somewhere between 19 - 28/oz.


On Oct 28 01:27 PM User 83584 wrote:

> Interesting article. The 'historical high' price of silver shouldn't
> be used for comparisons. Back in 79-80, the Hunt brothers tried
> to corner the world silver market. The price was driven up to around
> $50/oz. when they tried to cover their positions. This market was
> completely fabricated and not at all tied to supply-demand fundamentals.

Silver Unmasked

You're right on the money with your supply analysis. I think there will be a slingshot effect because of the following: The much lower supply relative to what the market is pricing in, which has been exacerbated by the fact base metal mining ( of which silver is a large bi-product) took a 1.5 year hiatus during the global economic crisis. When then industrial demand really kicks into high gear it will likely coincide with a dramatic increase in investment demand due to worldwide inflationary pressures, ( as the race to debase has nearly all major central banks participating) . I believe this dramatic rise in investment demand will persist for a prolonged period of time in response to individuals, central banks, economists, other , realize a fiat money system isn't sustainable.

-Silver Wheaton is my favorite and largest silver equity position as well


On Oct 29 08:37 AM swsprime wrote:

> An excellent summary, Hyper. I think Silver has been kept low because
> it must be seen to linger in the precious metals price frame with
> Gold - which is manipulated to bolster our fiat currency, the USD.
>
>
> According to my rough calculations we have NIL world stocks of Silver
> now if you subtract just a small percentage of the so called Silver
> ETF Physical stock, because I believe ETFs are not keeping the 100%
> physical Silver backing they promise, (the same bankers who manipulate
> the gold price 'hold' all the ETF physical silver - what a sad joke.)
>
>
> How can you see this?
>
> According to the Morgan Silver Report a post war high point of world
> silver holdings was 1989. In that year the world had 2200 million
> oz of silver. Since then the rising costs of mining the stuff and
> it's poor market price performance compared to Gold has reduced the
> amount of silver extracted from the ground and world stocks have
> declined.
>
> Between 1989 and 2005 silver holdings were on a virtual straight
> line decline of 125 million oz per year as industrial silver usage
> and jewelry production was not fully replaced by newly mined silver.
> The low point of world silver holdings was apparently 2005 when we
> held just 200 million oz of silver.
>
> Then from 2005 to 2009 the world's holdings of Silver suddenly 3x'd,
> and whereas we only had 200 million oz in 2005, we now appear to
> have 600 million oz. How come? Silver mining hasn't radically increased
> output, its’ declined. The price of silver hasn't skyrocketed so
> that everyone is turning their silver jewelry into scrap silver.
> Looking at the decline of stocks between 1989 and 2005 and projecting
> that decline to 2009 we should be sold out of the stuff! So where
> has all this silver come from? Is this truly Silver Manna from heaven?
>
>
> Well interestingly enough 2006 is when Silver ETF's started, promising
> they had all the Silver to back the new paper they were issuing to
> Silver ETF buyers.
>
> Let me see now, if I'm a marginal banker newly selling silver paper
> promises and I've got all these people buying my bits of paper saying
> IOU silver, do I really need to hold all that silver I'm writing
> paper for? In fiat money banking the bankers only need to hold 10%
> of the money they lend out because banks lend deposits to each other.
> Couldn’t ETF's lend deposits to each other, or better still, sell
> silver IOU paper to each other and then claim the other’s ETF IOU
> paper is physical silver stock??
>
> Need I say more?
>
> Silver Wheaton (SLW) is my preferred vehicle for Silver Investment.

Ten Stocks for the Next Ten Years

While your "Long Track Record Idea" has merit, you have to look at all the multinational companies ( large money center banks such at Citi ) or General Electric, to name a few. The track record is not nearly as important a question as "Can this company maintain and/or grow their dividend and payout ratios".
I believe I did mention some great dividend stocks such as pengrowth and Phillip Morris Int'l. BHP still sports a 2.5% dividend yield despite the stock price appreciation. BHP, being on of the largest commodity producers ( gold, silver, uranium, base metals, etc ) gives you both great exposure to growth in emerging markets, whose product prices will rise faster than inflation. BHP will ( and has ) resumed its record as being a free cash flow machine. The amount of free cash flow BHP generates will necessarily lead to a higher payout ratio, as operating cash flow can easily cover their capital requirements to continue operations and fund future growth ( such as the potash industry, which they recently decided to enter).

As for some of the others, Silver Wheaton will have to begin paying out their excess profits in order to retain their tax exempt status. They have also discussed their desire to do so, both at the Q2 conference call and the conference call discussing their most recent royalty purchase of Barrick's Pascua-Luma. If you believe Oil is headed higher, Suncor is also a great long term play as they have an enormous reserve base, courtesy of the Petro-Canada acquisition. Suncor has the reserve base ( due to the oil sands), to become one of the largest oil players in the world. Suncor will likely increase their payout ratio dramatically over the course of the next decade.


On Oct 31 11:20 PM bobbybutte wrote:

> Instead of these stocks pick solid dividend stocks with LONG track
> records of large cap multinationals if you want to hedge against
> a falling dollar and inflation

Ten Stocks for the Next Ten Years

I agree with price to free cash flows measure as the best multiple around, except maybe pre-tax return on tangible capital. But this is an emerging industry, so I think as far as the miners go, P/FCF doesn't paint an accurate picture. But I think gold will continue to rise over the years $2000+ and Silver around 35 or 40, thus givin silver Wheaton's business model ( not subject to rising input costs as they purchase every ounce at $4, with a 1% inflation adjustment) and the enormous 5 year cagr , this metric fails to take these into account. As far a PM, this is a great metric to use.
my two cents-


On Oct 28 01:47 AM Peter Mycroft Psaras wrote:

> I have analyzed your list to show how those companies are doing on
> Main Street. My key ratios for analysis are price to free cash flow
> (seekingalpha.com/symbo...) and Free Cash Flow Return on
> Invested Capital (seekingalpha.com/symbo...).
>
> When investing I look for PFCF below 15 times and FROIC above 20%+.
> When you are lucky enough to find a combination of the two you find
> a perfect balance of growth + value and you get capital appreciation
> through capital preservation.
>
> For those who don't know;
>
> PFCF =Market Price/ (Cash flow per share-Capital Spending per share)
>
>
> FROIC = FCF per share/ (long term debt per share + shareholders equity
> per share)
>
> FROIC basically tells you how much return in free cash flow a company
> generate for every dollar of Total Capital they employ.
>
> I consider FROIC the primary determining factor in identifying growth
> companies as you can compare every company (except financials) on
> an equal basis. The question I ask every company I analyze is = how
> much return (in percent) in FCF are you going to give me for every
> dollar of total capital you invest?
>
> As you will see I have analyzed your list from a FROIC point of view
> below (all using 2010 estimates);
>
> Silver Wheaton (seekingalpha.com/symbo...)
>
> FCF PS = $0.65
> TCAP PS = $4.12
> FROIC = 15.77%
> PRICE TO FCF = 19.88
>
> Suncor Energy (seekingalpha.com/symbo...)
>
> FCF PS = $-1.95
> TCAP PS = $17.46
> FROIC = -11.16%
> PRICE TO FCF = -17.90
>
>
>
> Phillip Morris Int'l (seekingalpha.com/symbo...)
>
> FCF PS = $3.65
> TCAP PS = $15.13
> FROIC = 24.12%
> PRICE TO FCF = 13.14
>
> Potash (seekingalpha.com/symbo...)
>
> FCF PS = $2.85
> TCAP PS = $42.81
> FROIC = 6.65%
> PRICE TO FCF = 34.10
>
> Coeur d'Alene Mines (seekingalpha.com/symbo...)
>
> FCF PS = $0.40
> TCAP PS = $32.94
> FROIC = 1.2%
> PRICE TO FCF = 54.98
>
> Jaguar Mining (seekingalpha.com/symbo...)
>
> FCF PS = $-0.15
> TCAP PS = $5.10
> FROIC = -2.9%
> PRICE TO FCF = -58.47
>
> Yamana (seekingalpha.com/symbo...)
>
> FCF PS = $0.46
> TCAP PS = $9.81
> FROIC = 4.69%
> PRICE TO FCF = 24.54
>
> Pengrowth (seekingalpha.com/symbo...)
>
> FCF PS = $1.25
> TCAP PS = $13.02
> FROIC = 9.60%
> PRICE TO FCF = 7.99
>
> BHP Billiton (seekingalpha.com/symbo...)
>
> FCF PS = $1.45
> TCAP PS = $20.92
> FROIC = 6.93%
> PRICE TO FCF = 48.63
>
> FROIC gives me a real return on Main Street and if I can get a 20%+
> return on Main Street and at the same time buy a stock that is selling
> for less than 15 times its FCF then there is a very high probability
> that it should be very successful investment.
>
> By choosing 20%+ as my minimum FROIC I have built a portfolio of
> 29 holdings for my clients that has a combined portfolio FROIC of
> 32% and sells as a group for 12.35 PFCF.
>
> As for PFCF I came up with the 15 or less number as being Ideal after
> performing a 58 year backtest. To view the backtest just click the
> link below.
>
> mycroftresearch.com/up...
>
>
>
> Disclosure = No Position in any of the stocks on this list
>
> The Fine Print: As Registered Investment Advisors, we see it as our
> responsibility to advise the following: We do not know your personal
> financial situation, so the information contained in this communiqué
> represents the opinions of Peter "Mycroft" Psaras, and should not
> be construed as personalized investment advice.
>
> It should not be assumed that investing in any securities we are
> investing in will always be profitable. We take our research seriously,
> we do our best to get it right, and we “eat our own cooking,” but
> we could be wrong, hence our full disclosure as to whether we own
> or are buying the investments we write about.