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  • Heavy Rare Earths in the discount rack - Dacha's Discount to NAV is Outrageous 0 comments
    Oct 14, 2011 3:05 PM | about stocks: GLD, SLV, CEF, PSLV, PHYS, PPLTIQ

    There are many different ways for investors to own, exchange-traded, physical metals.  The most widely owned are GLD and SLV.  Some others are Sprott's gold trust, PHYS, and silver trust, PSLV.  There is the Central Fund of Canada, CEF, which is roughly 50% gold, 50% silver.  There are also ETFs that allow you to own physical platinum, PPLT, and palladium, PALL.  There is even a trust that allows you to own Uranium (TSE:U).  And finally, there is also a company that allows you to own physical rare earths, Dacha Strategic Metals (DSM.v,  Dacha primarily owns terbium and dysprosium - 2 of the most rare and valuable of the "heavy" rare earths.

    An easy way to see how these trading vehicles are valued is to look at the net asset value (NYSE:NAV) - this is the value of physical metal that each share is "entitled" to.  So if the share price of GLD is 163, and the NAV is 160, then GLD would have a premium-to-NAV of 1.875%.  

    ( ( 163 / 160) * 100 ) - 100 = 1.875%

    If the share price was 155, then GLD would have a discount-to-NAV of -3.125%

    ( ( 155 / 160) * 100 ) - 100 = -3.125%

    Most of these stocks have a premium-to-NAV:

    PSLV        21.5% (intraday 10/14)
    PHYS        3.56% (intraday 10/14)
    CEF        1.4%    (end-of-day 10/13)
    PPLT        -0.02% (end-of-day 10/13)        -20.92%  (on 9/30 the NAV was CAD$ 7.17 and share price was 5.67)

    GLD & SLV are generally close to equality between NAV and share price.  I won't get into the debate on true ownership and whether some trading vehicles may have multiple owners making claims on the same bars.

    While certainly seems attractively priced.  Dacha is trading at a discount-to-NAV that I have never seen before: (see here)

    Based on 78.1 million shares outstanding, and the current CAD$ 0.67 per share, the discount-to-NAV would be -58.64%.

    Based on the fully diluted share count of 98.7 million shares, the discount would still be an unbelievable -51.09%.

    The company has begun share buybacks (see here under Normal Course Issuer Bid, and here), but at this level of discount-to-NAV, I am surprised management hasn't bought out the entire company.

    Disclosure: I am long OTCPK:DCHAF.

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