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Sigh…Gold Stocks

A couple of misses and a couple of really bad days for my gold stock holdings.  The fact that my portfolios are not down all that much is a testament to the power of cash (I am 55% cash at the moment), and shorts (while my banking short did not do well 2 days ago, they did quite well today, and I jumped on (off?) the Green Mountain Coffee bandwagon when I got a google alert yesterday morning about Einhorns presentation on the company (google alerts are invaluable tool in my opinion).  I am up a good chunk on that short right now.  Coastal has helped too.

But the gold stocks have been fairly distasterous.  First a miss by Argonaut Gold, followed by an even bigger miss by Jaguar Mining.   Aurizon Gold and Newmont didn’t miss anything but are respectively down 10% and 7%, presumably just for kicks.  And with gold down another $16 tonight so far, I am afraid the carnage isn’t over.

Let’s start with Argonaut.  I’m out!   Look, I like Argonauts prospects but I don’t like the cash flow they are going to generate this quarter from a little over 12,000oz of gold sales, which is 5,000oz less than last quarter.   With the stock being hardly down from its recent move up, I decided to break with the company for the moment.  I will look at the stock again when the dust clears.

Onto Jaguar.  I’ll admit that if Jaguar had been down 7-8% today I probably would have sold the whole thing and been done with it.  But at 20% down it just seemed to me to be a little overdone.

I sold half my position in Jaguar back in September but kept the other half because I trusted management too much and it did sound in August like they were having a good quarter.  So today was a bummer.  It was frustrating to see them fall so terribly flat.  The company has an “always something” complex.  Its always a one off problem but its always something.  However, I did buy back 1/3 of my original position today at the close.  The reasons I bought were:

  1. 21% is a lot to be down on a single day.  AEM shut a mine down today and it wasn’t down that much.
  2. They still are going to produce a lot of cash for the quarter.   They had 21.7M cashflow (0.25/share) from ops in Q2 on $60.6M of revenue.  In Q3 revenue was $70M and costs were roughly  $3.6M higher so cashflow from ops should be around $24-25M.  Of course its all the higher gold price but cash is still cash.
  3. While Paciencia sucked Caete looked like it finally turned around, and Turmalina looked fairly solid.
  4. The assets aren’t that bad (they haven’t had a grade type issue yet where the gold is actually not there) and with the right management I think someone might want to go in and buy the company at this price.  I mean you are getting total resource at less than $50/oz at this price.

Next is Aurizon, my as-it-turns-out-not-so-safe safe gold play.  I used some of the proceeds from Argonaut to increase my position in Aurizon.  Unfortunately it was a day or two too soon.  I bought most of my position in the $5.40-5.50 range.  Today the stock closed at $5.25.  Sigh…  I decided to go with Aurizon because they are really trading quite cheaply, they have around $1/share of cash on their balance sheet and no debt, and they should generate very strong cash flow in the 3rd quarter and going forward.  The theory is that this will somehow help the stock during these take downs.  Ha!  Not today, Aurizon was down 7%.

As for Newmont, its just another instance of trying to keep some exposure to gold stocks (which may be the essence of my mistake here) while not taking too much risk (which is beginning to look like an absurd statement in this market).  The stock has behaved pretty well, and low and behold it was down a mere 5% today.  Sheesh.

I guess the reality the market is telling us is that in a banking crisis, you are much better off owning banking stocks then gold stocks.  Clearly the losers of the collapse of fiat currency are the company’s who mine for the hard asset alternative.

Excuse the sarcasm.

Look, I am not going to get dogmatic here, and certainly not about gold.  The market is saying what its saying, as insane as it might seem.  I have raised more and more cash on every move back up (although never as much as I wished I would have raised in retrospect).  I’ve tried to take advantage of the moves down to make trades like I did today in Jaguar and earlier this week in Aurizon.  But its getting incredibly stressful to time these moves and deal with the volatility. Its wearing me down.

Probably the most frustrating part is how little time you have to get out when there is a move up.  I swear that on Friday afternoon the gold stocks peaked within the last 15 minutes of trading.  I pragmatically took money off the table.  Problem is, usually I do this in stage.  A little bit today, a little more tomorrow, gradually reducing the position down to a comfortable level.  No such thing in this market.  Friday afternoon the gold stocks peaked and on Monday morning most were down 5% within a few minutes of the open.  Same with Tuesday when Jaguar moved up.  I took a little off the table, but you have to do it all or nothing is this market, because as today is evidence, you just don’t get a second chance.

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