lance sjogren

Stick with Gold and the Oil Stocks

By the way:

Investing in small Canadian precious metals companies is a little more difficult than buying stocks listed on mainstream US exchanges.

Virtually all Canadian stocks have pink sheet versions that you can trade in a US account.

It is a little trickier to trade them because the pink sheet versions do not trade enough to have accurate bid and ask prices so you have to look at the bid and ask on the Canadian version of the stock, then convert that from CAD to USD, and then you can decide what limit price to buy or sell the pink sheet version (which trades in USD) at.

Another thing is that I found with some OLBs that the pink sheet stocks do not trade well, you sometimes wind up having to pay a premium, and sometimes the number of shares is so large you wind up paying higher commissions. I had these problems with Schwab and Fidelity but I have had great success trading these with TD Ameritrade, I think it is probably the Canadian connection of TD that allows them to smoothly trade these. In fact, I have always wondered whether when I trade the pink sheet versions with TD they may perhaps actually be trading the native Canadian version of the stock and then doing the translation to show it on my account as the pink sheet version.

At any rate, analysts sometimes caution about small precious metals stocks on pink sheets because of the lack of liquidity. I have found, however, that if you do it the right way you can trade these pretty close to as efficiently as you could the Canadian stocks themselves. Of course, you can also just trade the Canadian stocks on an Interactive Brokers or Etrade international account, although when I had an IB account I found it was so confusing to figure out buy and sell prices in USD to put on my tax forms that I wound up closing the account.

Stick with Gold and the Oil Stocks

amouna:

If you decide to go into junior gold stocks, here are some suggestions:

1). Eastmain Resources. A long-time favorite of mine. They have a > 1 million ounce deposit (known as "Eau Claire" or "Clearwater") of high grade gold in the vicinity of Goldcorp's Eleonore gold camp that is being developed. Recent drill results suggest that the resource may expand considerably. Market cap is about $80 million US and they have about $20 million CAD in cash which will last them at least 5 years.

2). Sabina Silver. They have a 200+ million ounce silver deposit, which also has zinc and copper. In total metals content it is pretty high grade ore and most can be open pit mined. The main drawback is that it is far north in Nunavut, Canada, and will require construction of a road and port. However, they just announced a deal to buy a gold project from Dundee Capital which is near Sabina's deposit. The gold project contains > 2 million ounces at about 10gpt. (that includes inferred resource). After this deal is completed I believe Sabina will have something like 125 million shares (including some shares to Dundee contingent on future developments), putting them at a market cap that I believe to be something like $80 million US. They paid some cash to Dundee but should still have about $25-30 million Canadian left in their coffers.

3). Comaplex minerals. They have around 2.5-3 million ounces of good grade gold in Nunavut, it is a remote area but should be able to leverage much of the infrastructure that Agnico Eagle develops for its Meadowbank gold project, Comamplex's Meliadine project is just a bit off the path from the port to Meadowbank. Comaplex's market cap is something like $120 million US or so.

Smaller juniors I like are Ontex, Rolling Rock, Golden Goose.

The one stock I own in a precious metals producer is Silvercorp, which has a low-cost silver mine in China.


Bottom line is my bets on precious metals are on companies (except for Silvercorp) that:

1). Are exploration-only companies, and appear to have the intent to sell their property when the time is right rather than trying to develop their own mine.

2). Have their precious metals deposits in Canada, about the most politically safe country for such assets.

3). Are selling at a value price per ounce of precious metals considering grade, size of deposit, and degree of proximity to infrastructure.

Stick with Gold and the Oil Stocks

"I wonder what the Feds can do to those who own gold miners?"


I doubt they will do anything to them. Roosevelt confiscated gold, but didn't confiscate gold stocks.

It is one thing to confiscate a commodity, it is a far bigger step to start confiscating people's stock. A couple of restraining factors in my view: 1). how do they decide what is and what is not a precious metals stock 2). Confiscating precious metals stocks would create huge ill in countries like Canada. We can't afford to alienate Canada, we are going to need their oil. (and when gas reaches $10 per gallon, you will no longer hear the Democrats thumbing their nose at environmentally dirty oil from tar sands)

Why I'm Not Buying Oil's Recent 'Correction'

Who needs Jack F. Kenney, we already have energy crackpots serving in congress.

Why I'm Not Buying Oil's Recent 'Correction'

"Now if it IS possible to use biomass, like fields of algae (?) to create oil somehow, that'd set the fuel industry on its ass. Or get the inventor killed by big oil."

So far biofuels are not a viable replacement for fossil fuels, however they probably can serve niche applications such as providing jet fuel for air travel for the rich (the only ones who will still be able to fly) plastics, military aircraft etc.

If plants can be engineered to convert solar energy a lot more efficiently, then biofuels may have a future as a large-scale energy supply. I am not aware of any even very preliminary achievements in that area so far, in fact I'm not sure there's even much research going on in it.

Otherwise, biofuels are way too inefficient, or, another way to put it, they take up too much land to be able to provide large-scale energy supplies.

Why I'm Not Buying Oil's Recent 'Correction'

"Anyway we are extrapolating into the future on a linear basis without taking into account the inevitable but unforeseen technological breakthroughs that change the world."

There are a lot of things to worry about as an investor, but I would say that is down at the bottom of the list.

If we're lucky we will be able to switch over to electric vehicles within 5-10 years. Add another 5-10 years for fleet switchover to account for the fact that people can't afford to throw away their $30,000 or whatever investment in an internal combustion car until they have used up its useful life.

But what about the unexpected tech breakthroughs that Dr. Bagel suggests? Yes I would say if you are investing on a 50 year time horizon that is something you want to concern yourself with. I am confident that oil & gas will be much in demand over the next 5-10 years.

In fact, I believe alternative energy will be GREAT for the oil & gas business because at most they will help hold down oil & gas prices to tolerable levels where the oil & gas companies will make good profits but will not be vulnerable to demagogic politicians calling for nationalization.

Why I'm Not Buying Oil's Recent 'Correction'

So demand may decline slightly? (very iffy considering China, etc., but let's humor him and assume this premise is valid)

What about supply? Supply is declining.

What about valuation? So what if energy stocks were wildly undervalued for many years. The question is are they good values now.

I would say when we are looking at PE's of 6-10, that yes we are.

In general those are based on conservative prices on oil & gas, not the recent high ones.