Thursday, June 22, 2017

SLV - The Downward Trend Has Reversed

Most recently the iShares Silver Trust (SLV), the world's largest silver ETF, has been reporting the increased silver inflows to its vaults:


source: Simple Digressions and SLV

As the chart shows, since the beginning of 2017 there was a continuous outflow of silver from SLV (the red arrow). However, in the middle of April this trend reversed and since that time (with a short break in May) we have seen a rapid increase of silver holdings at SLV (the green arrow).

Interestingly, the metal is hoarded at relatively low prices.

Tuesday, June 20, 2017

Jaguar Mining - I Am Touched...

Just to finish the previous post on Jaguar Mining (JAGGF) - here is an excerpt from the last company's announcement (SEDAR):

"The following subscribers who are “related parties” within the meaning of Multilateral Instrument 61-101 (“MI 61-101”) participated in the Offering:
  • (i) 2176423 Ontario Ltd., a company controlled by Eric Sprott, an insider of the Company, subscribed for 4,545,455 Shares;
  • (ii) Tocqueville Gold Fund, which, together with its investment adviser, Tocqueville Asset Management L.P., is a control person of the Company, subscribed for 3,770,909 Shares;
  • (iii) Resolute Performance Fund, an insider of the Company, subscribed for 4,637,000 Shares;
  •  (iv) Rodney A. Lamond, the President and Chief Executive Officer of the Company subscribed for 35,000 Shares"
Well, it is fine to see other, besides Eric Sprott, notable investors among Jaguar shareholders (Tocqueville Gold Fund and Resolute Performance Fund - two very active funds investing in mining companies) but I am very, very touched by the last acquisition. The company's CEO, Mr. Lamond,  subscribed for...35 thousand shares of the company. Well, investment of C$15.4 thousand is very impressive. Let me look at his salary:
 
 
source: Jaguar Mining
 
So last year Mr. Lamond made C$268.5 thousand. Apart from this basic salary, the CEO owns 2.33M not-exercised options valued at US$625.6 thousand:
 
 
source: Jaguar Mining
 
Well, it is good that Jaguar's CEO invests in his company but the size of this investment is very "impressive". I am touched...
 

Friday, June 16, 2017

Jaguar Mining Finds Investors For Its New Shares

Despite poor 1Q 2017 financial results (mainly attributable to the unfavorable exchange rate between the Brazilian real and the US dollar), Jaguar Mining (TO:JAG) was able to find investors for its new 17.6M shares, issued through the last non-brokered private placement financing.

When the private placement was announced I was curious whether Eric Sprott, a notable Canadian resource investor, was going to increase its stake in the company. He was.

According to the last announcement (SEDAR), now Mr. Sprott controls 64.3M shares in the company (18.7%, including the new shares added through the private placement).    

What is more, the placement was priced at C$0.44 a share, around 10% above the current market price. 

As a result of the placement (and including the second tranche of the Sprott debt financing of US$5.0M), the company should hold cash of around US$29.0M and debt of US26.3M.

Additionally, this quarter the US dollar has strengthened against the Brazilian real (which is good for the company) but investors do not care and Jaguar shares are 40% down.


source: stockcharts.com


Wednesday, June 14, 2017

No Logic In Financial Markets - The Case Of Fairfax

I know it sounds trivial but there is no logic in financial markets. Let me take Fairfax Financial Holdings (FRFHF) as an example.

Briefly, Fairfax is an insurance company run by the so-called Canadian Buffett, Prem Watsa. The company, apart from running a typical insurance and re-insurance business, is also an active portfolio allocator (investing in equities, holding large long / short positions in equity futures, betting on major economic events etc.)

Now, shortly after the US presidential elections Fairfax made the following adjustments to its investment portfolio:
  • the US bonds exposure was radically reduced (the company sold-off a large portion of its US and Canadian treasuries)
  • a short position held on Canadian and US equity markets was radically cut
As a result, Fairfax positioned itself for higher equity prices and lower treasury prices.

What is more, the company (or, better said, Prem Watsa) was right. Since the US elections the prices of treasuries went down and the US and Canadian stock markets went up.

However, Fairfax share prices did something strange - they went down:


source: stockcharts.com

In the lower panel of the chart I have plotted Tembec share price action (Tembec is one of the largest equity holdings acquired by Fairfax a few years ago; a few days ago Fairfax sold part of its stake in Tembec).

Summarizing - Prem was right but the stock market was...more right?




Monday, June 12, 2017

Is The Copper Market Worth Nothing?

The copper sector looks like the precious metals segment at the end of 2015. Look at the current market valuations of a few copper plays:

source: Simple Digressions

Now most of the copper miners are trading at very low EV / EBITDA ratios. It looks as if the entire copper market was worth nothing or close to nothing.
Interestingly, most recently the copper mining companies made similar progress as the precious mining companies did and cut their costs of production significantly. Look at a number of copper plays and their operating costs:

source: Simple Digressions

Note: operating cost is defined as: direct cost of production + royalties + depreciation + administrative expenses + share-based payments + other operating costs

As the chart shows, Southern Copper (SCCO), Taseko Mines (TGB) and Atalaya Mining (TO:AYM) are very-low-cost producers (with operating costs below $2.0 per pound of copper). 
The other miners also produce their copper at quite low prices so...what is the problem?

As usually - the problem lies in copper prices. However, the copper price action does not look bad:


source: stockcharts.com

Although I am not a fan of Technical Analysis, sometimes it is good to look  at the big picture. And the big picture delivers an important message: since late October 2016 copper has been in a strong bull market. Now, after the last correction, copper prices try to break out to the upside.

Additionally, the data delivered by the Commitments of Traders report supports a bullish thesis:


source: Simple Digressions and the COT data

The blue circle on the chart above shows the current net position held by Money Managers (mainly hedge funds) in copper futures. Notice that the blue circle is well below the red circle, which indicates the excessive optimism among traders. It means that the copper market is now generally neutral (or far away from overbought conditions).

Now, combining the last two charts it looks like the chances for another leg up in copper bull cycle are higher than the chances for the opposite move...

Thursday, June 8, 2017

Gold Bullion Flowing Into Private Hands

A positive gold price action this month is supported by gold bullion inflows into GLD and IAU:


source: Simple Digressions

On the other hand, two big silver holders, SLV and JP Morgan (its COMEX warehouse) have delivered mixed signals up to June 7:


source: Simple Digressions

As the chart shows, in June JP Morgan has added 1.6M ounces of silver but SLV reports the outflows of silver (1.4M ounces).

Friday, June 2, 2017

US Stock Market - A Rare Red Flag Waving

I stated many times that it is very hard, or even impossible, to predict the stock market. However, sometimes Mr. Market delivers quite clear indications that something different is in the making.

Let me take the US stock market. Here is the chart showing the so-called NAAIM Exposure index:


source: NAAIM

According to the NAAIM:
"The NAAIM Exposure Index represents the average exposure to US Equity markets reported by our members"

It looks like most recently American investment managers are a little bit less bullish on US stocks than before (despite the index printing new historic highs).

Additionally, the red arrow depicts the divergence between the S&P index and the NAAIM. Interestingly, such divergence is quite a rare event. The last time it occurred (middle 2015 - the blue arrow), the US stock market dived 20% shortly after.

Well, I know that the US stock market is unstoppable (forgive me for being a little bit sarcastic) but now it is waving a rare red flag...