(And other misinformation exposed!)
Silver Stock Report
by Jason Hommel, February 21, 2008
In yesterday’s email,
I wrongly wrote: “I caution you about the stock, North American Palladium (PAL), because 1/3 of the company’s supply comes from S. Africa, and the other 1/3 comes from Russia–it seems that the company has a somewhat deceptive name.”
PAL has an appropriate name, and does NOT own projects in Russia or South Africa.
I had a mistaken impression from PAL’s corporate presentation, which made a reference to world palladium production, not PAL production, as I mistakenly thought. World palladium production is 35% from Russia, and 35% from S. Africa. See the PAL corporate presentation, here, p. 18: http://napalladium.com/pdf/NAP200710.pdf
Related to that, I also wrote: “Eighty percent of the world’s platinum, and most of the world’s palladium, is produced in South Africa, and right now, there is a developing power crisis in S. Africa that is constricting mine supply, and threatens to get worse.”
One man wrote me, saying that most of world palladium supply is from Russia. That used to be the case. But, according to PAL’s corporate presentation, South Africa is now producing about as much palladium as Russia! Or, at least, until recently. Things change. If South Africa’s energy crisis worsens, perhaps Russia will be the number one palladium producing nation again.
I do not own any PAL stock, but I do own some physical palladium.
I’m biased. I only included the info on PAL because I know at least 10 people would have asked me about it, and I wrote hastily after having done a quick review of the company a few weeks ago when the stock was trading at $5/share. Now, it’s at $9. I should have paid closer attention to the fundamentals of the company, and to the person who was telling me to take a look at it when it was $5. It’s a good opportunity, I think. I might have even bought some today, after realizing my mistake, but how could I, after I put out bad information; that would not be fair.
I’m biased. And I try to make my bias known; both my Christian bias, and my bias of the stocks I own.
Barrick Gold is also biased.
Do you want to know how bias works in the financial industry? Watch the movie, “Waiting”, about shenanigans taking place at a restaurant. At one point, the manager is instructing his waiters and giving them a pep talk before the shift starts and he says, “Push the fish (on the customers), it’s about to turn (go bad, and spoil).”
I’ve done similar; it’s most economic to sell a stock when it is peaking, when it’s ripe, before it goes bad and goes down, such as when a large private placement is about to come free trading. But numerous times, I’ve quietly sold stocks long after a promotion, when I could tell that things were not working out at the company as I had expected them to when I wrote about them. That way is more honest.
Getting back to Barrick Gold’s bias. Lately, they’ve been saying that they have no “company” hedges. But it’s a half truth. They do have “project” hedges of over 9 million ounces on their Chile/Argentina project that might never be developed. Most of those hedges were put on at about $350/oz. Looks like those hedges are now at a $5.4 billion loss with gold now at $950.
How is Barrick going to close out those hedges? How can they? They are not making that much money. And they can’t raise the capital to close out the hedges by selling shares to the market, not since bragging to the market that they have no hedges! Their “distortion of the truth” will come back to haunt them.
I understand that many of you might own Barrick stock. So did I, back in 1999, and I sold it within 6 months. Anytime you move your money into a new sector, sometimes it’s wise to buy the biggest stocks first, just to get exposure to the sector very quickly. But at some point, you have to do your research, and figure out what might be better. Barrick is a loser. Sell Barrick. Take your money, and buy the junior stocks that Barrick needs to buy replace their dwindling reserves.
You should buy the juniors before Barrick, or another major miner buys them.
One junior gold miner has moved from a new exploration to production in less than two years, which is a phenomenal achievement for such a tiny market cap of a paltry $9.5 million. The company has been overlooked by nearly everyone, as the stock trades at $.50/share, and they are producing over $1 million of high grade 1/4 oz./tonne gold annually. They just started shipping gold this January. But it’s their copper discovery that caused me to buy the stock. They hit 41% copper over 27 feet! They have not yet begun to process the copper, but when they do, I expect this stock to move up significantly. The real benefit here is that this company is not likely to dilute the shares to expand production; since they are making money now.
The company does not have a 43-101 report, but with such high grades, they decided to skip the expensive exploration, and just get right to mining it. Their deposit is open at depth, which means they might just keep on mining and following what they find.
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I also want to speak to your level of thoroughness in divulging information when you write or present as on “a look at my portfolio” site.
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Obviously, . . . this was what I had been waiting for intuitively. Again, thank you for “the call to action”.
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