Timmins Gold: Anatomy of a Gold Stock Valuation
I’ve talked before about my “rule” to average down when a stock gets underwater by 20%. This 20% threshold is not so much a firm line in the sand as it is an alarm bell to remind me to review my position and clarify exactly what it is I am doing. While in most cases at the end of it all I do decide to reduce my position or exit it entirely, there are also cases where my review leads me to become more confident in my position, and where I do not reduce but instead even add to it.
The 20% threshold was recently broken with Timmins Gold. The stock dropped past $1.10 (it has since recovered to $1.20 and, to give away the ending, I did buy more at $1.10 so I am now down about 10%). I bought both Timmins and Argonaut Gold back in October (I wrote about the positions here) as a way to trade my expectation of higher gold prices in the near term. Obviously that thesis did not play out the way I had hoped, at least not yet.
As I wrote at the time, my research into both names was not exhaustive and I ended up taking the analysis of a few brokerage shops with more faith than I usually might. Well that was my first mistake. It turned out that the original brokerage analysis was quite flawed and two of the firms have since downgraded their estimates and the stock significantly, after the release of an updated mine plan for the San Francisco mine. In the case of BMO, the downgrade was from $2.75 to $1.50! Read more
Reminiscences of a Stockblogger 