Don't - don't - don't believe the hype!

Earlier this month I drove down to Brussels, Belgium, to buy some Krugerrands. I could have bought them in my home country, The Netherlands, but I found the premiums at local dealers outrageous. In Brussels, I found a dealer that only asked a couple of euros above the spot price, which came down to a 1.5% premium. At that time, it was already surprising that at every local dealer, premiums were over 5% for 1oz Krugerrands. And taking a day off from work, spending a full day travelling to Brussels, a distance of 220kms (about 135 miles), and EUR 60 on fuel was certainly worth the difference.

Now, with the spot price in euros pretty much similar to the price at the time I bought the coins, the Krugerrands can only be bought at crazy premiums on top of the spot price. Now, at my favourite dealer in Brussels, the bid price is even higher than the spot price.

According to Bloomberg, the reason for that is that Rand Refinery, the producer of Krugerrands, just received a Swiss order for Krugerrands of an abnormal size. It now appears that no Krugerrands will be available at Rand Refinery until the 3rd of September.

I went to Rand Refinery's website and saw that the premiums charged for large amounts (50+) 1oz Krugerrands went upto 5%! And that will get a retail margin on top of it.

The trend we are now seeing is that there is a clear decoupling of physical gold prices and paper gold prices. Whilst it is suspected that large financials are selling their gold, demand for physical gold remains high and is even increasing at current prices. This results in rising premiums and many times in dealers having to refuse coin sales. A simple google search will lead you to websites of many bullion dealers around the world, where you can check what the difference is between bid & ask. Spreads have become enormous and at many websites, you will see that stocks are depleted. The situation with silver is quite similar or possibly even worse.

So, in other words, if you read about the metals boom/bust-scenarios and about the gold price targets that most analysts have suddenly reduced to well-below $700, stop worrying. Don't take any risks and buy physical gold or silver, rather than paper. We're approaching times when almost anyone will want to buy your coins or bars. And let's not forget that mining companies do not produce paper gold. This means that that at some stage we will have to include the current premiums that are charged for physical gold into the valuations of the already undervalued mining sector.

Junior miners: market manipulation or just underperformers?

The precious metals rally that ended in May 2006 was a very good time for almost any investment in mining, whether it was the AMEX Gold Bugs Index (HUI),the Philadelphia Gold and Silver Sector Index (XAU) or junior mining companies. But after that rally, something changed. After the spot gold price reached $730 in May 2006, there was a correction period that was followed by a rally to $1,030. Another correction followed and the gold price seems to near a bottom at the current levels around $900, still up roughly 24% from its May 2006 high.
The HUI-index has now fallen to a level just below the May 2006 high at 390. The XAU Index also seems to flirt with the support level around 160, which once again corresponds with the highest level reached in May 2006. The fact that these indices underperformed the precious metals price by more than 20% is already pretty shocking, but the picture becomes even darker when studying junior miners. The benchmark indices for Junior Mining companies, the FSO Index (see www.financialsense.com) which consists of 40 junior mining companies, is down almost 30% from its May 2006 high! Charts from Frank Barbera on a.m. website even show that the FSO/XAU ratio actually more than halved since the first quarter of 2007.
But what causes this severe underperformance of junior miners compared with large caps and with precious metals prices in particular? Some say that market manipulation is to blame. Market manipulation is one of those terms that always appears when precious metals or related stocks perform badly. The question is whether market manipulation is really that unrealistic. Let's take a closer look at some mining funds in Nunavut Territory in the North of Canada.
Nunavut was established in 1999 and is thereby the youngest Canadian province. Nunavut Territory is extremely rich in natural resources and as such offers great potential for various industries, including mining, fishing and tourism. As soon as precious metals prices started to rise, the (junior) miners in Nunavut saw their share prices rise along with the precious metals rally. Some of the companies that benefited were Cumberland Resources, Miramar Mining and WMC Resources.
One thing that those four Nunavut-plays have in common is that they were all taken over by large cap mining companies, that continue to look for Nunavut miners. In 2005, shareholders of Australian mining company WMC Resources had two potential buyers outbidding eachother. Eventually, the winning bid was made by BHP Billiton at A$7.85 per share, significantly higher than Xstrata's A$7.00 per share offer. This was a significant premium over the A$5.00 share price before the battle started. UBS Securities however rated the company in a valuation range of well over A$10 per share.
Cumberland Resources was acquired by Agnico-Eagle Mines in 2007 and did well. The company's shareholders received $7.48, roughly a 25% premium over the share price before the acquisition was announced. Shareholders who bought their shares two years prior to the deal would have easily made 400% return on investment.
Miramar Mining was bought by Newmont Mining this year for C$6.25 per share or a 23% premium over the price before the announcement. Those who bought Miramar shares two years prior to the deal made 84%, still not bad, but certainly a good deal for the buyer.
All above-mentioned deals may be 'good deals' for the buyer, but they are certainly not bad deals for the sellers. This is a situation that could now easily change. With junior mining shares having hit rock bottom, a 50% premium is still hardly something to cheer about for investors who saw their shares drop more than 50%.
Some of the Nunavut miners that are still independent seem almost guaranteed takeover targets, but the question is whether it's really worth it. Some deals outside Nunavut show a pretty scary picture. For instance, Aurelian Resources received sell recommendations with a price targets as low as C$1.40 in addition to a tsunami of negative rumours about Ecuadorian Government's mining laws. You have to ask yourself why all the bad news and downgrades are not affecting Kinross Gold Corp's judgment of Aurelian (still considered attractive at a share price well over C$8). The latest rumour is the Ecuadorian Government possibly bidding for Aurelian, which is the reason why the share price is still well-below the offer. This scenario is just another way to scare off investors, quite similar to news coverage of the the Venezuelan mining laws affecting Gold Reserve and Crystallex. So far, it's all rumours and one has to wonder whether these countries are really going to create a tremendous job loss and harm relations with any foreign company operating locally, or whether it's all one big Jim Cramer-esque conspiracy.
Geopolitical risks however do not apply to the Nunavut miners, but market manipulation may be as applicable to junior miners as it is to the producing miners in 'less politically-stable" countries. Fact of the matter is that takeover candidates are no longer by definition the desired stocks to hold. One of those takeover candidates is the junior (partly-)Nunavut play Trade Winds Ventures.
Trade Winds Ventures had a high in 2004 of C$1.65. It then fell back to the current five-year low of C$0.13. And what's really changed since then? Momentum, that's really all I can think of. In their Detour Lake project (Ontario) alone, they have 800K ounces of indicated resources and 1.5M ounces of inferred resources. In addition to that, Trade Winds have projects in Nunavut, China and in B.C. The company has an institutional share holder base, C$2.8M cash and has a market cap of only C$10M!
And this is just one example of a ridiculously cheap junior miner. There are so many players out there with ridiculous market capitalisations. The only thing you have to accept is that there is no guarantee that your investment will go down further in the short term. Whatever you do, don't sell. In the long run, the true value of these companies will emerge. For now, all we can do is hope that no one will take them over at a 30% or even 50% premium, for there is so much more potential in these junior miners. As for my disclosure: I hold no shares in Trade Winds Ventures, but I will buy on Tuesday the 5th as soon as Canada is open again.
Good luck to all.

Time to start shopping again...?

I am sure that the past weeks have been disastrous for many investors as very few had seen this drop (and its timing) in the stock markets coming. Even those who did saw it coming may not have expected it to be this fierce. I think I may include myself in that last category. With the lion share of my portfolio invested in American stocks and a long gold position, this week has certainly been one that I do not wish to experience a second time. My long position in gold has been liquidated and I was too early to close my short position on the Dutch AEX index, which generally follows the US indices.
Now is the time to sit and think about what steps to take. Do I sell my shares, waiting for further drops? Do I move extra money into my trading account? Do I sit and wait until the bottom is there, knowing that current valuations are ludicrously low? This is probably a choice that many private investors are now thinking of and their decision partly determines the future course of the markets.
Let's have a look at the signs that we're getting. The move that we've seen since the year-highs was fiercely downward, then sideways, then fiercely downward again. Corrections like these are never ended with a sideways move. They always end after a last fierce sell-off, followed by a quick rise. The first downward move was mainly caused by financials that were (or were not) affected by the subprime woes. The second downward move, the one that we're in now, is not caused by financials - even though all newspapers, television stations and websites will tell you that investors are selling on subprime fears. And the financial sector is the only one that is going up again! The main sectors that are now hit are services, basic materials and to a lesser extent the energy sector. These are the sectors that had not yet had serious sell-offs and investors are now simply taking profits, based on fear or emotions if you like. In addition to that, the carry trade has its effect as well, which has affected precious metals prices as well.
All this means that you're now able to buy dividend cannons like Southern Copper at a p/e below 10, a growth company like Companhia Vale at a p/e of 9 and Freeport-McMoran at a p/e of 8.4. And these are not companies that have performed badly so far this year! This Thursday's sell-offs also mean that telecom stocks are reasonably priced again, even though this is not one of my favourite sectors. It means you can buy Apple at $112, where hardly anything's changed since everyone wanted the stock at $140. (I personally continue to think that it's crazy to pay over 30 x earnings for any company, unless it's a junior company with great prospects, but I seem to be the only one)
All I can say is that today we are one step closer to a turnaround, which doesn't necessarily mean that 12500 was the bottom for the Dow. There may be a further drop, but I am pretty confident that we will not see a drop as fierce as the one we've seen this Thursday. Profit has now been taken in the sectors that are fundamentally the strongest sectors and these best-performing sectors are the last ones to get hit.
From this I can conclude that the bottom is near. I will therefore not sell any of my stocks and wait for better times to come, however painful this may be. The only thing one can do is write some calls or buy some puts, just in case we haven't seen the bottom yet. I still think the precious metals are the sector to be in and especially gold. I will therefore look for a new long position in gold, once again with a stoploss. To all investors who felt the way I felt this week, hold on tight, start shopping again, but whatever you do, don't be the last one selling. After all the economy can't be that bad, because my fiancee's still out there shopping for shoes as if nothing changed this week...
Disclaimer: The author has no position in any of the above-mentioned stocks.

Long gold again with $700 coming close?

After this month's changes in my mining portfolio, I have now decided that it's the right time to invest in precious metals again. I already bought (speculatively) DRDGold at $0.78 and after the 10:1 reverse split, the stock kept going down. I consider $6.50 a critical level and decided to sell once that level was broken. At $6.42 my sell order was executed, while the stock ended above $6.50 again. I am still quite convinced that DRDGold will manage to get its act together, but I am also certain that it is not the best stock for short term profits. Instead, I took a long position in gold at $662, knowing that there should be some support at $660 (being 61.8% retracement level), which was successfully tested and spot gold moved up to $665 today. Should gold move below $660, there is a high likelihood of a full retracement to $640 which for me would be a very bearish sign and possibly a reason to liquidate all my positions in precious metals and certainly a reason to reduce the mining share in my portfolio. But, being the positive-minded chap that I am, I added a position in Taseko Mines Limited (TGB). I actually bought back shares in TGB. Previously, I bought TGB at $2.30 and sold at minor profits as there was little news to move the stock up. Now the situation is a lot more fruitful. The company is one of the very few AMEX-listed precious metals miners that actually makes money. Taseko has successfully positioned itself as a copper & gold miner and has a good cash position with a positive cashflow. Taseko's Prosperity and Harmony mines alone should account for some 7.5 mio ounces of proven & probable gold reserves, which already makes the company's USD 600M market capitalisation look reasonable. Add to that the company's young & producing Gibraltar copper mine and you have a clearly undervalued stock, despite its recent rise. This stock will go through the roofs in two or three years from now as the Prosperity mine will get closer to production. I think we have a winner.
The author bought TGB at $4.60 and closed his position in DROOD at $6.42.

Portfolio shake-up

The past months I have been busy trying to diversify to a certain degree. This was highly necessary as a great part of my portfolio was in mining stocks. I usually do not buy the very risky junior miners - which does lower my risk profile - but having to great a share in mining makes your portfolio very volatile. I sold Yamana Gold earlier this month at USD 12.65 as the technical picture started to become a bit more cloudy. This was followed by the announcement of a proposed threeway deal with Northern Orion and Meridian Gold, which made the stock drop to the lowest close of this year at USD 11.12. Among my current mining favourites are still Endeavour Silver Corp and uranium miner Uranerz. These will stay in my portfolio, whilst other miners I may sell off in the coming months. Aurizon Mines (AZK) may be added to this. I sold AZK last week at $3.90 as I expected there to be some resistance around that level. I might buy back at a later stage. I sold EGO last week at $4.80. To replace these miners, I am specifically looking out for alternative energy stocks. One of my favourites is still the slugglishly moving Evergreen Solar, which I believe is suffering from a temporary correction in a multi-year uptrend to be followed by a higher peak - well past the previous high of USD 17.50. I bought this stock in February of this year around current levels. Before that, I benefited of the 2005/2006 uptrend from USD 8.60 to USD 15.00. Even though this month I sold Beacon Power Corp at USD 1.50 (bought at USD 0.89), it is certainly not my idea to all of a sudden neglect this stock. I was purely safeguarding some profits and plan to get on the Beacon train again at lower levels. The excitement surrounding Beacon Power Corp is triggered by growing interest for the company's flywheel technology, which I believe will further grow from this point. However, the current hype cannot be argumented by numbers. Beacon Power is still not making any money and therefore any gains are purely based on prophecies. I do believe in this company, but it will take some time until earnings reports can justify a USD 1.50 share price. I will continue to keep an eye on the technical picture and will buy when much of the excitement has evaporated. At the same time, I am looking at Fuelcell; a company that produces fuel cell power plants that are ideal for the replacement of 'dirty energy' and thereby help reduce emissions. With a number of customers ranging from hospitals and universities to utility companies and manufacturing plants, the fuelcell technology is gaining popularity across industries. To come back to the mining industry, I added DRD Gold (now changed into ticker code DROOD) at $0.78 because of improving technical indicators. DRD Gold remains a very uncertain share to invest in. I see it purely as a speculative buy and I watch the technical indicators very closely to determine whether to buy or to sell. Investors seem to be a bit cautious because of the management change. Looking at the first quarter, the main issue for DRD is that the reserves are there, but the production is not. There have been too many hiccups in the past few years and even this first quarter showed a drop in production, both in Australasian and South African mining operations. On the positive side, I consider the Argonaut project to certainly have very high potential. A positive response to the Prospecting Right Application of the company's Argonaut project may be applauded. Once again, I still consider this stock a speculative one. Not a good basis for a stable portfolio but like my earlier purchases of GRZ and KRY, speculative buys are not always bad buys! Finally, with regard to the indices, I am currently short AEX and short S&P. 1520 will be a critical level for the S&P as will 550 for the AEX. Later this year, I plan to move some of my investments from North America to Europe as I see better growth prospects for European companies. The author holds long positions in EXK, URZ, ESLR and DROOD at the time of writing.

Eldorado Gold sees Turkish mine shut down

It came to me as a complete shock, seeing one of my favourite mines down 30% on Thursday. A Turkish court had apparently ordered the shut down of Eldorado Gold's cash cow, the Kisladag mine, responsible for 60% of the company's gold production in 2006. According to Eldorado, the final decision by the court is still pending "on the appeal of a lower court order in favour of the company confirming the legality and validity of the Mine's Environmental Impact Assessment". The closure will be implemented in about 30 days. To clarify things, the company planned a conference call on Thursday evening and I was all ears. During the conference call, CEO Paul Wright was talking of a group of people whose only interest was to discourage mining in the country. He did not know the name of that group and he did not go into details on the specificalities of the court case. Last year, there was a problem with cyanide poisoning of villagers, which means that high levels of cyanide were found in villagers' blood. This was a result of the sodium cyanide heap leach method that was used by Eldorado during trial production and that presumably has been used until now. From what I found, the Environment Impact Assessment was initially accepted in 2003, but was later found incorrect by doctors and scientists and challenged in court by villagers, combined through a group called "Elele" (hand in hand). In addition to the cyanide poisoning, there were also reports of levels of arsenic in local drinking water. I can imagine if this all has been proven correct, that there are serious issues. Unfortunately, nothing was said about all this during the call. Problems with people opposing to the use of cyanide in the Kisladag region have been known since 1999, at the company did exploratory work. The first mining company that used cyanide in Turkey was Newmont Mining at its Ovacik mine in 2001. The mine was sold in 2005 to Turkish printing and mining company Koza Davetiye. The reason then given for the sale was the divestment of non-core assets. However, the Ovacik mine was - like the Kisladag mine - given bad publicity by Greenpeace and fought by locals in court, despite the company's approvals from Turkish Government. It sounds to me that this may be the start of something bad. According to Eldorado Gold's CEO, the decision that has been made was not supported by legal proof. But opposition against the use of cyanide in the local mining industry is clearly nothing new in Turkey. Maybe Newmont was not to keen on bad publicity either? I am however forced to review my position in Eldorado as the bad publicity is certainly not going to do the company any good and these environmental issues are usually not solved overnight.
At the time of writing, the author had a long position in the above-mentioned stock.

Two weeks of absence...

Tonight I will be travelling to Asia for business and I will be away for two weeks. Chances that I will be able to find the time to post some words are minimal and therefore you are likely to see two weeks of silence. However, I will be back in time to provide you with an end of March update on my favourite stock picks, my 'green picks' and my 'mining picks'. Knowing that I might not always be able to trade in the coming two weeks, I had to rearrange my portfolio a little bit. As such, I sold Euro Ressources at a loss (1.05 (1.23)) and Yamana Gold at a profit (14.35 (9.78)). I bought BCON at $0.89, URZ at $4.48, ELR at $9.73, ORM.IE at EUR 0.185 and RNO at $3.27. I kept all my other mines in my portfolio as well as my long position in gold with an automated stoploss at $624. This might seem somewhat risky, but I am confident that gold has bottomed and that from here the direction will be upward. One thing you might have noticed is that I am adding alternative energy stocks to my portfolio. I was a previous holder of ESLR and I am still a great fan of this solar energy company. Thankfully, I sold at $15 previously and had the chance to get in at a much lower price. I expect the previous high to be taken out in 2007, but more about this when I return. Till we meet again!

Markets plunge; metals join in on the fun

It is now 11pm Amsterdam time and what we have whitnessed today is not something we see every day. I bought two puts on the Dutch AEX index on Friday and sold them today, after which I bought one single put 490 (March series) later on the day at a lower price: Eur 1.85. Certainy not a big investment, but then I do not hold an impressive track record with options. I therefore tend to be very careful when trading with options. Closing price of my put was Eur 3.40 with an AEX some ten points below yesterday's close. After European equity markets closed, we whitnessed the American indices being slaughtered, taking commodities along. I got worried about my mining stocks as the mining sector is among the hardest hit of all sectors today. Thankfully, someone posted some comments by Jim Sinclair, who had already said the following - one day before this slaughterfest: "At first the equity market breaks would bring in temporary sellers of gold. However, quite quickly thereafter and most certainly when the US Dollar also gets hit, gold will steady and start its move to all the Angels." Thanks for those words of hope and wisdom, Mr Jim Sinclair. As for tomorrow, I will watch the indices closely and I will specifically watch the RSI level of the AEX, which will be critical. If the RSI in the daychart breaks through 40, we are seeing a bull market turn into a bear market. Good luck to all and don't panic.

Enter DRDGold, Exit Gold Reserve

The past few months have been very good for my portfolio. With a ROI of 62% since September, it's certainly been the best five months ever. But the months from April until September were not particularly good, which has once again taught me a lesson about the importance of timing - even in a secular bull market. Today, I decided to sell GRZ at $4.87 (purchased at $4.05; it is still in my list of stock picks for the long run) and use the money to benefit from the improved technical picture of DROOY. In addition to the technical picture, the fudamental picture looks brighter, too. DRDGold subsidiary Emperor Mines announced on Friday that it saw a significant increase in its mineral reserves at its Porgera Mine. A statement on the update of DRD Gold's reserves can be expected in the near future. As far as I can see, this is the first significantly positive news in years after having seen the stock plummet to a price below one Dollar. I added DROOY todat at $0.87. Price target remains $1.10 for 2007, which I hope to see in the first quarter of 2007 on rising metals prices.

Brazilian mining giant CVRD still undervalued

Companhia Vale do Rio Doce (CVRD) is one of the big three in iron ore and, together with BHP Biliton and Rio Tinto, makes up about 70% of global iron ore exports. The Brazilian mining giant is a little less diversified than its counterparts, but through last year's takeover of Canadian nickel miner Inco the company has actually become a more attractive player in the sector. Not much needs to be said about this company: turnover rose from 225% from 2001 to 2005, whilst net income went op 276%. EPS growth has been really impressive until today and this is not expected to change with metals prices currently booming. Being a firm believer in a metals boom, I expect prices for all metals to go higher and earnings growth should therefore continue to be admirable. A further diversification won't hurt either. Part of the company's strategy is to invest in aluminium, copper, nickel & coal, whilst at the same time aiming to grow its logistics business. With expected 2007 earnings per share of around US$3.60, CVRD now trades at a fwd p/e of 10. Keeping in mind that the mining craze will add fuel to the valuations of companies throughout the global mining sector, p/e ratios of 15 would still be modest for 2007. This means that a price target for 2007 of US$55 is -in my humble opinion- certainly realistic. This leaves a 50% upside potential for CVRD from its current price of US$35.90. CVRD will therefore be added to my list of stock picks.

Venezuela miners up as gold gains momentum

The column I wrote last month on GRZ and KRY seems well-timed. Both mining companies with a great exposure to Venezuelan political influences, have seen their share prices drop very rapidly in 2006, after having performed relatively well in the first four months of 2006. Now that gold is busy breaking through its old resistance at $660, cheap mining companies seem to attract some interested investors again. Gold Reserve Inc (GRZ) has gained more than 50% since its low on 29 January. Not surprisingly, Crystallex International Corp (KRY) took a bit longer to get moving. In the end, GRZ was much cheaper than KRY at the time of my previous writing and as expected, the gains that GRZ has booked are much more substantial. However, it needs to be mentioned that there is still no update on the Government of Venezuela regarding the issuance of mining permits to foreign companies. This means that the recent gains in both stock prices are mostly due to a rising gold price and can partly be attributed to the stocks simply being undervalued. The permits are still pending, but fact is that the Government of Venezuela does not have enough know-how to completely take over operations from foreign mining companies. Knowing this and knowing that the permits are said to be in the administrative phase (and therefore the last phase), investors shouldn't have to wait too long until gains start to reach triple digit figures.

Disclosure: Joey Keasberry currently holds a long position in GRZ.

DRDGold: Time to take a chance

A little while ago, I wrote a column on DRDGold and mentioned that I put DRDGold on my watchlist. Main reason for this was that the South African mining company had seen so much going wrong in one year, that it had to turn at a certain moment. All production halts and small disasters should now be priced into the stock and I am therefore writing a couple more lines now. Basically, I feel that DRDGold has almost bottomed out now and a chance can be taken to buy at the current prince of USD 0.83. There is quite a lot of support around USD 0.75 and stoplosses can therefore be placed below that level. In my opinion, it is just a matter of time until better news arrives and the technical picture looks sound enough to buy. Speculative buy with a price target of USD 1.10 in the first half of 2007.

Two speculative gold plays

Within the mining industry as well as in the oil & gas industry, geopolitical risks are becoming more and more influential on share prices. This became quite clear this week when Chavez mentioned in a speech that all that was once privatised should be nationalised again. He specifically mentioned his desire to re-nationalise CANTV (Compañia Anonima Nacional Telefonos de Venezuela). The share price (NYSE:VNT) plunged as a result and took many other funds with it. Among these were certain mining funds that have at least part of their operations in Venezuela, including Crystallex International Corp (AMEX:KRY) and Gold Reserve Inc. (AMEX:GRZ). The risk in the mining sector was already priced into these two companies' shares last year when GRZ dropped from its April peak of USD 9.58 to USD 3.96 two months later. The same happened with KRY, which fell from USD 6.07 to USD 2.84, also in two months' time. Not helped by gold moving sideways for a period of eight months since its April peak, both stocks are now not far from where they were in June last year. The problem is clearly not their reserves. Both companies share prices are way too low if you take all proven & probable reserves into account. For only one reason: geopolitical fears. Crystallex issuing a press release to eliminate investor fears after Chavez' speech this week did not help the share price and was completely ignored. The Government of Venezuela has previously even confirmed that the present contract will be honoured by both parties, i.e. Chavez & Crystallex. The financial world now seems to neglect the 13.6 mio ounces of proven & probable reserves that Crystallex holds. With a market capitalisation of USD 785 mio, the market cap per ounce ration lies at USD 58. For comparison's sake, this is less than one tenth of that of Kinross Gold (NYSE:KGC) and Bema (NYSE:BGO). Gold Reserve has an estimated 10.1 mio ounces of gold and 1,290 mio ounces of copper at its major project Las Brisas in Venezuela, which means that it has an even more ridiculous market capitalisation per ounce of USD 11.30! And even though GRZ has a similar agreement with the Venezuelan Government, this too was ignored by investors. Then there is also a bilateral treaty that offers some protection to Canadian companies in case of nationalisations. So all and all, we can say that the risks are to a great extent priced into the stocks and there is a great possibility that the stocks moved down too much on the news and that fears have been overrated. Would, in my humble opinion, these companies have had all their operations in politically stable countries, both share prices would have been at least 300% higher based on their reserves. It's a simple calculation. The only thing to rate is the risk and will always be a subjective rating. But the potential rewards certainly outweigh the risks and I therefore recommend both stocks as buy candidates. My preference however goes to Gold Reserve Inc for a number of reasons, of which the market capitalisation per ounce is the most obvious one. Do however still keep the risk in mind and therefore consider this a speculative buy. I would set price targets for this year at USD 6 for Crystallex and at USD 12 for Gold Reserve Inc.

Silver: the chance of a lifetime

Lately, we've seen precious metals take a serious dive. The start of the year has certainly not been good for those who have put their money in mining companies, including the undersigned. Gold looked destined to surpass its previous peak at USD 650, but failed to do so and lost 6%. Its usually more volatile 'little brother' silver had showed a sluggish performance since early December and has now lost another 9% since the start of 2007. Knowing that silver is widely expected to be the best performing metal in the coming years -simply based on the laws of supply & demand- I myself have been looking to diversify and invest part of my money in this metal. Let's have a look at the below chart: This chart is the price of one oz of gold divided by the price of one oz of silver. What the chart shows is that around 1 December at USD 150 and with the RSI showing that silver was overbought compared to gold, the latter was the better option to buy. However, now we are at a stage where the RSI has fallen below 40, showing a good chance to buy silver. The same happened early October, when silver started to move up from USD 10.80 to USD 14! Silver itself looks quite good as well with the RSI showing a slight oversold status in the March 07 future chart. To summarise: silver has stayed behind gold since early December and silver itself currently shows an oversold status. Hence, enough reasons for me to take a long position in silver today at USD 12.05.

DRD Gold's stockpiles of misfortune

DRDGold Limited, a once very succesful South African mining company which had a share price peak of USD 50 in 1980, might need some four leaf clovers. Today's announcement that the company will restructure its 79%-held subsidiary Emperor Mines after the Australian company shut its Vatukoula gold mine in Fiji, saying it was no longer economically viable to continue operations, was certainly not the first bad sign this year. A fire at its South African Blijvooruitzicht gold mine led the company to halt production, leaving investors worried. Just prior to that, investors swallowed news on a gold production halt at Tolukuma, the Papua New Guinea mine wholly-owned by DRDGold's 79% subsidiary Emperor Mines. In addition to that, there is the uncertainty regarding a new successor for soon to retire CEO Mark Wellesley-Wood as it is a well-known fact that investors are generally not too keen on management instability. All this has led the share price to drop 35% this year and almost 25% in the last month. In the 2006 financial year gold output of its Vatukoula mine decreased by 81% as all sections of the mine were temporarily closed. The Fiji mine was to contribute practically one third (!) to the 2007 output target of the company's subsidiary Emperor Gold. On a more positive note, most of DRDGold's restructuring costs have been made, leading the company to drastically narrow its losses in FY2006. But one should wonder what is left of its new strategy to focus more on its Australasian mines, which leaves only a 20% stake in the Porgera joint-venture and its fully-owned Tolukuma gold mine, both located in Papua New-Guinea. There is certainly a lesson to learn here: investing in mining companies knows many risks other than geopolitical risks or price fluctuations in metals. But it must be said that with so much misfortune, there aren't many risks left for DRDGold. With a share price below one US Dollar (NASDAQ:DROOY), we can only wait until better news comes. For the moment, this is certainly a stock that needs to bottom out, but things can really only get better from here. And that... is the reason for me to start putting this stock on my watchlist as of today. Update: This post has also been supplied as a column in Dutch to edelmetaal-info.

Paddy miners: a comparison

Compared to the Canadian and American stock exchanges, there aren't many mining companies listed in Europe and those that we tend to find easily, are not always very promising. But today, I want to shed my light upon three Irish mining pennystock companies: Ovoca Gold PLC (ISE:OVGL), Ormonde Mining PLC (ISE:ORQ) and Kenmare Resources PLC (ISE:KMR). All three also have a London listing. A small comparison:

• First of all, those that are averse to taking any political risks might choose for ORQ, which has all of its mines located in Spain. Au contraire, OVGL has great exposure to Russia and KMR to politically unsafe Mozambique.
• Metals-wise, there are also differences. KMR considers the Moma Titanium Minerals project its main asset. OVGL is mainly active in silver through what is said to potentially be the world's highest grade silver mine: Goltsovoye in Northeast Russia. In addition to that, its Kola Peninsula Exploration projects have gold, copper and molybdenum prospects. ORQ mainly operates gold mines in Spain, but also has prospects for copper, silver, tungsten and antimony (increasingly being used in the semiconductor industry) and recently found zinc at its La Zarza project.
• Not unimportantly, when are these companies planning to start producing? KMR is certainly closest to production, with long-term potential for significant increases in output. ORQ has two projects in advanced evaluation stage: La Zarza (Au/Cu/Ag) and Salamón (Au) and several other projects in early evaluation stage. OVGL hopes to start producing in Q4 2008, which is partly the reason why the stock is so thinly traded.

Obviously, all three have potential. KMR's biggest plus is that its nearing production, but OVGL holds a very attractive silver development asset and has an experienced management team. ORQ however, clearly has the best mix of assets, but has an exploration risk to go with that. KMR seems best for the short term, while ORQ has my preference for the long-term. OVGL - I would say is the riskiest bet, considering the 'juniority' of its projects. But if you want to become filthy rich, you have to take some risks in the end... ORQ can be considered for buying at the current price of EUR 0.24. Update: This post has also been supplied as a column in Dutch to edelmetaal-info.