Cash In On a Golden New Year Filled With Silver Linings
Everyone around the globe seems to be searching for a replacement for the US dollar as a currency that all nations can trust and bank on. The dollar for almost two decades has been considered a safe investment that would outperform virtually all paper-denominated symbols of value.
Today the “full faith and confidence” in American Greenbacks is receding about as fast as my hairline when I was 25 years old. That is mainly because there is nothing really backing the dollar except promises and a belief that the US economy can grow by leaps and bounds.
Right now too many foreign governments know about our huge deficits, the unprecedented debt that the average American lives with, and that the ultimate ATM machine, US housing, has begun to malfunction.
So what is the “smart money” beginning to do? Our sources tell us that the central banks of many nations around the world are cashing in their green pictures of dead US presidents and exchanging them for gold and silver.
Speaking of silver, we here at CheckTheMarkets.com want to join with a growing number of monetary realists who believe that silver will outperform gold in 2007 versus the US dollar. In other words, if gold is going up 10 % this year, than we will probably see silver increase 20% as measured against the greenback.
That being said, we think it is a prudent time to be investing in both silver and gold. If you agree, and you don’t own some of the physical metals, than by all means acquire some.
It isn’t hard to do, and we know of experts like David Young at Wexford Capital Management (http://www.goldsilverbullion.com/) who as far as we know has some of the brightest ideas and the best prices on gold and silver bullion (we recommend you speak with him about the US silver eagles and gold eagles). If you are inclined to buy in large quantities he can also tell you how to find safe storage for your bullion and coins.
For those of us who are also so inclined, you would be well-advised to consider buying the shares of those companies who are bringing the silver and gold out of the ground and selling it for luminous profits. These are the respected producers and purveyors of the precious metals who have perfected the science of “buying low and selling higher”.
Our family has taken a special interest in a gem of a company called Goldcorp (NYSE:GG), which says it is the lowest-cost senior gold producer with the best growth profile in the Americas. In the third week of December 2006 it forecasts its 2007 output at around 2.8 million ounces of gold at an anticipated cost of $150 per ounce.
That means if gold is selling for around $630 per ounce; it has the potential to reap a per-ounce profit of around $480. If you multiply that by 2.8 million ounces…are you sitting down...it could gross a staggering $1.344 billion dollars on its gold production alone.
It also has the capacity to mine a great deal of silver and copper. After its recent purchase of Glamis Gold which owned the properties and assets of the former Western Silver Company, Goldcorp has greatly increased its potential silver profits.
While gold production levels are rising fast, so are predicted cash costs. In the third quarter Goldcorp produced 431,800 ounces of gold at cash costs of only $84 an ounce net of byproduct credits (byproduct credits are figured at a conservative $10 per ounce for silver and a perhaps not so conservative $3 per pound for copper).
If silver prices remain high and surge higher, and copper prices rebound for current levels, then 2007 cash costs will be far lower, the company recently announced.
On Dec 8th, Merrill Lynch raised it price target on Goldcorp to $38, saying the company will be viewed as the “go-to” gold producer among senior gold companies now that its merger with Glamis is complete. GG shares closed on Friday, Dec. 22nd at $27.16 per share. Are we getting the hint?
Merrill analyst Michael Jalonen said his net asset value calculation for GG is up 11.1 percent to $12.60 from $11.35, due to rising mid-term gold and silver prices and long-term silver prices. He noted that Vancouver-based GG has above-average production growth, the lowest cash costs of its peers, and a stable geopolitical asset base. In addition, the company has “substantial” free cash flow generating ability [to produce and acquire], he wrote in a note to clients.
The analyst stressed what we believe, that “The merger of Goldcorp and Glamis Gold in late 2006 vaulted Goldcorp to the forefront of global gold producers.” “The new Goldcorp has growing gold production, very low cash costs, solid earnings generating ability, large reserve/resource base, strong balance sheet and an entrepreneurial management team."
Times have been great for silver this year, which under the right circumstances can act like gold on steroids. And it’s doing this right now. With oil prices stabilizing and the dollar weakening--powerful tailwinds at precious metals’ backs--silver is beginning to significantly outperform gold.
This summer, I favored buying the iShares Silver Trust (AMEX: SLV) after the sharp correction that commenced in May at an entry price of $102. Has capitalization on that move passed other investors by? I don’t think so. I’m looking for that exchange traded fund (ETF) to trade to $200 by mid-2007 with a possible $10 to $20 downside from current levels.
The iShares Silver Trust has 10 ounces of silver per share; you have to multiply the price of silver by 10 to get to the ETF price. This is the opposite of the streetTRACKS Gold (NYSE: GLD), where the price of gold is divided by 10.
Silver prices are currently around $13; it’s not out of the question if they trade up to their 1980 high near $50 (but that would take time and a lot of patience). Obviously, this would have a significant effect on the ETF price.
Some of the best-run silver miners happen to be based in Canada. One such company is Pan American Silver Corp (Nasdaq: PAAS) led by Ross Beaty. Even though the company is based in Vancouver, British Columbia, all of its mines and reserves are in Latin America and the US, making it truly Pan American. That’s OK; all large mining conglomerates are global in nature. Pan American aims to be the largest pure silver miner in the world while delivering the lowest possible mining cost in order to achieve better leverage to the price of silver bullion.
In 2005, Pan American produced about 12.5 million ounces of silver from six producing mines in three countries and is on track to produce approximately 14 million ounces in 2006. Because there are more mines under construction, Pan American expects to become the largest primary silver producer in the world, reaching 25 million ounces per year by 2009.
There’s also an interesting Canada-based royalty company, Silver Wheaton Corp (NYSE: SLW), that has no mining operations but holds long-term contracts to sell the silver of existing mines. It buys silver at $3.90 and sells it for $13.
Before you ask why anyone in his right mind would sell silver to Silver Wheaton at $3.90, do some reading on the company on its Web site; it’s a remarkable story. The sellers of the silver take cash and shares of Silver Wheaton for their bullion. Because they're shareholders, they get heavily compensated for the low silver price they receive. It’s a way to magnify fringe silver operations of otherwise primary gold mining companies.
Finally, no article on mining stocks is complete without mentioning Barrick Gold (NYSE: ABX), the biggest precious metals miner in the world after the completion of a recent merger. For many years, Barrick was hated by precious metals enthusiasts (it probably still is) for its hedging strategy--selling bullion forward to manage volatility of revenues. Barrick was very smart to do so in the 1996-00 period when prices went down every year and less smart since 2000 as prices have been rising.
There are credible signs that this hedge book is unwinding and the leverage to the gold price of Barrick Gold is increasing. Recent mergers (like Placer Dome) are helping change the culture at Barrick. The stock's best days have yet to come; plus, the shares are the least volatile of the whole group, making them perfect for long-term conservative investors who seek exposure to precious metals prices.
There’s an excellent chance that a year from now we will look back on the shares of the company’s mentioned above—as well as the price of silver and gold—and say to ourselves, “The end of 2006 was a golden chance to cash in our dollars for silver and gold and make some serious capital gains!” Let’s not just talk about it. Let’s do it!!
Today the “full faith and confidence” in American Greenbacks is receding about as fast as my hairline when I was 25 years old. That is mainly because there is nothing really backing the dollar except promises and a belief that the US economy can grow by leaps and bounds.
Right now too many foreign governments know about our huge deficits, the unprecedented debt that the average American lives with, and that the ultimate ATM machine, US housing, has begun to malfunction.
So what is the “smart money” beginning to do? Our sources tell us that the central banks of many nations around the world are cashing in their green pictures of dead US presidents and exchanging them for gold and silver.
Speaking of silver, we here at CheckTheMarkets.com want to join with a growing number of monetary realists who believe that silver will outperform gold in 2007 versus the US dollar. In other words, if gold is going up 10 % this year, than we will probably see silver increase 20% as measured against the greenback.
That being said, we think it is a prudent time to be investing in both silver and gold. If you agree, and you don’t own some of the physical metals, than by all means acquire some.
It isn’t hard to do, and we know of experts like David Young at Wexford Capital Management (http://www.goldsilverbullion.com/) who as far as we know has some of the brightest ideas and the best prices on gold and silver bullion (we recommend you speak with him about the US silver eagles and gold eagles). If you are inclined to buy in large quantities he can also tell you how to find safe storage for your bullion and coins.
For those of us who are also so inclined, you would be well-advised to consider buying the shares of those companies who are bringing the silver and gold out of the ground and selling it for luminous profits. These are the respected producers and purveyors of the precious metals who have perfected the science of “buying low and selling higher”.
Our family has taken a special interest in a gem of a company called Goldcorp (NYSE:GG), which says it is the lowest-cost senior gold producer with the best growth profile in the Americas. In the third week of December 2006 it forecasts its 2007 output at around 2.8 million ounces of gold at an anticipated cost of $150 per ounce.
That means if gold is selling for around $630 per ounce; it has the potential to reap a per-ounce profit of around $480. If you multiply that by 2.8 million ounces…are you sitting down...it could gross a staggering $1.344 billion dollars on its gold production alone.
It also has the capacity to mine a great deal of silver and copper. After its recent purchase of Glamis Gold which owned the properties and assets of the former Western Silver Company, Goldcorp has greatly increased its potential silver profits.
While gold production levels are rising fast, so are predicted cash costs. In the third quarter Goldcorp produced 431,800 ounces of gold at cash costs of only $84 an ounce net of byproduct credits (byproduct credits are figured at a conservative $10 per ounce for silver and a perhaps not so conservative $3 per pound for copper).
If silver prices remain high and surge higher, and copper prices rebound for current levels, then 2007 cash costs will be far lower, the company recently announced.
On Dec 8th, Merrill Lynch raised it price target on Goldcorp to $38, saying the company will be viewed as the “go-to” gold producer among senior gold companies now that its merger with Glamis is complete. GG shares closed on Friday, Dec. 22nd at $27.16 per share. Are we getting the hint?
Merrill analyst Michael Jalonen said his net asset value calculation for GG is up 11.1 percent to $12.60 from $11.35, due to rising mid-term gold and silver prices and long-term silver prices. He noted that Vancouver-based GG has above-average production growth, the lowest cash costs of its peers, and a stable geopolitical asset base. In addition, the company has “substantial” free cash flow generating ability [to produce and acquire], he wrote in a note to clients.
The analyst stressed what we believe, that “The merger of Goldcorp and Glamis Gold in late 2006 vaulted Goldcorp to the forefront of global gold producers.” “The new Goldcorp has growing gold production, very low cash costs, solid earnings generating ability, large reserve/resource base, strong balance sheet and an entrepreneurial management team."
Times have been great for silver this year, which under the right circumstances can act like gold on steroids. And it’s doing this right now. With oil prices stabilizing and the dollar weakening--powerful tailwinds at precious metals’ backs--silver is beginning to significantly outperform gold.
This summer, I favored buying the iShares Silver Trust (AMEX: SLV) after the sharp correction that commenced in May at an entry price of $102. Has capitalization on that move passed other investors by? I don’t think so. I’m looking for that exchange traded fund (ETF) to trade to $200 by mid-2007 with a possible $10 to $20 downside from current levels.
The iShares Silver Trust has 10 ounces of silver per share; you have to multiply the price of silver by 10 to get to the ETF price. This is the opposite of the streetTRACKS Gold (NYSE: GLD), where the price of gold is divided by 10.
Silver prices are currently around $13; it’s not out of the question if they trade up to their 1980 high near $50 (but that would take time and a lot of patience). Obviously, this would have a significant effect on the ETF price.
Some of the best-run silver miners happen to be based in Canada. One such company is Pan American Silver Corp (Nasdaq: PAAS) led by Ross Beaty. Even though the company is based in Vancouver, British Columbia, all of its mines and reserves are in Latin America and the US, making it truly Pan American. That’s OK; all large mining conglomerates are global in nature. Pan American aims to be the largest pure silver miner in the world while delivering the lowest possible mining cost in order to achieve better leverage to the price of silver bullion.
In 2005, Pan American produced about 12.5 million ounces of silver from six producing mines in three countries and is on track to produce approximately 14 million ounces in 2006. Because there are more mines under construction, Pan American expects to become the largest primary silver producer in the world, reaching 25 million ounces per year by 2009.
There’s also an interesting Canada-based royalty company, Silver Wheaton Corp (NYSE: SLW), that has no mining operations but holds long-term contracts to sell the silver of existing mines. It buys silver at $3.90 and sells it for $13.
Before you ask why anyone in his right mind would sell silver to Silver Wheaton at $3.90, do some reading on the company on its Web site; it’s a remarkable story. The sellers of the silver take cash and shares of Silver Wheaton for their bullion. Because they're shareholders, they get heavily compensated for the low silver price they receive. It’s a way to magnify fringe silver operations of otherwise primary gold mining companies.
Finally, no article on mining stocks is complete without mentioning Barrick Gold (NYSE: ABX), the biggest precious metals miner in the world after the completion of a recent merger. For many years, Barrick was hated by precious metals enthusiasts (it probably still is) for its hedging strategy--selling bullion forward to manage volatility of revenues. Barrick was very smart to do so in the 1996-00 period when prices went down every year and less smart since 2000 as prices have been rising.
There are credible signs that this hedge book is unwinding and the leverage to the gold price of Barrick Gold is increasing. Recent mergers (like Placer Dome) are helping change the culture at Barrick. The stock's best days have yet to come; plus, the shares are the least volatile of the whole group, making them perfect for long-term conservative investors who seek exposure to precious metals prices.
There’s an excellent chance that a year from now we will look back on the shares of the company’s mentioned above—as well as the price of silver and gold—and say to ourselves, “The end of 2006 was a golden chance to cash in our dollars for silver and gold and make some serious capital gains!” Let’s not just talk about it. Let’s do it!!
posted by Marc Mentor at 9:56 PM
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