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RedChip's long history of success includes the first to issue independent research coverage on Starbucks in 1992. Other names RedChip discovered as they were on the cusp of becoming Blue-Chip stocks were: Nike™, MarketWatch.com™, Daktronics™. Over the years, RedChip has evolved into a... More
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  • Time To Invest In Gold Mining Stocks 2 comments
    May 30, 2012 4:20 PM

    Gold mining stocks are trading at record lows relative to gold prices. Extreme lows of this nature have only occurred 5 times in the past 100 years. According to Barron's, this could mean a buying opportunity for investors.

    Although gold is down from its September high of $1,920, it's still up nearly 140% over the past five years. According to a recent Morgan Stanley report, "the fundamental factors that have driven the gold bull market of late remain very much in place." Gold prices are expected to increase in 2012 due to the ongoing European debt crisis and the sluggish U.S. economic recovery.

    Longer-term, even greater forces are anticipated to drive gold prices to new highs. Standard Chartered Bank estimates that per capita income in China and India will reach 30% of the U.S. level over the next two decades, which should cause gold prices to rally "up to $4,869 per ounce by 2020, should current relationships between Asian demand and gold persist." As the price of gold goes up, mining companies that have entered production could see their share price rise along with their profits.

    One such company is Pan American Goldfields (OTCBB: MXOM), a Canadian mining company that's generating revenue from pilot production at its Cieneguita mine in Mexico's Sierra Madre region. The Cieneguita mine contains an estimated 1.1 million oz. gold equivalent, or 474,900 oz. gold and 33.5 million oz. silver.

    A preliminary economic assessment is underway for the Cieneguita project, setting the stage for a much larger mining operation. The PEA is expected to establish the viability of operating at a rate of approximately 100,000 gold eq. ounces per year, with the potential to generate a net profit of nearly $88 million to MXOM annually.

    MXOM is also advancing the Cerro Delta gold project on the border of Chile and Argentina. The Cerro Delta is on the same structure as, and is geologically similar to one of the largest undeveloped gold deposits in the world: the Barrick-Kinross 23.2-million-ounce-gold Cerro Casale porphyry deposit, located 12 miles west.

    MXOM is led by an experienced management team that includes Hernan Cellorio, the former president of Barrick Argentina. The Company's Chairman, Neil Maedel, is an international financier with years of experience in the resource industry. You can watch an exclusive interview with Mr. Maedel from the recent RedChip Small-Cap New York Conference, where he delivered a corporate presentation on MXOM. The interview and presentation are available on our conference page.

    Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.

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  • Mad Hedge Fund Trader
    , contributor
    Comments (4963) | Send Message
     
    I don’t want to touch gold (GLD) or silver now. The barbarous relic is clearly trying to base at $1,500 an ounce. If it fails, it will probably only go down to only $1,450 before major Asian central bank buying kicks in. Better to admire it from afar, or limit your activity to early Christmas shopping for your significant other. We are months away from the next major rally in the yellow metal.
    -
    Mad Hedge Fund Trader
    1 Jun 2012, 10:25 PM Reply Like
  • Mad Hedge Fund Trader
    , contributor
    Comments (4963) | Send Message
     
    Gold has clearly evolved into a call option on global quantitative easing. Don’t think of it just as the stuff your dentist puts in your teeth or the thing your girlfriends gets you to wrap around her finger anymore. I don’t think that the Federal Reserve will implement QE3 at its September 16-17 meeting, or even next year. This shocking realization will be bad for gold prices.

     

    However, Europe is a completely different kettle of fish. Having just spent two months there, I can tell you with great certainty that the economic conditions are far more extreme than any economic data releases are indicating so far.

     

    So the ECB has to launch its own QE through a second tranche of the LTRO or some other vehicle of at least €500 billion – €1 trillion. While most of this money will be used to buy high yield European sovereign bonds, some will spill over into the gold market, and that will be good for prices.

     

    I can’t tell you how bad things are in Italy. I just visited the main middle class shopping district in Milan. The sales were offering discounts of 70%, 80%, and 90%. They were literally throwing inventory out the door. I’m talking pants for $5 and overcoats for $25. I ended up buying four suitcases, those at 50% off, and filing them up with clothes for everyone I know. I got clothes for the kids, cloths for distant relatives, even clothes for people I don’t like. And it barely made a dent on my credit card.

     

    The attraction of the September, 2012 $148-$151 call structure is the following. The $151 strike is just below rock solid support for gold that has held for several months. The September expiration allows us to take out 90% of the profit before the Fed gives us the bad news on no QE3 next month. Gold could well keep moving sideways until then, which is why I am not rushing out and buying out-of-the-money calls. This all happens going into the traditional seasonal strength of the Indian wedding season, Christmas in the West, and the Chinese Lunar New Year.

     

    By leveraging up an out of the money call spread in a limited risk position, I get an outsized return. This is a bet that gold will move up, sideways, or down no more than 3% over the next four weeks. If this happens, the call spread will rise in value from $2.42 to $3.00, a gain of 24%. This is why I went for a heavy 10% weighting. .

     

    The Mad Hedge Fund Trader
    16 Aug 2012, 11:56 PM Reply Like
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