Miners I'm Buying And Why - Part VII: Puzzle Masters Win, Thrill Seekers Don't; Potential Moonshot Plays - Small-Cap Stock Observer

Markets worldwide gasped a huge OMG on election night as the polls, like Brexit, got it wrong again. At one point Dow futures were down 900+ points, with gold shooting up $60+, but then after Trump gave his uncharacteristically polite acceptance speech, stocks sighed higher and gold calmed down.

In reality, stocks recovered on no contested change of power. Indexes remain at record highs for the moment as offside funds are more worried about bonuses and window dressing returns than the next round of raising the U.S. debt ceiling, or the fiscal cliff coming soon. The Donald seems hell-bent on building walls, roads, to war spending with less tax revenue and higher inflation regardless of the debt bubble. How can this be baked into today's USD? When will gold get its post election Trump pump?

Even after last month's sharp gold correction to now below its 200 day moving average (DMA) of around $1,255, most major and mid-tier producers, and developers, have pulled back significantly but are still up multiples of their January lows. While gold bull markets typically last four years and we may only be in the second inning, more churn to finish digesting these gains is likely into year's end.

Gold's next catalysts are in December when the Fed should again bump interest rates a quarter point. I still believe they will raise, with one caveat of how markets react to Italy's referendum on the 4th—Brexit was an excuse not to raise rates in June. Italy is not voting to stay or leave the EU, yet, but I'm curious what terms the media coins. As the 24/7 Barnum and Bailey election coverage soon ends, we should hear more about Italexit and Italeave, and later Grexit, Frexit, Oustria, Czech-out etc. Gold also benefits as we get back to worrying about banks, China, ISIS, Syria and Russia's sabre rattling.

I'm not adding any larger-cap precious metals names until late December or whenever they finish testing and holding their full 50% Fibonacci retracement level. For example, I wrote a few times about (NYSE:ABX)(TSX:ABX) Barrick Gold since last fall at $7.51, up from its $5.91 summer low, which ran to a $23.47 high this July. Half of that $17.56 or 297% four-bagger gain puts my ABX 50% Fib. support at $14.69. This arguably failed at Monday's $14.64 close, but on Tuesday's bounce above $15 and with Soros buying back in, ABX may be interesting again if it can hold that $14.69 level.

The seasonality of precious metals tends to be strongest from January to May. Mining stocks often retreat over the summer and rebound into autumn, but did the opposite this year due to Brexit, Fed drama and other macro events. Until this winter's run starts, I am holding the miners I have while leaving some dry powder to now focus more broadly on writing about what I call juniors of substance.

How To Discover Junior Mining Plays Of Substance Early, And Avoid Pitfalls

Last month I wrote about how speculating reactively in juniors is often a trap which I call Monkey's Dilemma. Unusual trading activity after news releases initially emphasize these small to micro-cap stocks. This gets them on my Hot Sheet radar but is rarely when I buy. As a contrarian investor I tend to wait for that volume and price spike to fade, and as a value investor I need to figure out what they really have after the algo-bots and day traders forget that news release and dump into the pullback.

Winning at the markets avoids being a firefly thrill seeker but instead identifies value as a patient puzzle master, which can be just as seductive and fun. For example, my May article showed how (TSX:NDM)(AMEX:NAK) Northern Dynasty Minerals at C$0.45 per share has an amazing risk / reward scenario tied to a salmon workaround to get permit approvals. Now C$1.75, doubters must be surprised by the October 28 news that the EPA has agreed to FACA mediation. Imagine the shock if NDM gets a major joint venture (JV) partner for its massive Pebble Project in Alaska. Odds are better as multi-billion dollar developments with high paying mining jobs may soon Trump any EPA issues.


Conversely, junior explorers always start with a great story ... and not much else. Most have nothing tangible other than cash and marketable securities that qualify as a worthy asset on a balance sheet. Shareholders value the story based on company presentations, newsletter articles or videos about a bunch of P's: People, Property, Price, Paper (share structure), Phinancing, Politics and Promotion.

Investor relations (IR) highlight that there is no debt, which is not prudence but because they can't service debt and nobody would be crazy enough to lend to a company with no revenue other than share issuances. Although you may not have to worry about foreclosures, you still need to hope that accounts payables for insider loans, services or back pay don't grow and turn into cheap shares for debt. For example, (TSX:LN)(OTCBB:LONCF) Loncor Resources looked ok until they closed a 67M share private placement (PP) at a cent and a half, with the CEO now controlling near half of the stock.

Over the past two years I have been selectively buying penny mining shares which have been beaten down 90% or more since 2011. I'm not just talking about share prices, their market caps were half to less than a tenth of shareholders equity. Assessing even balance sheet worthy mining assets can be complex, but when looking at many stocks this simple bear market cheapness guide helped me initially filter resource values which may again trade at multiples of book during mining bull markets.

Cash is the easiest asset to value, and when divided by the fully diluted number of shares gives you a pretty good idea of what a shell stock is worth before it turns into a new story play. I own shares in a few penny shells bought for around cash showing on the balance sheet, with mining assets and no debt. My bet is that a left for dead shell may be reincarnated via reverse takeover (RTO) if it is clean and current on filings and fees, and tightly structured with a market cap of just a few hundred $K.

RTO's are cheaper, faster and easier than an initial public offering (IPO). Shells can turn into highly leveraged, new pre-promotion plays. The risks are suffering through stock rollbacks and changes to the company's name, management, funding, assets, and sometimes the whole business focus i.e. mining to dot-com or marijuana. Some writers bet on so called zombie stocks, hoping that blown up mining plays with tons of shares and little equity or cash will still get revived. I prefer thin shells at cash and less likely to be rolled back again, as both usually end up RTO'd with a new play anyway.

I focus on deeply undervalued penny producers and developers which haven't rebounded, or newly restructured junior explorers with a great story that hasn't played yet. When a miner looks cheap, I dig to try and figure out the stock's story chapter-by-chapter, act-by-act, while always looking for industry or company catalysts worth tracking and writing about. My process found these stocks early, and I'm probably the only newsletter writer on them right now. I own shares, so consider my reasons biased.

Three (Actually Two) Potential Moonshot Plays

One of the penny shells I bought shares in a couple of years ago was Red Mile Minerals. RDM had a gold Property in the Destor-Porcupine region of Ontario, a highly prospective area with lots of gold production that could be worth another kick at the can. I didn't really care about that, remember that I focus on cash, debt and share structure. If memory serves there was no debt, cash per share was close to the share Price, with only 25M shares outstanding and a market cap of $250K. This was ripe for RTO as taking a company public for around a $1/4M is cheap if they can get control of the stock.

The Paper was tight enough that I did not expect another rollback. I was wrong as later that year RDM consolidated 5 old shares into 1 new share. That's not too bad as the standard rollback is 1 for 10, or worse. So I now have one fifth the number of shares and my average cost went from a penny to a nickel. I'm still glad the algo-bots were feeding me shares at a penny bid, as post rollback there was no size available at even multiples of my new cost. Renamed Orla Mining, shares are still tightly held.

(TSXV:OLA) Orla Mining gradually moved up through C$0.20 on no real volume or news until June 27 as they announced an expected C$6M PP. Three things stood out to me, first was the size as C$6M is a lot for a brand new shell stock to raise. Second, the Price at C$0.50 was at a significant premium to where OLA traded at under C$0.40. This represented a double bonus of more cash with less share dilution. Going into even tiny capital raises these stocks often get smashed, with the PP then done at a discount to market. Third, how can they Promote and close a fairly large PP with no mention of any new People or Properties? I had my doubts until three days later when they increased it to C$7M.

Chapter II started on July 8 with the completion of that C$7M PP. After the market close, another news release announced a change in company ownership, to include some of the biggest names in the mining industry. Most notably, Pierre Lassonde, co-founder of the world's first gold royalty business and is still chairman of (TSX:FNV)(NYSE:FNV) Franco Nevada, an C$80 stock with a market cap of C$14.3B, which has provided Buffett-like returns during good and bad gold markets. For five years until 2007 he was president and later vice chairman of (NYSE:NEM) Newmont Mining, the world's second largest gold company. Mr. Lassonde invests in miners, sits on various boards, was chairman of the World Gold Council, received the Order of Canada, won many industry awards and is in the Canadian Mining Hall of Fame, and as a philanthropist continues to give away millions.

After such a bingo on the Phinancing and People, surely they have a great Property to roll in. While I rarely resist the opportunity to lock in at least some of a ten-bagger gain, how can I sell before at least seeing the new play? My rationale was also that these guys are major mine builders who don't invest for just nickels and dimes, so if they are getting in at C$0.50 then I should probably not be leaving. On no more news, OLA again quietly ripped higher, to around a buck by the end of the summer.

Chapter III started September 14 on OLA's news of its merger with (TSXV:PRO)(OTCBB:RSPRF) Pershimco Resources. Just as exciting was to see a C$50M equity Phinancing at C$1.75 per share, a huge raise at an amazing premium to OLA's C$0.81 close. No worries about funding this time either, with the deal back-stopped by Mr. Lassonde and other insiders participating for up to C$30M. Again, why sell with the key People investing heavily at C$1.75? Just two weeks later the entire book build was done, with firm interest beyond C$50M. On October 13 the PP closed with insiders taking 44.1%.

Now I need to know what Pershimco has, their plans, and when the merger closes? Both sides must be confident as the merger news also has OLA investing C$4M in a PRO PP at C$0.33 per share, which closed September 26 with no finder's fees or warrants, or any condition that the merger even closes. This PP was also at a premium to market, and I was happily getting my PRO bids filled by the algo-bots at C$0.25. PRO shares may have arbitrage value just on the merger terms getting done, as they convert to 0.19 and 0.04 NewCo shares with a deemed value of C$0.4025 based on OLA at C$1.75.


PRO's June balance sheet seems clean with C$6.6M cash versus C$2.4M current liabilities, and with C$75.5M assets versus C$20.4M long-term debt. Shareholders equity is C$60.8M, not including the C$4M PP cash injected in September. PRO's market cap is C$76.8M at C$0.26 per share, or barely above book value and at a discount to the last PP Price. The sum of the parts combined merger value roughly suggests around C$235M based on the net present value (NPV) of PRO's resources and the cash in both companies, less a guesstimate on expenses. If correct, this works out to around C$1.85 per OLA share with 126.7M shares anticipated as the merger closes, plus huge exploration upside!

PRO's fully-owned Cerro Quema Project in Panama has a gold oxide heap-leach production scenario in the last stage of permitting, and a copper-gold porphyry target. Their website shows a potential world-class deposit with 878,700 ounces so far, after-tax NPV of C$176.3M, 41.4% IRR, a low cost, open pit operation of over 100K gold ounces in year one. As for exploration potential, PRO has a 15K hectare concession, a 17km trend to expand gold oxide resources, plus gold and copper in sulphides below the oxide caps with 12km of strike length to pursue a prized copper-gold porphyry system.

Some throw around the term world-class deposit with buyout potential. When true, major producers and institutions usually know about the play and have a stake. PRO's top shareholders are: Sentient Funds, AGF, Goodman & Co., RBC Asset Management, and especially (NYSE:AEM)(TSX:AEM) Agnico Eagle Mines. I'm looking for shareholder approval at the end of this month, and Panama's Ministry of Environment approval by the end of January. Post merger, with over $50M in the kitty, I want to see lots of news flow from mine development to exploration drilling for more oxide gold, to hopefully discovering a major copper-gold porphyry. V.OLA closed at C$1.42 and V.PRO at C$0.26.

This typical mining cycle chart is similar to Pierre Lassonde's in "The Gold Book: The Complete Investment Guide to Precious Metals". In blue I point to where I think OLA / PRO and ADV are.


(TSX:ADV)(OTCBB:AXXDF) Alderon Iron Ore is a stock that I didn't think I would be writing about for another year or so. I mean my dime bids were getting algo-bot fills every so often, but who wants to hear about a deeply undervalued development play trading near decade lows, with next to no volume or news, and in the least sexiest sector. Some days ADV didn't trade and a good day is 100K shares. However, this changed a few days after their October 19 news sank in, and as iron ore spot prices soared to three-year highs of over $80 a ton on Trump's win, doubling its $38 low a year ago.


ADV is updating its preliminary economic assessment (PEA) for Q1 next year based on a new Kami Mine concept incorporating the nearby idled Wabush Scully Mine. Kami is located in Canada's safe Labrador Trough, with modern infrastructure near other mines, rail and ports. The re-scoping should provide various capital and operating costs savings to help ADV 75% and its strategic JV partner Hesteel Group of China 25% (World's second largest steel producer) advance Kami's development.

(NYSE:BHP) BHP Billiton, (NYSE:RIO) Rio Tinto and (NYSE:VALE) Vale are the world's largest producers of iron ore and other metals globally, whose shares have doubled or more this year. With market caps of $40B to $100B, any one of these could easily gobble up tiny ADV. Kami offers a cheaper, high grade ore body compared to more costly, lower grade, dirty deposits in South America, Australia and elsewhere, but Hesteel also has deep pockets and needs quality iron ore to make steel.

After looking at junior iron ore development plays, ADV's financials and story seem to offer the most compelling combination of deep value and potential, with some really big government supported P's as the story reawakens. Their website shows feasibility study highlights of: 8M tonnes per year at 65.2% iron, $1.27B capital cost, $42.17 per ton operating cost, 29.3% pre-tax IRR, $3.24B NPV8, 3.8-year payback on a 30-year mine with 669Mt P&P reserves, 1.275Bt M&I and 523Mt Inferred.

ADV's 2015 balance sheet is what first caught my eye earlier this year. At a dime per share the market cap was only C$13M, or at today's quarter shares the market values ADV at C$34M. September shows C$38M cash, C$206M assets and C$20M debt. Shareholders equity is just under C$185M or C$1.40 per share, which means that my C$0.10 shares were at 1/14th of book value, about 1/3rd of cash alone, or at less than cash after repaying all the debt. Today's C$0.255 shares still cost less than a fifth of book. ADV was added to our Top 30 Small-Caps at a dime this summer, and posted on our Hot Sheet on the news and spike to C$0.48 last month. After a sharp 70% correction to C$0.20, ADV remains active on no news, so it may be a good time to share why I like this near-term value play.


Gotta love them algo-bots when they keep feeding my bids cheap stock. It's also nice as a great story comes together, and both of these plays have quality assets with sound financials and lots of big P's already in place. I have a few more moonshot plays that run the gamut from RTO penny shells, to deep value, to exponential growth potential, if you care to comment and let me know your interest?

My calculations and observations are as an individual investor and are not recommendations. Data comes from financial reports, news releases, company websites and other public sources that may not be accurate, complete or up to date. There may be conflicts of interest as I own stock in some of these companies. I share these ideas in hopes that readers will comment on them and on other company stock boards at our website with your own insights, opinions and anything I may have missed.

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Miners I'm Buying And Why - Part VI: Gold Foundations; Monkey's Dilemma; What Summer Doldrums? - Small-Cap Stock Observer

Strong And Timely Gold Foundations Going Forward

I have been holding off writing about gold and silver since the Brexit vote to leave the EU pushed gold prices in June above last year's highs. This unexpected outcome was a key marker to me that gold's cycle bottom was in, but I wanted to wait for several short-term crosscurrents to work out first.

Why were gold's commitment of traders (COT) reports so persistently short at record levels? This can be seen as bearish or bullish, but in the long-term should not matter. Gold had to fall for them to win, or instead could turn into aggressive loss cover buying at the next technical breakout level at around $1,400. Conspiracy theories aside, nobody knew gold's next major move and in the meantime a rest was needed for its 200 day moving average of around $1,255 to catch up to this year's higher prices.

On the macro side we are now in a strong retail gold buying time during the Indian wedding season, but we have been distracted worrying about Deutsche and other banks failing which could violently move gold either way. And the Fed is still crying wolf about hiking interest rates with its gold price dampening effect as seen by this week's $60+ drop to $1,250, its first time below $1,300 since Brexit.

I could go on about fears from wars to the USD, deflation to hyperinflation, negative interest rates to currency collapse, but what's the point? You just have to get the longer-term trend correct and get in early, or wait for the next correction which is where I believe we are at. Else becomes noise which can cause rash decisions or paralyse us into giving up and not doing anything. Over the last year I wrote about some of the gold and silver miners I own or like and thought an update could be timely.

Last October's article, "my gold value thesis, miners I'm buying and why - Part I" reasoned why the bottom for precious metals appeared to be close. Nobody knows exactly when a market will turn, which is why I wanted leverage to higher gold prices but not to debt. Major gold and silver producers typically move first, but I also considered mid-tier to junior mining stocks as the big boys' balance sheets seemed a mess. I have no problem giving up some potential upside for a less risky bet, however the numbers suggested certain smaller-cap miners offered superior safety in addition to extra alpha.

My go to major is (NYSE:ABX)(TSX:ABX) Barrick Gold which I thought was still not cheap. ABX was up from its $6 lows to $7.51 then, with a market cap of $8.75B, a negative P/E and still paying $0.02 per quarter yielding 1%. Although ABX was down 85% from its $50 high in 2011 and was trading below $10B in shareholders equity, long-term debt was over $12B. ABX has sold assets and cut debt by over $3B so far with the stock now at $15.30 and was a three bagger at $23.47 in July.

November's Part II detailed three exceptional value penny stock gold producers, which are still on our Top 30 Small-Caps. Gold's bear claws were still slashing mining shares back then, with financings next to impossible. Pure exploration plays were avoided as my filters focused on producers and developers with at least survival cash, low to no debt, and deeply discounted resources plus growth potential. The best value miners game was to data mine gold under $10/oz. from financial statements and quietly accumulate shares until precious metals signal a bottom and upward momentum returns.

You had to dig but they were out there. Well timed and informed investing in mining shares can be extremely rewarding, just keep in mind that if you don't know the real value of what you own then even the best traders will eventually end up holding a load of crap. Many companies promise millions of ounces someday but the stocks I first focused on were significantly de-risked with permits or already producing, with economic resource studies reflecting value trading at a fraction of book.

(TSX:PRU)(ASX:PRU) Perseus Mining was C$0.33, now C$0.46, year high C$0.67, 2011 high C$4.21; (AMEX:BAA)(TSX:BAA) Banro was $0.18, now $0.27, year high $0.48, 2012 high $6.05, 2006 high $14.60; and (AMEX:TGD)(TSX:TMM) Timmins Gold was $0.20, now $0.42, year high $0.63, 2012 high $3.47. Doubles are nice but these three have actually lagged others I also still hold. They were bought as longer term value and growth plays and it's my eventual sale prices that really matter. Every miner has hiccups and I'm satisfied these three producers are executing their plans.

As an update, Perseus had record profits when producing 220k ounces of gold last year in Ghana and should soon be back to that level as transitions complete to Edikan's higher grade pits. With higher gold prices their Ivory Coast Sissingue mine is again under construction and should be ready late next year. Even bigger news was the acquisition of Amara Mining and its large Yaoure gold project.

With ~12M ounces in all categories, plus half as much added this year, in a few years PRU expects to be a multi-country, multi-mine producer of half a million ounces per year. I like the Amara deal and that July cash was up to C$175M still with no debt, but not the dilution indigestion as shares doubled to 1B. Even so, PRU's June equity was C$733M versus today's market cap of only C$471M.

Last year Banro had record revenues and EBITDA with gold production guidance of 175k-195k ounces. Twangiza started in 2012 and their second mine, Namoya, entered commercial production in January. Located 210km apart on the same gold belt, production after ramp-up should exceed 250k ounces per year. Between them are Lugushwa and Kamituga, two more large mines to be developed. In February a Chinese group with others provided ~$100M in equity, streaming and debt financing.

BAA has tons of upside potential with over 15M high-grade, low-cost ounces in all categories, ~$1B in assets and $391M in shareholders equity versus a market cap of only $82M—Namoya alone cost $400M to build. I'm not as worried about Africa's DRC as some, but I do want to see the terms met later this year to move $196M in short-term debt to long-term debt. With rising production and higher gold prices BAA can quickly unlock value and become a rocket again just by paying down its debt.

I thought Timmins would be a no-brainer instead of a roller coaster ride. San Francisco was a simple heap-leach mine in safe Sonora Mexico producing gold profitably for years that could expand through exploration. TGD's Caballo Blanco and Ana Paula were advanced new projects to develop and grow. (NYSE:GG)(TSX:G) Goldcorp had just bought 9.9% of TGD and sold them a processing plant for C$8M that will save US$40M-$60M. As TGD's market cap fell under $75M, (NYSE:GDXJ) Market Vectors Junior Gold Miners ETF had dumped its 18M share hoard making the stock even cheaper.

TGD had $300M in assets and no long-term debt but had warned a significant impairment charge was coming. To me that means 20%-30%, not 80% or $227M in writedowns. TGD's CEO was gone and the next surprise was how long it took to replace just a $10M short-term loan. Then their mine was going to close in 2017 if gold prices didn't rise, and later Caballo Blanco was sold cheap to pay back the loan. My producer was turning back into a developer with two instead of three mines—then gold prices pushed higher. Long story short, TGD is back on track. August Q2 cash flow was $11.5M and mine operations are now extended into 2023. Ana Paula had 4 to 7+ g/t drill results last fall and TGD just outlined its complete pre-construction program with $9.2M for drilling, feasibility and permitting.

Monkey's Dilemma

In hindsight, some might shake off my timing as just lucky and say that everything gold and silver related has soared this year. Any monkey with a list of mining stocks and a few darts could have out performed. This is somewhat true, but how would the monkey have known to avoid mining shares as they fell for four years by around 90% until last summer 2015? How will it know when to get out?

An early monkey can get lucky and have fun for a while. Its IQ pretends to dramatically go higher as it confuses brains with a bull market. Decisions are based on a stock's story and market moves after news releases. Simple balance sheet comparisons like cash to current liabilities and assets to debt are way too much effort, forget about reading feasibility studies. Yes this is sarcasm, but true.

Mining stocks tend to move in big percentage pre-news fits and starts, called "rips", which can make for frustrating short-term technical analysis (TA). Market makers read charts too and know how to make the price spread and bid/ask sizes look weak to shake out traders before ripping higher, or how to make them look technically strong to suck in buyers before a down rip. It's fine to track longer-term trends and use TA to scalp a bit more out of a trade, but value should drive what and when to buy/sell.

The monkey believes a good story on high volume has worked great so far and in a bull market nobody really cares how high the market cap is because the company has cashed up and will be generating much more news. Why even bother comparing the stock's market value to things like shareholders equity and book value, or to resource net present values (NPV) and internal rate of returns (IRR)? Without understanding these real tangible asset values how will the monkey know whether a pullback is just temporary before the next double rip, or that the story has already ended?

I'm not an accountant and I'm not suggesting we need to be. These values can easily be found at a glance at our site when quoting any stock, and then clicking the "financials" tab which has every company's balance sheet, income statement and cash flow report. Company news releases and websites usually provide them, as well as any AISC mine plans showing all CapEx/OpEx needed to build and operate. AISC means all-in sustaining cost per ounce, CapEx/OpEx are upfront capital and ongoing operating expenditures, and PEA is preliminary economic assessment. If your mining stock's balance sheet shows little cash or equity and doesn't at least have a PEA, know that it's a story stock.

After considering these financial details, I need to understand a company's capital structure and how it is distributed. Are there hundreds of millions of common shares outstanding and if so are expectations big enough to churn higher through all that stock? Do fickle retail traders own most of the stock, or is it closely held by loyal institutions and insiders incentivized to raise the share price?

Junior explorers with nothing but a bloated share structure, exhausted story and little cash usually can't get financed until they roll back the stock. This destroys value as resulting fragments of board lots are discarded by frustrated monkeys and eventually new shares issued at even lower prices with warrants attached, both representing dilution. Paying attention to private placements (PP) is especially important now as many miners were able to refinance earlier this year as precious metals prices started rising. Miners have capital to grow again with gold's bull market tailwind, however PPs can also create a headwind after the four month hold ends as shares are sold to just ride the free warrants.

Just as important is to pay attention to any debt financing terms. I pass on miners with even large, valuable assets if the debt seems scary. (TSX:JAG)(OTCBB:JAGGF) Jaguar Mining was in the mid teen cents last winter and it was not the amount of debt but the early warning disclosures I didn't like, which seemed like a heads you win, tails I lose situation. On default, debt holders typically have first claim on assets and the common gets nothing, but debentures also get 12% interest as they wait and represent huge potential share dilution if and when they can convert to equity at C$0.15 per share. JAG story buyers are winning so far as the shares are now C$0.64 with an August high of C$0.85.

Our Hot Sheet focuses on timely short-term technical trades, but for longer-term investments I rely on fundamental filters to source some of our best value and growth plays to write about. Last year my research was precious-metals balance-sheet driven; in a bear market you have time to accumulate these potential ten bagger stocks as they remain out of favour and quiet with little news at their decade lows. Back then you could find gold stocks with lots of cash and millions of proven low cost ounces trading at a fraction of book value and well under $10 an ounce, but today this is getting harder.

Some miners I invest in and hold core positions, others I trade. Investors have a longer-term focus that weighs risks and values financial details, while monkeys tend to just react to headlines and are drawn to preachy doom and gloom videos I call stock operas. Avoiding a monkey's dilemma comes down to knowing the difference between fundamentals with undervalued assets and a hot potato speculation.

What Summer Doldrums?

Part III: 2016 market stages set was about macro events in a tired bull market with predictors, the Fed, debt, USD, China, oil, and the US elections. With markets down -5.5% the January Effect predicted a down market this year, but we all know that ever higher debt and Fed actions are what traders fixate on. I still believe that lower oil prices stimuli may be the only reason we don't already have QE4.

China has been quiet and falling behind in the world's currency devaluation race. This may change with the Yuan now officially added as an IMF SDR and with the US elections over next month. As for the next president, both parties mismanage debt but voters might ask in the last three decades which party has started wars versus ending them, who was in power during the last three market crashes versus the last two bull markets and for the only four years with budget surpluses since 1969.

Part IV detailed three quality mid-tiers which are significant producers with large development projects to grow. I watched these stocks drop from around $10 for years before writing about them in February as their mid-January lows were made at well under $1 per share. Although the math shows these miners were already cheap for over two years, TA saved me from getting in far too soon. All have been five to seven baggers at recent highs and still look good: (TSX:AR)(OTCBB:ARNGF) Argonaut Gold then C$1.52 up from C$0.78, now C$2.72, high of C$4.45; (AMEX:BTG)(TSX:BTO) B2Gold then $1.11 up from $0.60, now $2.15, high of $3.65; and (TSX:SVM)(OTCBB:SVMLF) Silvercorp Metals then C$1.27 up from C$0.60, now C$3.31, high of C$4.73. These can double again.

After topping $1,920 an ounce in 2011, gold continued to slide each year as the usual writers kept claiming gold's lows were in—eventually they had to be right. For me, I needed to see gold close above last year's high close of $1,302 before being convinced. Gold was up an impressive 21% from $1,063 at the start of this year to $1,283 going into May, but by the end of May was back down to $1,213. Gold had still not breached $1,300 on a closing basis and looked ready to top out going into the weak summer doldrums, but then instead of going sideways or sliding further, gold strengthened.

Any good TA monkey knows to protect profits and to sell in May and go away. I don't agree about selling everything, but rebalancing by trimming oversized positions at times makes sense. Other than instinct I can't explain why I fully rode out this summer and didn't sell anything, but I'm glad I didn't. I mean I don't know anyone who believed the Brexit vote would be to leave the EU and had the guts to bet on it. That surprise is what finally ripped gold above last year's highs, where it held until Tuesday.

As of June I became convinced that we have seen gold's low this cycle, and for holding all my gold miners this summer you might say I'm no better than a lucky monkey. Even as gold pulled back in May to the low $1,200's, almost every major and mid-tier precious metals producer was still up multiples of its January low. My articles planned to go from the safer majors, to mid-tiers, to developers and finally to riskier explorers as the new gold bull market trickled down to each group. This can take years but in less than six months everything was starting to fly. Always in pursuit of more alpha, this gold strength with breadth focused my May article on mine developers.

Developers are often called optionality plays as they require higher metals prices to be economical. These five stocks have some of the world's largest undeveloped gold and silver resources, plus other metals. Most had no debt and traded well below book—one traded at cash. Some already work at today's metals prices: (AMEX:XRA)(TSX:XRC) Exeter Resource was $0.87 up from January's $0.31 low, now $1.10, high of $1.48; (TSXV:CKG)(OTCBB:CHPGF) Chesapeake Gold then C$3.45 up from C$1.75, now C$4.62, high of C$6.50; (TSX:NDM)(AMEX:NAK) Northern Dynasty Minerals then C$0.45 up from C$0.28, now C$0.76, high of C$1.48; (AMEX:THM)(TSX:ITH) Intl. Tower Hill Mines then $0.64 up from $0.18, now $0.69, high of $1.40; and (TSX:MSV)(OTCBB:MISVF) Minco Silver then C$1.22 up from C$0.385, now C$1.17, high of C$2.05. Check out their 2011 highs.

I bought NDM shares at C$0.45 and MSV at C$0.50 and continue to hold both. I believe NDM can find a salmon workaround to get its enormous Pebble Project permitted, which seems supported by last week's news of its lawyers capping legal fees in return for a success fee. MSV remains quiet with no real news since purchasing the Changkeng gold project over a year ago. I still say they are waiting for $20+ silver and a higher MSV share price before letting the market know its development plans.

I hesitated on buying XRC at C$0.60 and CKG at C$1.50 hoping for even lower prices, which I regret as I think they could be taken out some day near their 2011 highs. Both provided staged development plans last winter with lower costs. THM's low grade, negative NPV until $1,700 gold, huge CapEx and negative working capital still bothers me. THM's reworked mine plan last month also lowers costs but now their recoverable ounces have been slashed. All of these developers have great potential in a rising gold market but also have specific hurdles to clear, identified in my Part V May article.

Conclusion

Earlier this year gold rose sharply, it needed a breather and has been going sideways for three months. Gold either had to break below $1,300 and test its 200 day moving average or the shorts would be caught as gold blew through $1,400. Now that gold's 200 DMA support at around $1,255 has caught up, and with much of the speculative margin excess wrung out, gold can soon resume its uptrend.

The Fed follies featuring the we're gonna raise gang is a broken record which surprised nobody last month. After the election, in December again, I believe rates can go up another quarter point but they are so far behind the curve can it matter? How can history's largest debtor nation get to even 1%, and forget about anything like 20% Fed funds rate seen in 1979 needed to stop gold's 25X rise at $850/oz. Gold actually moves higher as interest rates rise and GATA should dare the Fed to put up or shut up but we all know rates will keep being talked up as doing it reveals that tiny yearly bumps don't matter.

Precious metals were due and did finally turn higher this year. Gold bull cycles typically last around four years, although gold was up twelve straight from 2001-2012. It feels like the second inning and that gold's September Fed pause will soon end when the bull can reawaken. Later this month Part VII will focus on five speculative plays of substance, which I own and believe have moonshot potential.

My calculations and observations are as an individual investor and are not recommendations. Data comes from financial reports, news releases, company websites and other public sources that may not be accurate, complete or up to date. There may be conflicts of interest as I own stock in some of these companies. I share these ideas in hopes that readers will comment on them and on other company stock boards at our website with your own insights, opinions and anything I may have missed.

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InvestorsGuru.com 12 Filtered Mid-Day Market Movers Recap

Mid-Day Market Movers focus on above average volume, price action, breakout chart trends and news - posted throughout the day live at the top of InvestorsGuru.com and on our Hot Sheet. Below recaps last week's movers, all prices when posted, week high price Wk-H:, with a brief company description and recent news headlines. Submit any ticker symbol to our Detailed Quote Portal (top-left of all pages) for quotes, java charts, research and news, or to comment/share.

TSX Venture (quote V. and ticker symbol)
(TSXV:AOT)(OTCBB:ASOLF) Ascot Resources Ltd. (2010: $0.33)(2013: $1.04 $0.85)(2014: $1.03 $2.08) $1.88 Wk-H: $2.00
- past producing (2.1MozAu, 44.9MozAg) Premier Mine near Stewart BC, closes $20M Sprott pp; hits 3.05m 104.74 g/t gold; drilling 50K meters
(TSXV:VIT)(OTCBB:VITFF) Victoria Gold Corp. (2013: $0.22 $0.11)(2014: $0.16)(2015: $0.22) $0.285 $0.48 $0.75 Wk-H: $0.80
- multi-mill. oz. Yukon Eagle deposit, July 6 Olive surface trench results incl: 52m 4.4g/t & 8m 15.6g/t; camp purchase reduces upfront costs
(TSXV:FF)(OTCBB:FFMGF) First Mining Finance Corp. (2015: $0.28) $1.16 Wk-H: $1.31
- gold focused mineral bank: 28 assets in Canada, Mexico & US, settles debt with (TSX:FR)(NYSE:AG) First Majestic Silver; $16M $0.80/share p.p.
(TSXV:OLA) Orla Mining Ltd. Jun27 $0.40 $0.70 Wk-H: $0.79
- ownership change: Marc Prefontaine, Hans Smit, Troy Fierro, Richard Hall, John Graham and Pierre Lassonde; closes C$7M $0.50/share p.p.

TSX (quote T. and ticker symbol)
(TSX:TV)(OTCBB:TREVF) Trevali Mining Corp. (2014: $1.19) Apr14 $0.425 $0.78 Wk-H: $0.83
- zinc-focused base metals producer in Peru, N.B. Canada soon, record Q2 zinc/mill output/throughput at Santander mine, boosts guidance
(TSX:CZN)(OTCBB:CZICF) Canadian Zinc Corp. $0.38 Wk-H: $0.41
- fully permitted, advanced zinc-lead-silver Prairie Creek NWT project and NL properties, July 7 closes $10.2M financing at $0.25/share

NYSE MKT AMEX
(AMEX:GSS)(TSX:GSC) Golden Star Resources (2013-14 6 posts $0.44 to $0.80)(2015: $0.34 $0.30) $0.27 $0.36 $0.78 $0.97 Wk-H: $1.04
- 90% of the Wassa and Prestea open-pit gold mines in Ghana West Africa, starts pre-commercial production stoping from Wassa underground
(AMEX:TGD)(TSX:TMM) Timmins Gold Corp. (2014: $1.28 $1.36 $1.81 $1.90)(2015: $0.30 $0.20) $0.13 $0.18 $0.46 Wk-H: $0.55
- San Francisco open-pit heap-leach mine, Ana Paula development and exploration projects in Mexico, Q2 2016 produced 25,863 gold ounces
(AMEX:NAK)(TSX:NDM) Northern Dynasty Minerals Ltd. May16 $0.34 $0.47 Wk-H: $0.58
- Alaska's Pebble resource: world's largest undeveloped copper AND gold deposits, closes $0.45/share pp's: $2M July 5 and $17.1M June 10

NASDAQ
(NASDAQ:SIRI) Sirius XM Holdings Inc. (26 posts since $0.73 in 2010) $4.15 Wk-H: $4.17
- world's largest radio broadcaster by revenue with 30M+ subscribers, to release Q2 financial and operating results on Tuesday July 26

NYSE
(NYSE:HHS) Harte Hanks Inc. Jun11 $1.08 $1.77 Wk-H: $1.79
- relationships and interaction-led marketing, June 7 seeks sale of Trillium Software; Sony email campaign wins direct marketing Best In Show
(NYSE:EVRI) Everi Holdings Inc. $1.65 Wk-H: $1.67
- video and mechanical reel gaming content, technology and payment solutions, partners with Spin Games on interactive slot game content

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Miners I'm Buying And Why - Part V: Discounted Developers Offer Huge Leverage To Higher Gold & Silver - Small-Cap Stock Observer

Researching mining stocks can be like a jungle safari where you might find a few monsters, elephants, gorillas, bears and tigers—or at least that's how I describe the size and upside of certain undeveloped deposits. Now that share prices of the major gold producers may have signaled the turn, I am focusing more on these higher alpha plays. Share prices for the five developers detailed below were so low until recently because they had little economic value other than as a highly leveraged bet on potential future cash flows tied to higher metals prices—like a call option with no set expiry date.

The other big hurdle is their very large CapEx costs of hundreds of millions to billions to get their mines permitted and built. Even if we are in a gold bull market and this capital becomes available, shareholders still have to worry how much future financings will cost in equity dilution via share issuances, debt, streaming transactions, net smelter return and other royalties, and/or joint ventures (JVs). I like that insiders own sizeable stakes in these companies, with still tight share structures due to good foresight in selling stock at high prices—unlike other miners who must think they are running their own central bank by the massive amounts of cheap paper they have issued at recent lows.

Developers still need government approvals to advance and de-risk their projects. Permits are seen as critical value multipliers by investors, analysts, lenders, and especially bigger-fish mining companies always on the lookout for workable acquisitions. Also keep in mind that resources in the ground do not always translate into equal amounts of recoverable production and that while these stocks may still be cheap, like most gold stocks they have already doubled or more since their January lows—even this precious metals bull thinks we may be due for a sharp although short-lived correction.

To be fair all miners have to deal with warts of some kind, bringing me back to the point of this article in highlighting precious metals stocks with some of the world's largest undeveloped resources which offer huge potential leverage to higher gold and silver prices. The last developer below is also highly leveraged to metal prices and is my favourite silver play right now as it still has cheap, tight, under followed shares, with strong financials and mine economics which work today—at a very low CapEx.

40 Million Ounce Monster Deposit In Chile—Low-Grade Gold Under $2 An Ounce (With Copper)

(AMEX:XRA)(TSX:XRC) Exeter Resource is listed on the NYSE MKT and TSX with a 2010 high of US$9.41, now trading at US$0.87 per share. The most recent XRC equity raise I can find was in late 2010 for C$57.5M at C$6.20 per share. This Canadian exploration company plans to develop its world-class Caspiche gold-copper project in Chile—between (NYSE:KGC)(TSX:K) Kinross Gold's Maricunga mine and (NYSE:ABX)(TSX:ABX) Barrick Gold and KGC's Cerro Casale deposit.

Exeter's website shows Caspiche's Measured & Indicated (M&I) resources of 1.7Moz gold equivalent (AuEq) oxides and 37.9Moz-AuEq sulphides. Past pre-feasibility development scenarios envisioned a super-pit producing oxide and sulphide ores together at ~696Koz-Au, ~244Mlbs-Cu and ~844Koz-Ag per year over 19-years. The problem was the US$4.6 billion price tag to build it, and as metals prices fell this mine plan became unfinanceable and likely uneconomic under US$1,300/oz gold.

Today sees multiple scalable options from ~US$250M for a 30K tpd heap leach operation producing 122Koz AuEq per year over 10-years, to ~US$2B for a 60K tpd underground mine producing 344Koz AuEq per year over 42-years. Scenarios include sustaining and closure costs for standalone to staged mine plans, starting with a lower cost mine to produce the near surface gold oxides, which can pay for most of the later development of the longer-term deep core with higher-grade gold-copper sulphides.


Exeter's April presentation also shows C$21M (US$16M) in cash on hand and no debt. At US$0.87 per share, XRA's US$77M market cap minus this cash equals US$61M, divided by 39.6Moz-AuEq works out to M&I resources in the ground at ~US$1.54 per ounce—under $2 an ounce gold!

As Caspiche is next to Cerro Casale, this reminds me of buying Arizona Star Resources in the mid 1990's between $1 and $2, later sold over $10 before topping at around $17 per share. Arizona Star owned 51% of the JV (Bema Gold had 49%) which discovered 23Moz-Au and 6Blbs-Cu. Cerro Casale's CapEx was ~US$2B with grades of only 0.69 g/t gold and 0.26% copper.

A few years later as gold fell from over US$400 to under US$300 I remember seeing Arizona Star at around C$0.50 per share and thinking all that gold and copper is still there. Fast forward to 2008 as gold hits US$800 an ounce when ABX purchased the company for C$773M or C$18 per share just for its 51% of a large but costly low grade deposit. Perhaps like Exeter's Caspiche bet, higher gold prices alone drove the value of the Cerro Casale JV from tens of millions to over C$1.5 billion.

KGC earlier had paid US$3.2B for Bema Gold, leading to today's US$2B (AMEX:BTG)(TSX:BTO) B2Gold which was detailed in my latest newsletter. Few 20Moz+ monster deposits like Caspiche and Cerro Casale are being found these days which especially make them prizes worth the majors fighting over at higher gold prices. You can see the leveraged value offered by developers with large, lower grade deposits which the market still deeply discounts—here are a few more of the biggest plays.

Elephant Size Gold (18M oz), Silver (.5B oz), Zinc (4B lbs) In Mexico—High Capex But Viable Now

(TSXV:CKG)(OTCBB:CHPGF) Chesapeake Gold is listed on the TSX Venture Exchange and OTCQX with a 2011 high of C$18.80, now trading at C$3.45 per share. The most recent CKG equity issue I can find was a warrant exercise early in 2012 of C$35.24M at C$8.00 per share. This Canadian explorer plans to develop its world-class Metates gold-silver-zinc project in Durango State, Mexico.

CKG's March 7 updated pre-feasibility study (PFS) shows Proven & Probable (P&P) reserves of 18.3Moz-Au, 502Moz-Ag and 4Blbs-Zn. Chesapeake, like Exeter, also plans to now do a phased mine development at 30K tpd for 4-years and then up to 90K tpd until year 27 funded from internal cash flows, followed by ten more years processing the stockpiled ore. The highest grades will be mined first at a very low strip ratio, with low energy costs and near key existing infrastructure.


Highlights of the PFS are Phase 1 CapEx of US$1.9B (includes US$244M contingency), with gold cash costs of US$339-US$346/oz over the first 10-years for annual production of ~146Koz-Au, 14Moz-Ag and 115Mlbs-Zn. Phase 2 CapEx is US$1.59B (includes US$253M contingency) for 700Koz-Au per year over 10-years starting in year five, with life of mine all-in sustaining costs (AISC) of $662/oz. The base case pre-tax net present value (NPV) is US$1.78B at a 5% discount rate and the after-tax NPV is US$737M, compared to CKG's market cap of only C$153M (US$124M).

CKG has C$24M (US$19M) in cash and marketable securities with no debt. At C$3.45 (US$2.79) per share, if you subtract the cash from the market cap and divide this US$105M by 18.3Moz-Au it equals ~US$5.74/oz for higher confidence P&P gold reserves, and on an AuEq basis it is even lower after you factor in all the silver and zinc. My focus is on precious metals, but four billion pounds is a lot of zinc with higher prices expected as record shortages widen into 2017—Ireland's Lisheen mine and Australia's Century mine are now closed. Also from the PFS, "Metates is unique in that building either a large or smaller initial mine, the project is economically viable at current metal prices."

The 81 Billion Pound Gorilla (Cu, 107Moz-Au, 5.6Blbs-Mo, 514Moz-Ag)—Sink Or Swim In Alaska

(TSX:NDM)(AMEX:NAK) Northern Dynasty Minerals is listed on the TSX and NYSE MKT with a 2011 high of C$21.50, now trading at C$0.45 per share. The most recent NDM equity raise I can find was last year for C$5.2M at C$0.412 per share. This Canadian exploration company plans to develop its world-class Pebble copper-gold-molybdenum-silver project in southwest Alaska, USA.

NDM describes Pebble as comprising one of the world's greatest stores of mineral wealth. On first glance I had assumed this was a typical exaggeration—boy was I wrong. NDM's fact sheet shows M&I resources of 57Blbs-Cu, 70Moz-Au, 3.4Blbs-Mo and 344Moz-Ag, and Inferred resources of 24.5Blbs-Cu, 37Moz-Au, 2.2Blbs-Mo and 170Moz-Ag. Below is from NDM's March presentation which ranks Pebble as the world's largest undeveloped copper deposit AND largest undeveloped gold deposit. If running today it would be the world's 9th largest copper mine and 2nd largest gold mine.


NDM's December balance sheet shows ~C$9M in cash and marketable securities with no debt. At C$0.45 per share, if you subtract this cash from the C$100M market cap and divide this C$91M (US$70M) by 107Moz-Au it equals ~US$0.65/oz—under a buck an ounce gold! NDM's copper is worth more than its gold and if divided by 81.5Blbs-Cu (81,500Mlbs) it equals ~US$0.00086/lb—9/100th of a cent per pound copper! You can also work out the separate in the ground moly and silver values, but I could not find the cheaper and more meaningful AuEq or CuEq combined resources.

NDM's C$100M market cap is not only cheap compared to its ginormous resources, and the C$155M showing in shareholders equity, but also when considering the $750M spent advancing the project. Most of this, US$573M, came from Anglo American between July 2007 and December 2013. Anglo withdrew from the 50:50 JV and now NDM owns 100% of Pebble's mega-deposit, which it wants to develop into a modern, large-scale, long-life, open-pit or high-volume underground mine, or both.


Why so cheap you say? Some doubt if NDM can meet the above project status timeline with a mine producing in 2024. This year's catalysts are various studies and economic assessments from pre-feasibility to environmental and socio-economic. The permitting process shows as starting this year with approval in 2020—remember I mentioned how permits are seen as critical value multipliers.

Sockeye! No I didn't sneeze I meant red sockeye salmon north of Bristol Bay and Iliamna Lake. The watershed around the world's largest copper and gold resources contain the world's largest spawning grounds, biggest runs, best sport fishing and half the commercial supply of wild sockeye salmon.

Minimizing environmental disturbance with a comprehensive mine reclamation plan are key steps to getting the EPA's nod during the permitting process. Feedback and change requests are not unusual but Pebble's development has received serious pushback from conservationists, fishermen, tribal groups, national environmental groups, Hollywood celebrities, wealthy activists to the White House.

Alaska is earthquake prone and my understanding is that NDM needs to convince the EPA how its leach pads and dams will not fail (which contain the mine's vast amounts of waste rock) and will not leak copper which can affect how salmon smell and find each other to migrate and breed. So is NDM a bet on mine technology, political change, recession and needed mining jobs, or legal challenges?

20 Million Ounce Golden Bear In Alaska—NPV Alpha Rocket Fueled By Higher Gold Prices

(AMEX:THM)(TSX:ITH) International Tower Hill Mines is listed on the NYSE MKT and TSX with a 2011 high of US$10.49, now trading at US$0.64 per share. The most recent ITH equity raise I can find was in late 2014 for C$8.4M at C$0.46 per share. This advanced stage Canadian explorer plans to develop its world-class Livengood gold project located 70 miles northwest of Fairbanks Alaska, USA.


M&I gold resources are shown as 15.7Moz at 0.61 g/t and 4.4Moz at 0.52 g/t Inferred. The company's mine plan is to produce ~578K ounces per year over 14-years, with almost 700K ounces per year in the first five years. THM's US$75M market cap, less its cash, implies a gold value of ~US$3.48/oz.

Scanning the 2013 technical report, total costs are close to $3B (plus sustaining capital of around another $B) based on US$1,500 gold, with a longer 10.8 year payback, low 1.7% IRR and a negative NPV of -$440M. The price sensitivity table does not show a positive NPV until US$1,700 gold, but at US$1,900 gold it is $1.1B. The bet is will higher gold prices again morph a negative value asset into a billion, and carry THM from today's $0.64 per share ($0.18 low in January) closer to its 2011 highs?

Livengood is in a less enviro-touchy area of Alaska, surrounded by mines, which should make for a much easier go at permitting some day. I can wait for a 20Moz lower grade optionality play as long as it does not need to dilute just to survive until gold prices are flying again. THM has strong backers (Paulson & Co. hold 19.8%, Tocqueville 19.7%, AngloGold Ashanti 9.5%) and had over US$50M in cash four years ago with no debt, however the May 6 Q1 shows only US$5.1M in cash with a working capital deficit now up to US$9.9M.

Large High-Grade Silver Tiger In China—Nickel An Ounce, Low CapEx, No Debt, Thin & At Cash

(TSX:MSV)(OTCBB:MISVF) Minco Silver is listed on the TSX and OTCQX with a 2010 high of C$7.14, now trading at C$1.22 per share. The most recent MSV equity raise I can find was in early 2011 for C$45.22M at C$5.95 per share. This Canadian silver company has two development assets along the Fuwan Silver Belt in Guangdong, China. MSV's flagship resource continues to be 90% of the Fuwan Silver Deposit, and last summer it purchased (TSX:MMM)(AMEX:MGH) Minco Gold's 51% interest in the Changkeng Gold Project—located right beside the Fuwan silver deposit.

MSV describes the Fuwan Silver Project as exceptional to develop with nearby infrastructure including immediate access to roads, rail, power, water, and skilled labour, which provide much lower capital costs versus comparable projects globally. The company's website shows Fuwan's silver resources in ounces of 55.3M Probable Reserves at 189 g/t, 93.5M Indicated at 182 g/t and 63.3M Inferred at 174 g/t, with only 2.8 km of the 10 km strike length having been explored.


MMM's website shows Changkeng's gold resources (now 51% owned by MSV) of ~623Koz at 4.89 g/t Indicated and ~387Koz at 3.01 g/t Inferred, plus silver resources of ~1.4Moz at 11.2 g/t Indicated and ~1.2Moz at 9.5 g/t Inferred. In AuEq terms this works out to ~647Koz at 5.08 g/t Indicated and 407Koz at 3.16 g/t Inferred. The bottom line is that MSV's Fuwan and Changkeng resources together work out to around 200 million ounces of silver and half a million ounces of gold, so far.

Unravelling Asian corporate structures with cross ownerships can be tricky, but from an operational and marketing perspective the Changkeng deal simplifies development of adjacent silver and gold deposits together under one umbrella instead of two associated but separate companies. I am also looking at MMM, which owns 11M shares of MSV, as a possible backdoor into Minco Silver. MMM's December 2015 balance sheet shows no debt, ~C$5.6M cash, plus ~C$4M in marketable securities (which I presume are MSV shares now worth ~C$13.4M). In other words at C$0.41 per share MMM's C$20.8M market cap compares to C$19M in cash and MSV shares held, which provides no discount to just holding MSV shares unless you also value MMM's exploration plays.

The feasibility study (FS) is a few years old and needs to be updated with Changkeng's gold resources. Some highlights are a 3K tonne per day operation over 9.2 years, with a decent 91% mill recovery, producing 5.5 million silver ounces per year at a low US$5.65/oz cash cost, resulting in a quick 2.3 year payback and robust 33% IRR before tax. Total revenue is US$648M with almost half or US$310M in operating cash flow, or US$111.5M NPV at a 6% discount. These are based on only US$13.57/oz silver which may show a substantially higher net present value at today's US$17.11/oz. So why has MSV dragged along its decade lows at under C$0.60 a share over the past year, until a month ago, with such a positive FS that should be financeable even at silver's lowest price this year?

China is the world's largest gold producer and second largest silver producer, but some argue that its bureaucracy should be avoided. I say no more than most other non-Americas countries as mining transactions do get done, such as (NYSE:EGO)(TSX:ELD) Eldorado Gold's US$300M deal signed two weeks ago to sell its Jinfeng mine. (TSXV:SGC)(OTCBB:SGCNF) Sunridge Gold was mentioned in our February 29 Tweet, Hot Sheet and our blog's weekend recap newsletter as a short-term arb-like play with a Chinese group buying SGC's 60% of the Asmara copper-zinc-gold project in Eritrea which offered a cash distribution significantly higher than SGC's price—which just closed.

In any event MSV and MMM are audited Canadian public companies required to follow TSX rules. My February 22 article featured China's largest silver producer (TSX:SVM)(OTCBB:SVMLF) Silvercorp Metals after it bottomed at C$0.60, now C$2.62 after touching C$3.10 on April 27—over a five bagger in just three months. As a developer MSV is not yet producing but has similarly large high-grade silver deposits, and now high-grade gold which is what first caught my eye last summer.

Here's the really good part! At first I assumed MSV's mine must also cost a fortune to build but to my surprise pre-production mine capital costs are only US$73.1M plus US$8.3M in working capital. Cheap, but I bet MSV has no cash and a ton of debt; wrong, as of the end of last year MSV's balance sheet shows C$26M+ in cash plus C$32M+ in marketable securities and no short- or long-term debt. Shareholders equity is C$110M or C$1.84 per share (not including today's higher silver price or MSV's new gold resources) versus only a C$73M market cap at C$1.22 per share.

Not only is MSV trading 34% below book, it has almost C$1 per share in cash (C$58M / 59.7M shares outstanding) to cover a good chunk of the US$81M CapEx costs. The balance sheet is clean and could easily support some debt, or a combination of the financing options mentioned earlier, at least until the share price and market cap is sufficiently higher than equity before issuing more stock.

At recent market lows you could buy mining shares that represent gold in the ground for ~US$10 an ounce. MSV now owns half of 1Moz-Au so if you subtract US$5M from its US$57M market cap, less cash of US$42M, and divide this US$10M by 200Moz-Ag it suggests the market is valuing MSV's silver in the ground at ~US$0.05/oz—only a nickel an ounce silver! With such ridiculously low values I'll take a chance on China and I'd be surprised if MSV is not already on a few takeover radars.

My bet is that MSV wants to avoid debt or expensive dilution and may simply wait for US$20+ silver again, and will grow resources and finance its mine as share prices move closer to previous highs. This is just a guess as it is hard to even read between the lines with both Minco's so quiet—their latest news releases were in August. MSV trades thin with a tight unpolluted share structure and is seriously under followed. I expect that may change as Minco Silver starts raising equity again, when brokers and analysts usually take notice and make recommendations after gorging at the financing fee trough.

Conclusion

Producing miners regularly replace depleting resources either through exploration or M&A. Friday saw (NYSE:GG)(TSX:G) Goldcorp's C$520M all stock deal for (TSXV:KAM)(OTCBB:KMKGF) Kaminak Gold and its Yukon Coffee gold development project. All stock deals which closed in April include Africa producer (TSX:EDV)(OTCBB:EDVMF) Endeavour Mining's C$226M merger with (TSXV:TGM) True Gold Mining for its Burkina Faso Karma mine (first gold pour was last month), and South America silver producer (NYSE:TAHO)(TSX:THO) Tahoe Resources' C$945M deal for (TSX:LSG)(AMEX:LSG) Lake Shore Gold and its two producing Ontario mines. I also followed (TSX:KGI)(OTCBB:KGILF) Kirkland Lake Gold's C$178M deal for (TSX:SAS)(OTCBB:STADF) St Andrew Goldfields and its Holt and Holloway mines and Taylor project, which closed in January.

The majors seem only interested in high grade, low cost, late stage development projects (or already producing mines) as small profitable bolt-on transactions to be paid for in paper. But watch how small and safe turns into big, risky deals all over again as capital, egos and appetites grow with gold prices.

These short company videos are informative and high quality: Exeter Resource 3D Caspiche model, Chesapeake Gold Metates project, Northern Dynasty Minerals Pebble project HD, Minco Silver 3D Fuwan model and International Tower Hill Mines Livengood project. Our friends at Palisade Research cover some of these stocks in an insightful article last month called, The Power of Optionality: Making 150% In Four Months.

My calculations and observations are as an individual investor and are not recommendations. Data comes from financial reports, news releases, company websites and other public sources that may not be accurate, complete or up to date. There may be conflicts of interest as I own stock in some of these companies. I share these ideas in hopes that readers will comment on them and on other company stock boards at our website with your own insights, opinions and anything I may have missed.

Sign-up at InvestorsGuru.com (or blog.InvestorsGuru.com) for our Small Cap Stock Observer newsletter, and to set-up your own My Portfolio, My Watchlist & Alerts and News by Email preferences, or quote to comment at our AnyTicker.com Bulletin Boards. Free!

Please note that nothing in this report should be taken as a recommendation in any way, and that everything from InvestorsGuru.com is subject to the terms of our Privacy Policy and Disclaimer.

Miners I'm Buying And Why - Part III: 2016 market stages set; Penny stock gold producers update - Small-Cap Stock Observer

Macro Events In A Tired Bull Market: Predictors, The Fed, Debt, USD, China, Oil, US Election

Markets so far this year remind me of two years ago when I wrote the article January Effect, Shrinkflation, Gold & Uranium. After strong gains in 2012, followed by a roaring 2013 which saw the S&P 500 +29.6%, NASDAQ +38.3% and DJIA +26.5% to 16,576.66 at year's end, it wasn't much of a surprise to see January 2014 pull back and end at it's low for the month at 15,698.85 -5.3%. That January Effect called for a flat to down year; instead the Dow bottomed at 15,372.80 going into February but by December was over 18k for the first time and ended 2014 at 17,823.07 +7.5%. Last year the Dow was -3.7% in January and did end 2015 down overall at 17,425.03 -2.2%.

While this market predictor has an impressive long-term track record going back to 1940 and seems to work better during rising rather than falling Januaries, it hasn't worked as well lately. Then again this hasn't been a typical 4-year bull market but instead has lasted 7-years as of this March, so far. Maybe dips are just bought faster today by rational algo-trading computer programs instead of staying down longer or falling further as a result of people overreacting mainly on greed and fear impulses.

For what it's worth the Dow ended January at 16,466.30 -5.5%—similar to 2014 which later broke all-time highs. The point is that from the January Effect to the Super Bowl Indicator to the Presidential Cycle, I'm more interested in why a predictor should work again rather than what happened before. I still believe it all boils down to Fed actions that move the M2 ever higher with so many trillions of liquidity pumped into the financial system as ZIRP debt that stock markets could only go higher.

The problem is happening now as these returns eventually diminish and falter while the debt remains. After several quarters of bluffing, the interest rate Boogiewoman's poker hand was finally called in December—to preserve credibility the Fed raised rates a quarter point. It's hard to believe the carnage seen in global markets last month was the result as rates were 0% to 0.25% before the bump. If this was the cause then how can a forecasted 1.375% occur this year as the rate didn't really change yet?

The Fed has painted everyone into a dangerous Keynesian corner. Other than stock market gains and more part-time jobs, where is the inflation threatening economic boom that warrants higher interest rates? They do need to tighten, if for no other reason than to be able to ease rates again going into the next recession but this should have happened sooner as doing so now may provoke its timing.

The Fed needs this arrow back in its stimulus quiver but must worry about the fallout of even slight US rate hikes on history's largest debtor nation. Debt is supposed to be reduced during boon times as budget surpluses occur; instead government fiscal deficits persist and debt keeps growing. The result is that instead of financial engineering smoothing out boom and bust cycles, volatility gets worse.

It is unknown how much debt will represent the exact tipping point when confidence in the dollar is lost, but governments and the Fed seem determined to find out. Overspending continues to be our kids problem as we blindly presume these debts will forever rollover in our own currency. China's insatiable demand growth for oil, gold and other commodities, combined with its foreign reserves now over $4 trillion, could provide the leverage for prices to also be set in their own money. As USD demand falls its value could spiral down even faster if holders of US debt start to demand renewal payment terms in their own fiat scrip—USD checkmate regardless of how many get printed.

In the ongoing currency race to the bottom, Japan's savers now have the same dilemma as most of Europe with negative interest rates. It's China's turn to devalue but this is unlikely until after the US election and by then the Yuan / Renminbi will have officially joined the USD, Euro, Yen and Pound as IMF SDR's. King dollar and its veto still dominates the world's reserve currencies but for how long?

Many blame last month's worldwide stock market rout on China's expected growth dropping to 6.5%. I'm only partially convinced as exports to China represent very little of US GDP which supposedly is in good times with rising interest rates but barely 2% growth. And I don't buy the argument of starting from a smaller base anymore as China has surpassed Japan as the world's second largest economy. China is having overcapacity growing pains but is still in an enviable position with excess reserves to stimulate. Over 70% of our economy depends on credit stretched consumers, so why should China even worry about exports with more than a billion citizens yet to convert into eager shoppers.

The lower oil excuse also makes little sense. Markets are forward looking which implies lower energy costs for everything. Unless you produce oil this is good, not bad for the economy. Lower energy costs improve profit margins and consumers get meaningful extra discretionary income to spend. Saudi Arabia is blamed for crashing oil prices to kill the fracking industry but I'm sure the lower energy costs positive stimulus effect on the economy is not lost on the government or the Fed.

Fracking will come back as oil prices rebound so I doubt the Saudi's came up with the idea of giving up billions of revenue in the meantime all on their own. Then again dramatically lower oil prices also hurts Iran whose oil is coming back on stream and pressures Russia's economy. Many speculate the Saudi's were influenced into lowering oil prices in the 1980's as the real reason the Cold War ended.

Instability favours gold and I believe the US dollar is headed lower, but the hard part is figuring out the short-term as the USD is still the least dirty rag in the currency hamper. The USD Index remains high at ~100 with reasons to go either way this year. Much depends on whether the US economy jumps as past QE programs with lower energy prices stimuli finally trickle down to main street—holding the dollar and stock markets together at least until election season is over.

Higher interest rates usually strengthen a currency which make imports cheaper, although exports are hurt as they cost buyers more. The trade deficit shows the US still buys over $40 billion a month more than it sells, so this appears to be another net benefit to the majority of US voters. On the other hand our stock markets and the USD can be affected by any number of negative political events which could rekindle economic fires from China, Russia and the Middle East to Europe's PIIGS countries.

As for US politics both parties mismanage debt. However over the past three decades we have seen two major bull markets from 1995-2000 and 2009-present both started under democratic presidents, with three US stock market crashes started under republican presidents in 1987, 2001 and 2008. Call this coincidence if you want but wars are costly with both Iraq wars starting under republicans and ending under democrats with 1998-2001 being the only years going back to 1969 with a US budget surplus. How many wars would Bush have avoided today in Syria, Egypt, Libya, North Korea, Ukraine and Iran? Superstitious investors are likely cheering the Panthers and voting Billary.

Precious metals, energy and most commodity prices tend to be inversely correlated with the USD. I'm still gradually buying producing gold, silver and uranium mining stocks on dips so I'd be interested in your opinion on where the USD is headed from its apparent 100 pivot point on the chart below?


News Updates On Gold Stocks Previous Mentioned

For my contrarian value investing style, how I currently look at gold market risks, why I am buying producing mining stocks instead of bullion going into the next gold cycle, see Part I and Part II. (NYSE:ABX)(TSX:ABX) Barrick Gold is a major producer mentioned in Part I at $7.51, now $9.25, and (TSX:PRU)(OTCBB:PMNXF) Perseus Mining, (AMEX:BAA)(TSX:BAA) Banro Corp. and (AMEX:TGD)(TSX:TMM) Timmins Gold are penny stock mid-tier producers detailed in Part II.

On January 21, Barrick reported in line preliminary 2015 full-year production of 6.12 million ounces of gold and 511 million pounds of copper. ABX continues to deleverage its balance sheet having met its $3 billion or 24% debt reduction target but indicates Q4 results on February 17 will show ~$3 billion in impairment charges on goodwill, Pascua-Lama and Pueblo Viejo. I'm still just watching.

Perseus' January 27 Activity Report shows full-year production and cost guidance to June 30, 2016 of 172k-192k ounces of gold at all-in costs of US$1,130-US$1,250 per ounce. PRU has been profitable as expenses are paid and reported in Australian dollars while gold is sold in USD, plus they still have over 120K ounces sold forward at US$1,276 or ~A$1,800. PRU's P/E is less than two but trades under C$0.30 for the first time in months as they deal with expected temporary issues as operations move to higher grade pits. PRU also prudently delayed the full-scale construction decision for its Ivory Coast mine until gold prices rise, preserving its cash and bullion now at A$99 million plus A$35 million in hedges. PRU has millions of ounces and an operating mine in Ghana with no debt, which the market ignores as C$154 million in market cap is less than its A$165 million in working capital alone.

Banro's two producing gold mines are in the Democratic Republic of Congo with two more waiting to be developed. BAA still trades at US$0.18 even as full-year production met guidance of over 183k ounces. Twangiza's production was +38%, exceeding guidance again at over 135k ounces. BAA's November 11 Q3 shows record EBITDA of $20.3 million +46% and $54 million YTD +118%, with lower cash costs of $501 per ounce at Twangiza. The big news is that commercial production was just declared at Namoya, which produced ~16k ounces last quarter and is expected to produce 9k-10k ounces per month at full capacity. More big news is that a strategic Chinese mining group is expected to soon close US$98.75 million in an equity private placement, a term loan facility, and a gold stream.

Timmins has been a disappointment and is down but not out. I wrote that TGD indicated a significant impairment charge was coming—to me that means 20%-30%. TGD's Q3 instead reported a whopping $226.5 million write-down, around 80% of assets. Also, TGD's San Fransisco mine will stop open-pit operations mid this year, effectively turning it back into a developer after they process the ore on the heap-leach pads by this time next year, unless gold prices rise. However even after these blows TGD's balance sheet still shows ~$100 million in shareholders equity with a market cap of only $42 million at US$0.13 per share. I liked the November 12 Ana Paula infill drill results of 122 meters of 4.45 g/t Au and 88 meters of 7.14 g/t Au, but not that it took a month to renew TGD's yearend loan of $10.2 million or the share price hit until then. I may still add on dips as I still think TGD is in play.

Next week I'm going into some of the larger undervalued gold producers I have liked for a long time, but which I have held off buying or writing about in hopes they were near breaking key technical support levels and would become significantly more undervalued. I thought this could happen in December during tax loss selling season but it did not. However, even though gold prices so far this year have only trended higher, with the global stock market sell-off last month a few of these gold stocks finally cracked and bounced off of new lows without any specific company reason I can find.

My calculations and observations are as an individual investor and are not recommendations. Data comes from financial reports, news releases, company websites and other public sources that may not be accurate, complete or up to date. There may be conflicts of interest as I own stock in some of these companies. I share these ideas in hopes that readers will comment on them and on other company stock boards at our website with their own insights, opinions and anything I may have missed.

Sign-up at InvestorsGuru.com (or blog.InvestorsGuru.com) for our Small Cap Stock Observer newsletter, and to set-up your own My Portfolio, My Watchlist & Alerts and News by Email preferences, or quote to comment at our AnyTicker.com Bulletin Boards. Free!

Please note that nothing in this report should be taken as a recommendation in any way, and that everything from InvestorsGuru.com is subject to the terms of our Privacy Policy and Disclaimer.

Miners I'm Buying And Why - Part II: Three exceptional value penny stock gold producers - Small-Cap Stock Observer

Three exceptionally deep value penny stock gold producers with huge growth potential

For a look into my contrarian value style of investing, how I currently view overall market risks, why I am buying producing mining stocks instead of bullion going into the next gold cycle, see Part I.

From the few hundred gold and silver stocks I have been studying this year, with about 80% rejected quickly, each of my articles over the next several months will focus on a different group. The good news is that some miners did a great job. Skilled management with some timing luck is usually the difference; but these are just buzzwords and I still need the math to be there—show me the money!

I don't agree with analysts who favour the few remaining gold producers with positive earnings. I focus on vital cash flows, reserves and book value as earnings can be illusive after non-cash items like depreciation and heavy impairments recently which may get revalued again with higher gold prices. P/E positive miners may have fallen less but if their razor thin profit margins start to disappear they could suffer more—I'd rather wait until their downgrades as the dirty laundry gets fully aired out.

Short sellers know that some institutions and ETFs also sell if dividends get cut or shares fall below key $5, $2 or $1 technical levels as call/put optionability ends, some exchanges threaten to delist, or to avoid the stink of holding a penny stock which could raise questions at bonus time. As long as the fundamentals remain intact, contrarians recognize this buy-high sell-low attitude and the extra value it may represent as the stock returns above these key price levels with boosts as institutions buy again.

Until recently I couldn't find any penny gold stocks with leveraged tangible value. To me that means companies still building cash operating profitable mines at current gold prices, with little debt and world-class resources offering superior growth for many years. In other words the babies thrown out with the bathwater which probably would have been acquired by now in a better gold market.

I'm also starting with these very low priced stocks as their charts seem to have plateaued which is when I prefer to build positions over time. Other mining stocks I like are technically still sliding down the wrong side of the mountain and hopefully will also signal a bottom before I write about them.

(TSX:PRU)(ASX:PRU) Perseus Mining is listed on the TSX and ASX with a 2011 high of C$4.21, now trading at $0.33 per share. This Australian gold company focuses on production and development in West Africa. The projects overview at the company's website describes Edikan as a group of large deposits with 2.35Moz of P&P reserves at 1.2g/t plus 5.25Moz of M&I and 2.17Moz of Inferred at 1.0g/t. With 480km2 centred in Ghana's Ashanti gold belt, Edikan started commercial production in 2012 with exploration ongoing to extend mine life at nearby prospects: Bokitsi, Mampong, Pokukrom and Agyakusu. East of Edikan is their 39km2 Grumesa with 471Koz of M&I plus 247Koz of Inferred.

The company's Ivory Coast Tengrela project shows the Sissingue gold mine has 427Koz of P&P reserves at 2.4g/t plus 880Koz of M&I and 63Koz of Inferred at 1.7g/t. April's revised feasibility study confirms robust economics and July's news said mine construction would start in the September quarter with a first gold pour in 14 months. Nearby prospects include: Mbengue, Mahale and Napie.

Perseus also has a strategic alliance and owns 12% of Burey Gold, with a first right of refusal on the sale or farm-out of its Guinea, Democratic Republic of Congo and other African mineral interests.

Quote T.PRU at our website and then click the Financials tab which shows the real magic. As of the end of June Perseus had approximately: $100M cash, $39M receivables, $42M inventory and $6M prepaids or almost $208M in current assets versus current liabilities of less than $37M. Shareholder's equity is $550M which is over three times its current market capitalization of $175M, with no debt!

The 2015 financial year report on August 28 shows a record profit after tax of A$92.2M or 16.7 cents per share, up A$124.2M or 288% compared to FY2014 results. Highlights include: revenue +26%, expenses -10%, foreign exchange gain of $52.4M, cash +181% to A$103.7M or 19.7cps, cash and bullion +61% to A$127.3M or 24.2cps, working capital +157% to A$177.6M and no third party debt!

Edikan's gold production was +17% to 212Koz, AISC -32% to US$877/oz sold at US$1,324/oz on average. This 200Koz+ mid-tier should grow as its mines have low costs now and the pit shells can be adjusted to make money well below $1k gold. While other profitable low-cost producers are rewarded with premium share valuations, PRU now trades at a P/E of only 2.2—that's not a typo, not 22 but 2!

Perseus' October 21 activity report shows Edikan's quarterly production of 44,267oz meets guidance with unit mining costs -45% and processing costs -15%. All-in site costs were 4% below the bottom end of guidance at US$1,060/oz (including development and sustaining capital) sold at an average of US$1,291/oz. Open-pit development remains on schedule and under budget. At Sissingue a mining convention was signed with the Ivorian government and early works have started with a full-scale construction decision set for the December quarter pending satisfactory financing.

PRU's market cap is less than its A$191.2M debt-free working capital base after adjusting for the 7% lower Ausi dollar. As of September 30 Perseus' cash and bullion was A$131.8M, up A$4.5M for the quarter. Subtracting A$131.8M or ~C$123M from the C$175M market cap means the market values the rest of the company at only C$52M. Surely the plant and equipment alone are worth more than this, which means we can't value the 2.78Moz of proven and probable reserves, or 12Moz identified in all categories, as they are totally discounted—priced at less than zero! Still believe in efficient market theory? Please don't wake up private equity!

While I prefer miners in safer jurisdictions and with a tighter than ~529M share structure, I have to give Perseus top marks in every other area. Whether by skill or luck they even locked in superior profit margins with futures starting when gold was around $1,500/oz—last month's report shows 149Koz sold forward at US$1,240/oz, worth A$26.5M. Non-US miners (with gold revenue priced in US dollars and costs paid in local money) can also act as a natural hedge against opposing USD/gold price swings as they can win even as gold falls as long as this is offset by lower local currencies.

Now you can see why Perseus Mining was recently added as the #1 stock on our Top 30 Small Caps. Can anyone show me another producing gold miner making money at C$0.33 per share with half of this in profits, more than two-third in cash and bullion, debt free and with world-class assets of 12M essentially free ounces to mine for decades? Here's an interesting CEO interview video made in 2014.

(AMEX:BAA)(TSX:BAA) Banro is listed on the NYSE MKT AMEX and TSX with a 2012 high of US$6.05, a 2006 high of US$14.60 or C$16.50, now trading at US$0.18 per share. This Canadian gold company focuses on production and development in the Democratic Republic of Congo (DRC). Banro's 14-year Twangiza mine started commercial production in 2012 and has 1.64Moz of P&P reserves at 2.28g/t, plus 810Koz of M&I oxide ore at 2.02g/t and 60Koz of Inferred at 1.32g/t, plus 4.45Moz of M&I transition and fresh ore at 1.43g/t and 420Koz of Inferred at 1.12g/t. Last week's strong Q3 production report was 34,824oz +28% versus Q3 last year, with 105,092oz so far this year.

Banro's second mine continues to ramp up with commercial production expected by the end of this year. The Namoya mine is 200km southwest of Twangiza and has 1.27Moz of P&P reserves at 1.92g/t, plus 1.74Moz of M&I at 1.88g/t and 330Koz of Inferred at 1.63g/t. Heap leaching oxide ore takes several months for full gold recovery with stacking levels now at 447K tons. Q3 production was 12,157oz +160% versus Q3-2014 and at full capacity Namoya should produce 9K-10Koz per month.

Banro's 2015 guidance is 175K-195Koz which may grow to 250Koz+ per year over the next year or so on these two mines alone. That's enough short to near-term production growth to catch my attention but there's so much more. In between these two operating mines are two more large mines to be developed. Lugushwa has 730Koz of Indicated oxides at 1.35g/t and 310Koz of Inferred at 1.56g/t, plus 3.22Moz of Inferred transition and fresh at 1.54g/t. Kamituga has 320Koz of Inferred surface ore at 2.40g/t and 600Koz of Inferred underground ore at 6.00g/t.

The scaleable potential of these world-class, high-grade, open-pit gold plays are what really excites me. Banro has 13 mining licenses over 2,616km2 of all the major historical gold producing areas of the Twangiza-Namoya belt where ~2.4Moz were previously mined. The company was also awarded 14 exploration permits covering 2,638km2 between its projects, with additional permits pending. Not just a series of properties or even a district usually measured in hectares, Banro is a first mover play on most of Africa's last-known undeveloped gold belt spanning over five thousand square kilometres!

After a decade of exploring only 5% of their claims, Banro has identified 15.9Moz of resources so far, broken down as 2.91Moz of P&P reserves at 2.11g/t for Twangiza and Namoya, plus 7.73Moz of M&I at 1.55g/t and 5.26Moz of Inferred at 1.67g/t over all four mines. The company's goal is to be a 500Koz+ per year very low cost gold producer that earns its motto, "the passion of a junior, the assets of a major." This Banro Corp. company video is informative but is a few years old.

BAA's August 12 Q2 shows record quarterly and half-year revenues of $42.6M +61% versus Q2 last year, and $83.6M +47% versus H1-2014. EBITDA of $34M +210% was also a record, versus H1-2014's $11M loss. Twangiza's H1-2015 cash costs were $558/oz -30% from $794/oz and AISC was $643/oz -29% from $902/oz in H1-2014. Twangiza's gold reserves even swelled +59% which extends the mine life back to 14-years utilizing the existing processing plant.

However, Banro's balance sheet is the main reason why BAA is only my second favourite gold stock—at least for now. As of June, current assets were ~$62M versus ~$112M in current liabilities, and with long-term debt of ~$166M. Debt is debt but this seems manageable with high-margin production ramping up nicely at both mines. Cash flow is building but has been needed to complete Namoya—see the Q2 mine under construction investment table which now is up to ~$396M.

Financing with debt or streaming to finish a producing mine is actually preferred over massive equity dilution at only pennies per share. With debt, and even after a ~$50M impairment charge, BAA still shows ~$450M in shareholder's equity, or ten times its current market value of $45M. Hopefully with Namoya nearly done, debt will be knocked out quickly to protect the common shareholders.

BAA's Q2 balance sheet shows ~$45M cash and inventory which is equal to its absurdly low $45M market cap. Why is BAA trading at cash with record revenues and EBITDA, huge high-grade gold resources at extremely high margins, tons of net equity to borrow against if needed, as its second mine ramps up production? The Sept 29 news that BAA's NYSE MKT listing may require higher share prices by the spring may upset some but doesn't affect intrinsic values. BAA may go higher by then, they could roll back and consolidate the share structure, or just trade on the TSX. What am I missing?

Many investors consider Africa unstable and the DRC especially risky. While I agree, everywhere has risks and I believe the DRC needs Banro as much as the reverse. Banro has employed thousands, built 500km+ of public roads and 90 bridges and supports many businesses. Its charity has completed 70+ social developments including 10 new schools plus 2 rehabs, a university women's residence, 4 health facilities, a marketplace, 4 water systems for 33K people, 2 basketball courts, sustainable farming etc. Future projects include a hydroelectric dam to benefit all while lowering Banro's energy costs around $100/oz! Banro received Best Employer in May and on October 19 won Best Performer in Social Investment with its founder nominated for Lifetime Achievement at the DRC Mining Awards.

(AMEX:TGD)(TSX:TMM) Timmins Gold is listed on the NYSE MKT AMEX and TSX with a 2012 high of US$3.47, now trading at $0.20 per share. This Canadian gold company focuses on production and development in Mexico. Timmins owns and operates the San Francisco open-pit, heap-leach gold mine in Sonora with reserves of 1.6Moz at 0.54g/t that currently produces 115K-125Koz per year at ~$800/oz cash costs with potential for higher grades along strike and at depth under the existing pit.

Timmins plans to grow its annual production profile to 220koz+ by developing its recently acquired Caballo Blanco 7.5-year project in Vera Cruz with ~688Koz-Au + ~1.3Moz-Ag recoverable at an $85M capex and $784/oz cash costs, and to 320Koz+ with its advanced Ana Paula 8.2-year project in the Guerrero gold belt. Ana Paula was acquired through the Newstrike Capital merger in May and looks more likely to be developed first with higher values of 1.86Moz-Au + 7.1Moz-Ag of M&I at a gold equivalent of 1.47g/t and 68Koz-Au + 664Koz-Ag of Inferred at 1.23g/t-AuEq.

TGD's December FY2014 balance sheet first caught my eye which shows approximately: $27M cash, $15M receivables, $47M inventory and $1M prepaids or almost $90M in current assets versus current liabilities of less than $38M which includes $14M in short-term debt. Shareholder's equity is $214M which is almost four times its current market cap of $57M, with no long-term debt. After the Newstrike merger the July 30 Q2 report now shows $81M in current assets versus $41M in current liabilities. Although these current amounts moved about 10% the wrong way, total assets grew 22% or $68M from $312M to $380M as total liabilities rose less than 2% or $2M from $98M to $100M.

Subtracting $40M in working capital from TGD's $57M market cap values the rest of the company at only $17M. Again the plant and equipment alone should exceed this, which means the gold at their operating mine plus the two mines acquired this year for around $125M have been totally discounted. The market is saying that Timmins' 1.6Moz of reserves plus over 2.6Moz in other categories, plus exploration potential from various claims on 200K+ hecatres of mineral rights in Northern Sonora, 45K+ha north of Zacatecas, 47K+ha south of Nayarit plus others areas are all worth nothing—wrong!

I thought TGD was undervalued even at this year's $1.27 high in January but I remained on the sideline as gold stocks were still sliding and were especially punished after making acquisitions. Short sellers lean even more on stocks that ETFs might unload if their market caps fall below arbitrary minimum levels and I knew (NYSE:GDXJ) Market Vectors Junior Gold Miners held 18M+ shares.

The GDXJ rebalances on the third Friday of each quarter and on September 18, with TGD's market cap below $75M, I had stink bids in hoping for an end-of-day avalanche. TGD/TMM daily volume was around 1M but traded over 24M shares that day. The GDXJ's 35M+ share hoard of Perseus was dumped then as well and its 25M+ shares of Banro were jettisoned September 19, 2014 near its low.

With the cloud of GDXJ selling now out of the way, TGD may have finally formed a bottom base. After the market close on that eventful Friday, Timmins announced the acquisition of a process plant for C$8M that will save US$40-60M in Ana Paula capex costs with (NYSE:GG)(TSX:G) Goldcorp making a C$6M investment to hold ~9.9% of its shares. Timmins may still need another ~US$100M but this should be easier now with a big chunk of its capital costs already out of the way.

However, I didn't like TGD's July 30 Q2 report with 2015 guidance lowering production by 15Koz at $875-$925/oz cash costs. Another concern was the October 6 leadership change news which also said their Q3 will provide an updated mine plan with a significant asset impairment charge. I can only guess if this is from low share prices and low gold, to position the company for financing or a buyout to appease some large shareholders, or something more serious. More should be known tomorrow after its Q3 operating and financial results. I found this Timmins Gold stock valuation video helpful.

My calculations and observations are as an individual investor and are not recommendations. Data comes from financial reports, news releases, company websites and other public sources that may not be accurate, complete or up to date. There may be conflicts of interest as I own stock in some of these companies. I share these ideas in hopes that readers will comment on them and on other company stock boards at our website with their own insights, opinions and anything I may have missed. I mentioned the above three gold stocks in an interview with Palasade Radio, posted yesterday.

Sign-up at InvestorsGuru.com (or blog.InvestorsGuru.com) for our Small Cap Stock Observer newsletter, and to set-up your own My Portfolio, My Watchlist & Alerts and News by Email preferences, or quote to comment at our AnyTicker.com Bulletin Boards. Free!

Please note that nothing in this report should be taken as a recommendation in any way, and that everything from InvestorsGuru.com is subject to the terms of our Privacy Policy and Disclaimer.