Thursday, December 31, 2015

The Subsequent U.S. Bull Runs Are Weaker And Weaker

The chart below compares volumes reported during the last three bull runs in the American stocks (represented by S&P 500):



The first bull run, indicated in green, was made at growing volume.

The second run, in yellow, was made at unchanged volume.

The last run, in pink, has been made at decreasing volume.

According to the technical analysis, any strong trend is supported by volume. The chart above shows that each bull run, following the first one, was weaker than the former one. The last, ongoing bull run, has been the weakest one.







Wednesday, December 23, 2015

It Seems Now It Is Time To Hold Silver


In the long-term it is sometimes a wise decision to buy gold and sometimes to exchange it for silver.
As a rule, during a bull market in precious metals silver outperforms gold. On the other hand, during a bear market in the PM sector gold outperforms silver.

The chart below documents the best long-term opportunities to initiate a position in gold or silver:



For example, buying silver in May 2003 and selling it in November 2006 would have meant a profit of 200%. Then, buying gold in November 2006 and selling it in November 2008 would have brought you a profit of 27% etc.

What the chart is saying now? It looks like it is time to have silver.



Tuesday, December 22, 2015

Fibonacci Numbers Say S&P 500 Made Its High In May 2015

For those who believe in Fibonacci numbers (I do not, but sometimes I check these numbers, just for fun) - please, have a look at the chart below:



The chart shows S&P 500 index, starting from 2007. In October 2007 the index hit its record at 1,577 points. Then a bear market in stocks started. The bottom was printed in March 2009 at 666 points.

The difference between the peak and the bottom is 1,577 minus 666 = 911 points.

According to Investopedia, the 161.8% level is regarded as the so-called Fibonacci extension. 161.8% of 911 points is equal to 1,474 points. Adding this number to the bottom of 666 makes 2,140 points. This is nearly exactly where S&P 500 hit its intra-day record: 2,134.72 on May 20, 2015.

Do you like it?

Sunday, December 20, 2015

US Stock Market Is Poised To Go Down In The Short-Term

Last Friday S&P500 broke below its technical support. What is more - it made it on a very high volume. In most cases such an occurrence indicates that an important move is coming. Please, look at the chart below:



The question is whether this move will be up or down? To find some kind of an answer - look at another chart:


The chart shows net positions held by speculators in VIX. VIX measures the volatility of the stock market. Generally, VIX is adversely correlated with the index value - if index goes down, VIX goes up. And vice versa.
The chart shows that whenever speculators are net long-VIX, i.e. they bet on the index going down, a good buying opportunity is approaching. This was the case in October 2014, February 2015 and in September 2015. Currently speculators are still net short-VIX, which means that it is not time to buy stocks.

Summarizing - looking at those two charts, it seems that we will see the US stock market going down in the short-term.


Saturday, December 19, 2015

Starbucks Is Moving Into High Gear

Starbucks (SBUX) is a killer. Each year this company delivers excellent results. What is more, it is not slowing down - please, look at the chart below:


Contrary to Adobe, Starbucks' higher share prices are following its cash margin percentage.

In other words, the company squeezes more and more cash from its business, which, together with higher sales (since 2003 Starbucks revenue has been growing at a rate of 13.8% a year,) creates an excellent mix for the company's shareholders.

Thursday, December 17, 2015

Adobe - Does It Make Sense To Invest In This Company?

Adobe (ADBE) is a software company demonstrating a $47 billion market cap. Its main product, Creative Cloud plan, used to deliver big and fast-growing revenue. Generally all looks good but, in my opinion, for many years this company has been seriously deteriorating. Please, look at the chart below:




As the chart shows, since 2008 Adobe's cash margin percentage has been in a steady decline while the company's share prices have been in a furious upward trend.

Note: cash margin percentage is defined as cash flow from operations (excluding working capital issues) divided by revenue. If, for example, cash margin percentage stands at 35% it means that the company gets 35 cents in operating cash flow after realizing revenue of one dollar. 

As the chart shows, Adobe gets less and less cash from its sales. For example, in 2008 the company was getting 39 cents in operating cash flow from each dollar of sales. This year it gets only 25 cents.

According to the theory, the more cash a company generates the more it is worth. To increase its value, Adobe has to sell more and more.

Between 2003 and 2014 Adobe's revenue was growing at an annual rate of 11.16%. On the other hand, its cash margin percentage was decreasing at an annual rate of 3.4%. Therefore to sustain its current valuation the company must grow its revenue at an annual rate of 15.4%. Well, it is not a simple thing - since 2012 Adobe's annual revenue went down from $4.4 billion to $4.1 billion in 2014.
I see this company in black color...

Wednesday, December 16, 2015

My Precious Metals Portfolio

In my last article, published on Seeking Alpha, I have presented a model portfolio consisting of five mining companies, which, in my opinion, should deliver a positive absolute return.at the end of 2016.

This portfolio is constructed in the following way:


or:



As of December 16, 2015 the above presented portfolio is hypothetically valued at US$9,997.1.

From now on till the end of 2016 I will be presenting the most important developments related to my picks.

To be continued...



Sunday, December 13, 2015

Three Charts Supporting A Thesis On An Incoming End Of The Bear Market In Gold

The downward trend in gold is no longer supported by traders. Yes, it looks that we are very close to the end of a medium-term bear market in precious metals.

In my opinion, these three charts below support my thesis.



The first chart shows net short positions (short positions less long positions) held by money managers  in gold futures (in other words: speculators). It is easy to notice that since 2013 these managers have been increasing their net short positions. Practically every time gold prices were printing new low, net short position was higher. However the last record low in the gold prices was not accompanied by higher net short position. Simply put, money managers are becoming less interested in betting against gold any more.

Another chart shows the current developments related to silver:


Similarly to gold, we may easily spot that all participants (not only money managers) taking part in silver speculation are currently less interested in this play - open interest does not support the last decrease in silver prices.


The last chart - US dollar:



As a rule, when the US dollar goes up then gold goes down. Well, in my opinion, this thesis is quite questionable but, well, let it be.

Looking at the chart above, we may spot that speculators are less interested in betting on the US dollar appreciation (declining open interest). Such a development supports gold.



Friday, December 11, 2015

Volume Pattern Is Not Supporting An S&P 500 Bullish Case

Generally, when a stock is in its upward trend, its volume follows the price during up-days. On the other hand, when a stock encounters a correction, its volume goes down. This is one of the rules, which defines an uptrend.

Therefore statistically, during an uptrend, volume printed in up-days should be higher than that reported in down-days. If it is not the case, a stock flashes red - something wrong is going on.

Please, look at the chart below:



This chart shows volumes printed by S&P 500, starting from September 2015. Except for October, volume during up-days (when the index closed higher than in the previous trading day) was lower than volume reported in down-days (when the index closed lower than in the previous trading day).

Well, it is not a situation featuring an upward trend. Quite the opposite, it looks like S&P 500 is sending a signal that it is topping or even it is in a correction / bear market mode.

Another chart presents S&P 500 in the medium-term, during its late bull market stage:


As the chart shows, between the beginning of 2013 and the end of 2014 the pattern was supporting a bullish thesis: volume was higher during up-days.
Then, since the beginning of 2015 the pattern has changed - volume has been higher during down-days (with a climax in the third quarter of 2015).

Summarizing - the volume pattern is not supporting a bullish case any more.

Thursday, December 10, 2015

IMPACT Silver - In My Opinion, 3Q 2015 Results Were Really Good

Due to remarkable interest in my article on IMPACT Silver, below I am providing my comment on the company’s 3Q 2015 results.

Shortly speaking, these results were really good. Please, look at the table below:


Source: Simple Digressions and the company’s reports

Year to date the company was able to increase its sales. Surely, a favorable exchange rate between the Canadian dollar and the US dollar had a positive impact on the company’s sales but keep in mind that, in terms of sales prices per ton of ore milled, a favorable exchange rate was responsible for only an 8.4% increase in sales; the rest, 14.3%, was attributable to the sales growth (expressed in C$ per ton of ore milled).

What is more, year to date Silver IMPACT succeeded in cutting its costs from C$108.6 per ton of ore milled to C$94.4 per ton of ore milled. Due to that fact, the company reported lower loss than a year ago. Well, it was still a loss but what I may demand from a silver miner producing and selling its metal at today’s low prices?

Next thing, IMPACT is quickly approaching a “magical” point of equilibrium between sales and costs – please, look at the chart below:



Source: Simple Digression and the company’s reports

After years of incurring high costs, at least higher than sales, the company is very close to start delivering operating profits. I am very curious whether we are going to see the first profits in 4Q 2015 or later…

The main reason standing behind this positive development are higher feed grades reported at the company’s Guadalupe mill. Year to date IMPACT was milling its ore at the feed grade of 195 gram per ton, while last year it was only 152 gram per ton (in 3Q 2015 the feed grade was even higher: 214 gram per ton).

Note: due to the lack of current reserves/resources estimates, I am leaving a question, whether the company is high-grading, as open. Generally, epithermal vein systems are high grade deposits (grades of 150 – 1,000 gram per ton of ore) so, I believe that the risk of high-grading is relatively low – please, look at the graph below:



Source: the company’s presentation, slide 16

Next thing, the company is very close to meeting its annual production target of 1 million ounces of silver. Year to date IMPACT produced 716,319 ounces of silver. To meet its guidance, in the fourth quarter of 2015 the company has to produce around 284 thousand ounces of silver (a little bit above the 3Q 2015 production of 277 thousand ounces).

However, the most important thing is the fact that year to date IMPACT was able to generate positive cash flow from operations (C$110 thousand, working capital issues excluded). Cash is incredibly vital issue for the company – at the end of September 2015 it held cash of C$803 thousand, which is quite a low figure. Fortunately, not incredibly low. Year to date the company generated C$1,415 thousand in cash from operations (working capital issues included) and spent C$1,691 (investment spending). So IMPACT was cash deficient of C$276 thousand. If the company is able to keep tight cost/spending regime it should survive with only C$803 thousand on bank accounts. At least for some time.

Summary

I was positively surprised to see Silver IMPACT’s quite decent 3Q 2015 results. With silver prices around US$14 - 15 per ounce, the company, with a little help of the weaker Canadian dollar, was able to post only a small loss. What is more, IMPACT is very close to meet its 2015 production guidance. Summarizing, Mr. Shakespeare was wrong writing:

“Something is rotten in the state of Denmark”

Hamlet, Marcellus to Horatio

Wednesday, December 9, 2015

US Stock Market Internals Look Not As Good As The Market Itself

US equities hold firmly but technical internals are still deteriorating - please, look at the chart below:



The chart shows an S&P 500 index (green line) and a red line representing a difference between S&P 500 New highs and New lows. Normally, when any index goes up, more and more equities hit fresh records. And vice versa. However, as the chart shows, although the index goes up (green dotted line shows the trend), more and more equities hit new lows (red dotted line).

In my opinion, it is a clear sign that US equities are topping.

Tuesday, December 1, 2015

Gold Miners Hold Firmly

Everybody knows that gold, silver and precious metals related stocks are going down. Nevertheless, this time is a little bit different, at least for the time being.

Usually, when gold breaks its technical support, precious metals related shares are following it. Let us look at the chart below:




As the chart shows, this time is different. Gold broke its support in mid-November but GDX, GDXJ and XAU (gold and silver mining companies and juniors) did not follow it. All indices are still above their supports. It means they are stronger then their leading indicator (gold). In my opinion, it is a slightly bullish development for gold bugs.

This pattern is supported by another positive development - look at the chart below:



Precious metals stocks are not weaker than the broad market (represented by S&P 500). As my readers know, PM shares have been lagging behind S&P500 since 2011. This time they hold firmly.


Wednesday, November 4, 2015

Another Long-Term Buying Opportunity In The Precious Metals Sector

It looks like the precious metals stocks are close to the long-term buying opportunity. Please, look at the chart below:



I realize that investing in the PM sector is sort of masochism. No matter what happens, these stocks are going lower. All the time. However, looking at financial markets in the long-term, a patient investor (in the case of PM stocks, a very, very patient investor) may spot very promising entry points.

In the case of PM markets, it looks like such opportunities happen every six years. As the chart above shows, the first buying opportunity was in mid-2003, then in late -2009. If the pattern repeats, the next entry point should be between late-2015 or early-2016.


Tuesday, November 3, 2015

Another Stock Market Alert

Dow Theory once again. Currently Dow Jones Industrial Average is approaching its previous peak.

On the other hand, Dow Jones Transportation Average struggles near its last bottom.
It is not healthy development. Usually both indices go jointly up or down. Please, look at the chart below:



This bull market in stocks is really impressive. It seems there is no chance to stop it.
However the topping process may last and last until there is no bear left. Similarly to air crashes - every catastrophe is a sum of at least a few factors of minor importance.

Slowly but the market internals are deteriorating.

Saturday, October 31, 2015

A Long-Term Look At A Few Precious Metals Miners

In my last article published at Seeking Alpha I have presented two companies (Fresnillo and Randgold), which are worth investing in the long-term. I have also presented two miners not worth investing.

Below you will find a supplement to this article. These charts show the relative strength of each miner's shares against the sector average (expressed in GDX - an ETH holding big miners shares):








How to read these charts? Let me explain using Randgold as an example.

On May 27, 2008 GDX was trading at $44.7 per share. Today (October 30, 2015) these shares are trading at $14.96 so between May 27, 2008 and October 30, 2015 they went down by 66.5%.

As for Randgold:
On May 27, 2008 Randgold (GOLD) was trading at $41.59 per share. Today (October 30, 2015) these shares are trading at $66.87 so between May 27, 2008 and October 30, 2015 they went up by 60.8% (yes, despite the ongoing bear market in gold, which started in 2011, Randgold has been quite a good investment).

Next, $100 invested in GDX in May 2008 today is worth only $33.5, while $100 invested in Randgold is worth $160.8 today. So the value of investment in Randgold is higher from the investment in GDX by a factor of 4.8.

This is what the second chart shows. Since May 2008 Randgold has been appreciating against GDX and today its value is higher than value of GDX by a factor of around 4.8.

The behavior of Fresnillo is similar to Randgold,

On the other hand, AngloGold Ashanti and Barrick Gold have been losers against GDX (and in nominal figures as well).

Sunday, October 25, 2015

Alphabet (former Google) or Intel - An Alternative Look At Investing

Alphabet (former Google) is an excellent business. Year to year, quarter to quarter, the company improves its financial results. Please, look at the chart below:


Of course, due to the fact that now the scale of the Alphabet's business is much bigger than it used to be a few years ago, its revenue, operating profit and cash flow from operations are not growing as much as a few years ago - please, look at another chart:


 In my opinion, one of the best metrics to measure how the investment in any company is performing is the so-called free cash flow. Simply put, free cash flow is a difference between cash flow from operations and investment made by a company. My formula goes as follows:


Free Cash Flow = Cash Flow From Operations - Purchases of Property And Equipment - Acquisitions

I have calculated combined free cash flow for Alphabet and Intel, starting from 2009. For many years there was practically no inflation therefore adding up all free cash flows generated each year  is not a big error (although it is a little bit unorthodox way of an investment's performance measurement).

Then I compared the combined free cash flow to the value of investment in 2008, calculated as the market capitalization at the end of 2008. Therefore the ratio defined as:

Combined free cash flow / Market cap

shows how much cash an investor would get for its initial investment after nearly 7 years of holding the shares of Intel or Alphabet.

Please, look at the chart below:


This chart shows that an investor putting his/her money in Intel would get 86% of its investment back. As for Alphabet, this ratio would be much lower - just 25%. Let me show it, using figures.

At the end of 2008 the Intel's market capitalization was $58.6 billion. Then, between 2009 and 3Q 2015 the company generated free cash flow of $50.6 billion - hence the ratio of 0.86.

In the case of Alphabet , these figures were: $216.4 billion, $54.3 billion and 0.25, respectively.

Summary.

Both businesses, Intel and Alphabet, are excellent ones. However, from an investor's point of view, Intel looks much better than Alphabet. Simply put, at the end of 2008 Intel was relatively much cheaper than Alphabet.

What is more, the Intel's shareholders were rewarded with a 204% gain, while the Alphabet's shareholders booked a gain of "just" 103%.

Friday, October 16, 2015

Crash Alert - U.S. Equities And Skew Index

Last year I presented one of the less known indicators - Skew Index. To remind my readers:

Skew Index is a risk measure  (quite different from the popular VIX index) daily-published by the CBOE. Without details (for those interested the details are here) this index measures the risk of a very rare market event, e.g. stock market crash or another black swan event.

Yesterday Skew Index hit its record high. Please, look at the chart below:


Well, such a high indication does not mean that we will see an instant outcome. However, Skew Index "says" - "Be extremely careful with US equities now"

Thursday, October 15, 2015

IMPACT Silver - Cheap Stocks But Fundamentals Are Not Impressive


IMPACT Silver Corp. (OTC: ISVLF) is a small silver producer, operating four mines across the two districts located in South-Central Mexico. In 2006 the company started producing silver and this year it expects to produce 1 million ounces of silver. Unfortunately, though in the short-term the production growth is quite impressive, IMPACT is a high-cost producer. In this article I would like to present a short description of the company and to prove my thesis on high production costs.

Business description

IMPACT is organized into two the so-called production centers: Guadalupe Production Center and Capire Production Center. Of these centers, silver and other metals are extracted only at Guadalupe - the Capire Production Center, consisting of a 200-ton-per day pilot processing facility and the Capire Mine, has been suspended until market conditions improve.
Guadalupe Production Center
Guadalupe, acquired by IMPACT in 2006, consists of a 500-ton-per day processing facility fed by three underground mines:
-    Cuchara-Oscar – it started its operations in 2013. Now, the mine is a principal producing operationdelivering a silver-zinc-lead feed.
-          San Ramon – this mine was opened in 2008. In 2014 the company discovered new high grade silver zones at San Ramon, located below the current production zone.
-          Mirasol – it is the newest mine in the company’s mineral portfolio (it started its operations in the third quarter of 2014). Currently the mine is ramping up its production.


The company’s strategy

IMPACT, well aware of the current gloomy situation in the precious metals market, tries to focus itself on extracting metals from high grade zones, where costs of production should be lower. The last discovery at San Ramon plus opening the new, high grade Mirasol mine contribute to the company’s strategy – please, look at the chart below:


As the chart shows, the average silver grades have gone up significantly since 2013, with the highest increase taking place between 2014 and 1H 2015 (an increase of 16.4%, from 159 gram per ton to 185 gram per ton).
What is more, since 2012 the IMPACT’s silver production has been also going up. The chart below supports this thesis:



However, looking at the company’s silver production in the long term, it is easily spotted that between 2008 and 2014 the annual output was rather stagnant, within a range of 636 thousand (2008) and 834 thousand ounces (2011). This year IMPACT expects to produce around 1 million ounces of silver – if the company succeeds, it would be the highest output in its history, indeed.
1 million ounces of silver is quite a large amount of this metal, at least for the small company as IMPACT. However, there is one technical constraint. In 1H 2015 the company was processing 460 tons of ore per day, which was close to the full mill capacity (500 tons per day). To produce larger amounts of silver, IMPACT will have to increase its capacity or implement other solutions, for example a mill located at Capire (this mill has a capacity of 200 ton per day). I am not sure whether the Capire mill is suitable for Guadalupe because the Capire mine, in contrast to Guadalupe, is an open pit mine, where the processing method may be different. Anyway, if IMPACT wants to increase its output it will surely have to introduce some changes to its business model. If such is a case, an additional investment could be needed (for example, constructing a new mill or increasing the capacity of the existing facility).

Production costs

Now, the most important thing. Despite higher output and higher ore grade, the company is still unprofitable. What is more, IMPACT has a different cost reporting philosophy than its peers. A vast majority of mining companies report their cash costs on a per-ounce basis. IMPACT does not report its cash costs at all. The only metric the company provides is the direct costs per ton of ore produced. Therefore it is possible to calculate the accounting costs of production on a per-ton of ore basis. However, it is not possible to find in what way these costs refer to the prices of silver. As a result, it is impossible to find at what silver prices the company’s business is profitable. Additionally, the company’s final product is a concentrate (zinc - silver and silver – lead). IMPACT, reporting the amount of ore sold, reports an artificial thing – the company is selling concentrate, not ore. Let me dig a little bit deeper into this matter. In two sections below I am using the company’s metric to present the costs of production and then I am trying to estimate, using my own methodology, at what silver prices the company could be profitable.

Note: if somebody does not feel good about basic math, please, go directly to the final section of this article (Summary).

The company’s metric

Through reporting the direct costs per ton of ore sold, no matter how artificial this measure is, IMPACT provides the most important figure – the amount of ore sold. Therefore it is possible to find out whether the company is making money on its ore or it does not. For example, in 1H 2015 IMPACT sold 85,392 tons of ore, which, having in mind that the company’s half year revenue was $6,647 thousand, means that the company got $77.84 per ton of ore sold. Then, to produce these 85,392 tons of ore, the company incurred the accounting costs of $8,107 thousand (accounting costs are defined as operating costs less impairment expenses), which is attributable to $94.94 per ton of ore sold. The difference between revenue and costs per ton is $17.1. This figure should be read as: “In 1H 2015 IMPACT was losing $17.1 on each ton of ore sold”. The chart below shows revenue and costs per ton of ore sold since 2011. It is easily seen that since 2013 the accounting costs have been higher than revenue – IMPACT has been losing money since then.




The picture above is telling quite much about the company’s economics but it does not provide any clue at what price of silver the company could be profitable. To answer that question I will use my own methodology.

My metric

Each quarter the company reports the amounts of silver, zinc, lead and gold sold in its concentrates. Therefore it is possible to calculate the amount of the so-called silver equivalents sold.
First of all, it is the standard in the precious metals sector that refiners pay the miners for metals extracted from concentrate using market prices of these metals. Therefore I think it will be correct if I calculate silver equivalent ounces using the average prices at which silver, lead, zinc and gold were traded in each analyzed period. Let me calculate this figure using 1H 2015 data.
In 1H 2015 IMPACT sold 450,370 ounces of silver, 225 tons of lead, 136 tons of zinc and 288 ounces of gold. The average prices of these metals were $16.57 per ounce of silver, $1,873 per ton of lead, $2,134 per ton of zinc and $1,206 per ounce of gold. After multiplying the amount of each metal sold by its price I am able to find that in 1H 2015 the company’s revenue obtained for each metal was as follows:

  • Silver: $7,463 thousand
  • Lead: $421 thousand
  • Zinc: $290 thousand
  • Gold: $347 thousand

To find the number of silver equivalents ounces sold in 1H 2015 I have to divide the revenue obtained for each metal (except silver) by the average price of silver in that period. After doing this math and summing up all silver equivalent ounces attributable to each metal (plus silver ounces sold) I find that in 1H 2015 the company sold 514,284 ounces of silver equivalent. Having that figure I may calculate production costs on a per-ounce basis.

As I mentioned in the section above, in 1H 2015 the company incurred accounting costs of production of $8,107 thousand, which means $15.76 per ounce of silver equivalent.
However, there is a catch because this figure does not take into account the refining charges paid by IMPACT to refiners for treating its concentrate. Simply put, any mining company producing concentrates, instead of dorĂ©, has to deliver its concentrate to the specialized companies (refiners). Refiners, carrying out the complex chemical processing, are able to convert a concentrate into the highest quality precious metals bars. This process costs money, which is paid by the mining company according to the industry standards. Basically, the refiner is paid for the previously agreed amounts of metal contained in the concentrate plus some additional fees paid for excessive impurities. The vast majority of mining companies report these charges but IMPACT, unfortunately, is an exception to this rule. The company confirms that its revenue is reported as net revenue (refer to “Significant accounting policies” in each annual report):

“Refining charges are netted against revenue for sales of metal concentrates.”

However it does not go into specifics about these charges. Fortunately, there is a way to cope with that lack of information. According to its financial statements, in 1H 2015 IMPACT had revenue of $6,647 thousand, which is attributable to $12.92 per ounce of silver equivalent (revenue divided by the number of silver equivalent ounces sold). Since in 1H 2015 the average price of silver was $16.57 per ounce of silver, the difference between this price and the price got by the company ($12.92) is the theoretical refining charge ($3.65 per ounce of silver equivalent). Therefore the overall cost of production is $19.41 per ounce of silver equivalent (accounting cost of $15.76 plus the refining charge of 3.65 per ounce of silver equivalent). The chart below evidences gross production costs against silver prices, since 2009:


Summary

As the chart shows, IMPACT is a high cost producer. For example, in 1H 2015 its production costs were $19.41 per ounce of silver equivalent, much above the average price of silver in that period. What is more, despite heavy investment expenditures, the company has made nearly no progress in its business Let me show it using a few figures.

Since 2009, when the last bull market in the precious metals had started, IMPACT generated $19.5 million from its operations. This cash flow was delivered mainly between 2009 and 2011, then, when silver prices started to fall, cash flow from operations followed them.
Next thing, since 2009 the company had invested in its business $48.1 million, which was $28.6 million more than the company obtained from its mining operations. Most of this negative gap had been covered through new share offerings ($25.5 million obtained mostly in 2010 and 2011).
Summarizing, since 2009 the company has invested a lot of money in its business. Most of this investment program was financed by the company’s shareholders. However, the result of this heavy investment and shareholder’s effort is miserable. IMPACT is still producing silver at very high cost and, what is more, in the long term the company’s output is not impressive at all. For example, in 2014 the company produced 725.7 thousand ounces of silver, much less than in 2009 (823.6 thousand ounces). Although IMPACT has strong balance (nearly no debt), its business is going to stay depressed, even at higher silver prices.


Last but not least – the company’s reporting is, in my opinion, under the industry standards. To find the most vital figures, as, for example, production costs, one have to dig very deeply, I think too deeply.

Friday, October 9, 2015

Precious Metals Sector Looks Better But Something Is Still Missing

Most recently precious metals shares have gone quite substantially. For example, GDX (the ETF comprising the big miners shares) increased its price by 28.8% in comparison to its bottom established in September 2015. Many other miners and juniors followed GDX.
However, the whole picture is still not bright - please, look at the chart below:



As the chart shows, big miners are still stronger than juniors, which is definitely not a bullish pattern. During the typical bull market in gold, juniors should be stronger than big miners.

On the other hand, this could be a trap. Since 2012 the entire precious market sector has been out of fashion. At this stage probably more money goes to less risky investment - and in the case of PM market, big miners are less risky. So who knows...

Another chart:


Most recently the PM shares hit another record low against the broad market (represented by S&P 500). From a contrarian point of view, it could be a buying opportunity once again.

Sunday, September 20, 2015

Less And Less Gold At COMEX

There is less and less gold in the COMEX vaults, especially the gold classified as "Registered". This category comprises gold, which is being used in the futures market transactions. On September 18 there were only 162,034 registered ounces of gold. Having in mind that the current open interest in futures contracts is standing at 42,410,400 ounces, the physical gold stored at COMEX covers only 0.38%  of gold, which is in the game. This is the smallest fraction since many years (or even ever). Please, look at the chart below:



Simply put, there is practically no physical gold to back up a virtual futures market, which is an extraordinary bullish (for gold) situation.



Monday, September 7, 2015

A Few Positive Developments For Gold Bugs

Gold, silver and the entire precious metals market are still in their medium-term bear market. But there are a few developments, which support investing in this market today. Please, look at the chart below:


While the PM market is still  going down, the stronger price action of GDXJ (gold and silver juniors) against GDX (big gold and silver miners) supports investments in PM stocks.

Another development:



These days the PM stocks are at their lowest level against gold in modern history. Simply put, they are totally undervalued against gold.

I do not know whether the PM stocks will go down or up but the investors looking for value should definitely find value in the PM stocks.

Friday, August 14, 2015

A Majority of Market Participants Is Awaiting Another Down Leg In Gold And Silver

These days both metals, gold and silver, are at their strong resistance levels - please, look at the charts below:



But there is a chance for the gold bugs - since December 2014 silver has been behaving similarly to gold - look at the chart below:


Usually, when both metals are in their down  trends, silver is much weaker than gold. This is not the case today.










Tuesday, August 4, 2015

When Investing In The Leveraged ETFs - Be Aware Of Simple Mathematics

Many investors invest in ETFs (Exchange Traded Funds), which are special investment vehicles designed to make it easier to invest in specific asset classes. Some of these vehicles are highly-leveraged ones. Let me take, as an example, two precious metals ETFs: GDX and NUGT.

GDX is called the Big Gold ETF because its price mirrors prices of a number of big gold producers and royalty companies - the main ETF holdings are such companies as: Barick Gold, Newmont Minng, Goldcorp, Franco-Nevada, Silver Wheaton etc.

This ETF has its highly leveraged equivalent, holding a ticker NUGT. NUGT duplicates the price action of GDX but a price change of 10% reported by GDX is equivalent to 30% reported by NUGT (so NUGT is 3 times leveraged against GDX).

And here is a catch. Due to this high leverage and simple mathematics, investing in NUGT has sense only when we see a strong bull market in precious metals. If the market is trading in a range, or is going down, investing in NUGT may bring a financial catastrophe.

Let me show it using numbers. Below you will find a chart showing investment results delivered by GDX and NUGT when market is trading in the range. I assume that at the end of the second trading day GDX losses 10% (and NUGT losses 30%). The third trading day records a 10% price advance (NUGT goes up 30%). Then GDX goes down by 10% etc. The results are below:






As the chart shows, after 19 days, GDX stands at 91.4 and NUGT at 42.8. So the total loss recorded by GDX is 8.6% but NUGT is as much as 57.2% down (not, as somebody would think, 3 times 8.6% but much more)! Generally nothing happened during these 19 days - market is more or less at the same point where it was in the beginning but NUGT has lost nearly 60%.

If market is going down, the losses reported by NUGT would have been even much bigger.

So, summarizing, investing in NUGT (and any positively leveraged ETF) only makes sense when market goes up. Be aware.


Thursday, July 30, 2015

Twitter - Is It Really A Business?

Today Twitter published its 2Q 2015 results. Below I put three charts showing the basic measures.

Firstly, a chart showing revenue and operating losses incurred by the company.

Note: operating loss for 2015 is calculated as: 2014 operating loss - 1H 2014 operating loss + 1H 2015 operating loss.

As the chart shows, although revenue generated by the company had been in a rapid increase since 2011, Twitter has not been able to make any profit on its core business.

Another chart - this time it shows revenue and cash flow from core business operations (excluding working capital issues):


Well, this time it looks much better. It seems that the Twitter's core business brings some cash to the company.

Unfortunately, since 2011 Twitter has been reporting a negative free cash flow. Please, look at the chart below:


Free cash flow is calculated using the following formula:

Free Cash Flow = Cash Flow From Operations (including working capital issues) - Investment Expenditures

Investment expenditures contain purchases of property and equipment plus spending on business combinations.

Free cash flow is one of the most important financial measures - if a company is not able to report free cash flow in the long term it's future does not look bright (at least).


 







Sunday, July 26, 2015

Managed Money - Negative Sentiment At Highest Level In History; Gold, Silver and Copper Ahead Of A Furious Rebound

When pessimism prevails there is practically no chance the market will go down. These days Managed Money (mostly big hedge funds) holds the highest short positions in gold, silver and copper  ever.
To make the picture clear, instead of presenting three charts, I have added and adjusted short positions held by Managed Money in these commodities. Please, look at the chart below:



Well, every time the Managed Money was totally pessimistic about any market, no new down leg started. Quite contrary - if such was a case, we saw the market bouncing up. Looking at the highest short position in three popular commodities, I think the rebound will be really surprising.



Friday, July 24, 2015

Japanese Equities Are Still In Fashion

The scale of capital flows is one of the best indicators identifying whether a specific market is bringing the investors' interest.

In the case of the Japanese equities, below I am presenting two flow indicators showing that these shares are still been acquired by foreigners and the Japanese investors.

Please, look at the charts below:




As the charts show, foreigners have been buying the Japanese equities since the beginning of 2013. From that same time the Japanese investors have been selling foreign shares - therefore they have been probably using the funds acquired from these sales to buy the Japanese equities.

Both trends magnify themselves so we see the ongoing bull market in Japan (weak Yen is another factor standing behind it).

Well, for the time being there are no signs that the current bull market is going to end.

Wednesday, July 22, 2015

My Fortune-Telling On Gold

Financial markets go in cycles. After a strong appreciation in prices there is time for correction. While I am not a believer in the Fibonacci wave theory, sometimes it is interesting to look at the so-called Fibonacci retreat levels. This time I am trying to use this theory to look at the entire bull market in gold.

Since its beginning in 2001, gold had gone up from $250 per ounce to $1,920 per ounce (in 2011). According to the Fibonacci theory, a corrections of 33%, 50% and 66% are the most probable ones. These days, gold is standing close to $1,083 per ounce, which is a point of 50% correction of the current big bull market. So the bottom could be in.

If not, another important level is $888, which means a 66% correction.