Posts from the ‘Lydian International (LYD)’ Category

Sep 14

Yesterday’s David Tepper Moment

David Tepper is a very successful hedge fund manager who, in the fall of 2010, went on CNBC and explained, with a simplicity that the market loves, why you had to own stocks.

“Either the economy is going to get better by itself in the next three months…What assets are going to do well? Stocks are going to do well, bonds won’t do so well, gold won’t do as well,” he said. “Or the economy is not going to pick up in the next three months and the Fed is going to come in with QE.

“Then what’s going to do well? Everything, in the near term (though) not bonds…So let’s see what I got—I got two different situations: One, the economy gets better by itself, stocks are better, bonds are worse, gold is probably worse. The other situation is the fed comes in with money.”

I am coining the phrase “David Tepper moment” to refer to a time when what appears to be the obvious thing to do is the right thing to do. A moment when the correct action is “just that simple”.

I believe that yesterday was a David Tepper moment for gold stocks.

May 10

Gold Stock Reversal

I am not a technician or a chartist and as a general rule I don’t pay much attention to that sort of thing. However I have learned to respect intraday reversals, and I have especially learned to respect them for gold stocks.

For whatever reason, I have seen more gold stock rallies fail after an intra-day reversal to the downside, and I likewise have seen more gold stock pummellings end after one to the upside.

Yesterday we had a very nice reversal in the price of many gold stocks. Morevoer, the reversal was led by the leader of the gold stocks, Newmont Mining. Newmont traded almost as low as $44 before breaking out to the upside and closing at $46.50.

Newmont was not the only gold stock to reverse. Of particular note for me was that Atna Resources had a hue reversal on the day, getting as low as $0.95 cents before closing at $1.10. Another stock that has shown the resilience of a leader, Argonaut Gold reversed from a low of $6.80 to close at $7.52.

It still remains to be seen whether this reversal holds. If it cannot hold through today and tomorrow its nothing more than a fake out. But given the level of selling that has overwhelmed the sector, it feels right to me for a change. Investors who have remained heavily into gold stocks have been absolutely pummelled, and yesterday, with the price of gold breaking down below $1600 per oz and with gold stocks opening down big in most cases, it feels a like a capitulation moment to me.

I have owned Atna Resources through the slaughter and ithas held up relatively well. I added to that position yesterday after it became clear it was reversing from its lows. I also added a position in Newmont. This could be considered to be a trade. Newmont at $44 does not seem like a terribly risky endeavour to me. Finally I added to my position in Golden Minerals and I added a position in Lydian International. Of interest, Lydian did not reverse higher as strongly as many of the other juniors. I suspect this is just a short term anomoly. At any rate I will be monitoring all of these positions closely and if the reversal fails I will likely be bailing out of Newmont, Lydian and probably Golden Minerals (though at $5.30 its hard to see this stock getting very much cheaper).

Mar 4

Week 35: Continuing to Move away from Gold: Out of OceanaGold, Canaco Resources, into Pan Orient Energy, Newcastle Investments

Portfolio Performance

Portfolio Composition:

Trades:

Sold the Gold Sell-off

This was the week where I got fed-up with gold stocks doing nothing and began to sell them en masse. I completely eliminated my position in OceanaGold, and in Canaco Resources. I dramatically reduced my position in Aurizon Mines, and somewhat reduced my position in Lydian International.

I do have to wonder whether the $90 drop in the price of gold was orchestrated. Interestingly, mention of such a possibility came from a rather unlikely place on Thursday, as I was sent the following excerpt from Dennis Gartman, who was quoting from a friend “near the centre of the events”:

Whether or not the plunge was orchestrated, I had to start removing dead weight from my portfolio and this provided a good excuse. As the price of gold fell and OceanaGold and Canaco Resources began to crack, I asked myself what am I still doing in these stocks? I couldn’t come up with a good answer so I sold.

In the case of OceanaGold and to a lessor extent in the case of Aurizon Mines, the catalyst that could move the share price higher remains somewhat in the distance. I am not seeing anything like the takeover frenzy that has been predicted by some, and so these stocks become waiting games; lined with the hope that either the market catches onto the name and bids it up, or that some sort of (lucky) catalyst emerges. I have not had very much luck investing on such hopes in the past.

In the case of Canaco Resources, I re-read my analysis of Magambazi. That analysis got a lot of attention during the early part of the week as it was posted on Stockhouse (by some guy who seems to be taking credit for doing the work – sigh). While I still question whether there is an error in my analysis, I do think I raised enough questions about the deposit, and enough uncertainty about the eventual resource estimate to be somewhat wary of the NI 43-101 that will be out shortly. I decided to step aside until that resource comes out, or the share price falls back to the point where I feel like the downside is priced in.

Adding to Newcastle, Pan Orient, Leader Energy Services

The other part of my reasoning for selling some of the gold names is I see better alternatives elsewhere. With oil at $100 per bbl I would rather be involved in oil companies with near term catalysts (Pan Orient) and service companies poised to take advantage of the move to drilling for more oil (Leader).

In the case of Newcastle, I listened to the fourth quarter conference call and reviewed the companies slides on mortgage servicing rights. This appears to be an opportunity that has been overlooked by the market. Newcastle is investing money into MSR’s with potential rates of return exceding 20%. If they inded capture these sort of returns, I expect a significant dividend increase and a move in the share price to around $10. I will write-up some of my findings with Newcastle later this week.

Oct 6

1 Comment

Rick Rule Agrees!

One Sunday I wrote a post describing why I am remaining bullish of gold mining shares. Nervously, I have stuck by my premise that many factors are aligning in favor of the gold mining stocks, and I have added to my position in the last two days. Tuesday was nerve wracking, and there were a few hours where I wasn’t sure if the market would ever stop falling, but I tried to look past the immediate carnage and capitalize on some of the opportunities I saw.

To that end I bought new positions in Brigus Gold, Aurizon Mines, and added to my position in Atna Resources. I now own a basket of mid-tier producers. I hold them nervously, but I still firmly believe that the factors I laid out on Sunday.

Today I found out I am not the only one. Rick Rule did an excellent interview with James Pulplava on September 28th where he laid out the bullish case for gold mining shares. He stated a lot of the same reasons that I outlined myself. On top of these though, he added a few more catalysts that should contribute to a favorable revaluation of gold mining shares over the medium term.

The project net asset values and existing project cash flows are being evaluated and valued off of much lower gold prices. Most project pre-economic assessments are being done at $1100/oz gold, and many done over the past couple years were done at even lower prices. As the brokerage community becomes comfortable with a higher gold price, these numbers should rise, as should the share price
Senior gold producers are finally beginning to generate significant amounts of free cash flow. Rule says that they expect the gold mining sector to generate more free cash flow this year than they have in the last 5 years combined. Many of the small and mid-tier producers trade at discounts to the seniors, so it is reasonable to expect that senior producers will begin to take some of them over.

Rule elaborated on the first point. He went on to say that at Sprott they had actually done the analysis on 5 non-producers with pre-economic studies but not with feasibility studies out to see whether you could take the companies private and achieve an acceptable level of return from them. They looked at the effects of hedging a portion of production up front with the takeover to help pay off the capital expenditures associated with building the mind.

I couldn’t help but think that one of the companies Rule likely evaluated was Lydian International. Lydian fits the description of a company with a deposit that has a pre-economic assessment complete. Rule has talked about Lydian before, calling them an excellent take-over candidate. And my own analysis on Lydian showed an upside to the stock of $6/share at $1300/oz gold. At $1600/oz gold the value of Lydian is literally multiples of the current stock price.

I also couldn’t help but think that if Sprott is performing this kind of analysis, it must be considering some sort of actions along these lines.

Rule said that of the 5 companies he evaluated there were 3 that passed the criteria. Some other companies that I could see being include in that evaluation are Trelawney, Spanish Mountain Gold, and Geologix.

All companies I will have to keep an eye on.