Friday, May 27, 2016

Geothermal Plays Added

Just a short note:

I have decided to start covering the geothermal energy sector on this blog. Such companies as, for example:

  • US Geothermal
  • Polaris Infrastructure
  • Alterra Power
  • Ormat Technologies

will be regularly covered here.

In my opinion, the geothermal sector is quite similar to the precious metals sector, with the property being the most crucial issue. 

I hope that new readers, interested in geothermal energy, will find it interesting.

Thursday, May 26, 2016

Another Drilling Company Reports Signs Of Recovery

Today Energold Drilling released its 1Q 2016 report (at last). The company has three business lines:

  • mineral drilling
  • energy drilling
  • manufacturing

Energy drilling is currently a laggard. Manufacturing also faces some serious problems. Fortunately, mineral drilling shows signs of recovery. Let me discuss this issue a little bit deeper.

The chart below shows two main metrics, reported by Energold's mineral drilling segment:


Contrary to other drillers (for example, Geodrill) the company has less work to do but, since the end of 2013, drilling prices have been going up. Well, Energold operates mainly in Mexico and Central and South America (83% of revenue, reported by the Mineral Division, is earned in these regions). It looks like the business model in Americas is different than in Africa:

  • in Americas most drilling is ordered by mining majors (brownfield exploration and definition drilling)
  • in Africa, especially in West Africa, there is high demand reported by junior miners; hence, a different business model. 

Another chart - this time it shows margins reported by Energold's Mineral Division:



As the chart shows, margins are still low, much lower than during good times. Fortunately, 1Q 2016 margins are a little bit higher than in 2015 and much higher than in 1Q 2015 (minus 5.6%).

Summarizing - another drilling company, this time the one operating in Americas, is showing some signs of recovery. 


Wednesday, May 25, 2016

Integra Gold - Another Company To Take Advantage Of High Stock Prices

Most recently many precious metals exploration companies take advantage of the last rally in gold and silver to sell its shares through private placements, bought deal financing etc.

I understand it. After many years of a bear market in gold most of explorers are short of cash so the current situation presents an opportunity to improve the cash balances.

Integra is no exception. At the end of 2015 the company had 426.3 million shares outstanding (fully diluted).

Now, after a few bought deals and private placements, the share count stands at 498.0 million at least (this number may increase due to the agreements with underwriters). During a few months the company was able to increase its share count by 16.8%. 

According to my calculations the gross proceeds should stand at C$55.5 million (this figure also comprises the gross proceeds obtained through exercising all warrants issued by the company).

Now the company is fully financed to start its exploration program at Triangle (with the budget of C$26 million). What is more, I expect Integra to announce the additional exploration programs or even new acquisitions (or to increase the company's stake in Eastmain Resources). 

Tuesday, May 24, 2016

Excessive Demand On Americas Silver Shares

Due to the strong demand on its shares, today Americas Silver announced an additional private placement, amounting to around C$10 million. This placement plus the one, announced on May 20, should fuel the company with cash of around C$30 million. 

As I stated in my Seeking Alpha article on Americas Silver, it is a lot of cash for the company. 

To show it, below I have plotted a pro-forma version of Americas Silver balance sheet:



As the table shows, after the two private placements the company should hold cash of $26 million. I remind my readers that Americas Silver plans to spend $21.4 million on implementing the San Rafael project. 

It looks like the project is fully funded now...


Monday, May 23, 2016

Does Investing In Mining Stocks Make Any Sense?

Investing in mining companies is a hard job. Most of the time it is a much better idea to hold gold than mining stocks. To be honest, excluding a few short periods, investing in mining companies had no sense in modern times. The chart below shows the relative strength of mining companies (represented by the XAU index) against the gold itself:




                            source: www.stockcharts.com

Indeed, only between 2000 and 2008 precious metals miners were as strong as gold. In that period the gold investors had the same investment results as the investors holding XAU (a broad portfolio of mining companies).  Then, starting from 2008, investing in a broad precious metals miners market had no sense at all (note the green, descending line). 

However, since the beginning of 2016 the situation has changed. Now mining stocks are much stronger than gold. The problem is whether this outperformance of miners is sustainable. 

Well, if history repeats, we should see a large increase in the price of gold with mining shares losing their strength against gold. If that is not the case, and mining shares continue their outperformance, we could see a gold mania. Please, keep in mind that since the start of the great bull market in gold in 2001 there was no mania at all.  

Last but not least - investing in specific miners is another thing. In my opinion, good analyst should be able to find mining stocks which are stronger than gold at various stages of the gold cycle...

Sunday, May 22, 2016

GLD Flows - Update

In my last article on GLD I noted that in May this biggest world's trading gold vault was reporting only inflows of gold. 

This week ended with another large gold inflow into GLD:



And the weekly perspepctive:



Gold And Silver - An Alternative Look At The Current Situation

When analyzing the COT Report, most analysts focus on commercials (this category comprises mostly mining companies) and big speculators / managed money. 

However, there is another group of investors included in the COT report. This group comprises the so-called small speculators, i.e. the players that do not fall into commercials / big speculators category. 

Basically, these small players are always wrong about the market. Therefore it makes sense to take the opposite position to that held by small speculators. 

Let me show it, taking the silver and gold market as the examples:









The charts show that the current net positions, held by small speculators, are not indicative of a bullish frenzy. For example, despite the highest open interest in history, the net position (long), held by small speculators in silver futures contracts, is relatively low. This position, measured as a ratio:

               net position held by small speculators / open interest

stands at a mere 6.1%. During a bullish frenzy, these speculators used to held long positions amounting to 23%. 

The gold market looks similarly. Here the small speculators held long positions in gold futures contracts amounting to 4% (14% during a bullish frenzy). 

Summing up, these days the small speculators are not over-optimistic on gold and silver. Quite contrary, they are quite far away from that point, which is a bullish sign for precious metals (or, using different wording, it is not a bearish pattern).