just got this email from dejour. We got recommended as a buy. So we got that going for us. Now if we could only book some reserves. - JT
Gold Newsletter Alert Page 1 of 4
GOLD NEWSLETTER ALERT #311
FEBRUARY 8, 2006
Free Fall
...Interrupted
Gold and the commodities ran into a brick wall yesterday, as the
yellow metal suffered its greatest one-day drop in 13 years.
The next few days are critical but -- with the speculative froth blown
off the market and today’s stabilization -- strong retail buying could
help gold to an impressive recovery.
PLUS: Three new, post sell-off recommendations...
T
here’s no way around it. Yesterday was
ugly for gold and commodity bulls of all
stripes. Seemingly in unison (or not seem-ingly,
if you’re a die-hard conspiracy theorist),
the world’s professional traders declared Tuesday
“Profit Taking Day” in the raw materials and pre-cious
metals sectors.
Broad-based and aggressive selling hit the
commodities landscape like a tidal wave, as
downward momentum drove prices through sev-eral
layers of sell-stops and sent the less-commit-ted
buyers in these markets running for the exits.
Precious metals. Base metals. Oil and gas. It
didn’t matter. If you were on the long side of the
trade yesterday, you were bound to take a beat-ing.
Fortunately, as I’ll show you in a minute,
there’s a decidedly silver lining to this correction,
one that promises to richly reward those with the
intestinal fortitude to handle the volatility that
comes part and parcel with this new bull market.
But first, let’s recap exactly what happened.
After beginning the trading day essentially
flat in the Asian markets, gold fell right from the
open in London, shedding around $5.00 in
advance of the ringing of the bell in New York.
And that’s when the real carnage began.
By the time the spot market had closed
Tuesday afternoon, gold had fallen all the way
back to $550.70, a full $19.50 off its Monday fin-ish.
The rest of the precious metals complex fol-lowed
suit -- silver plummeted $0.38 to $9.34,
while platinum and palladium lost $14.00 and
$20.00, posting final bids of $1,047.00 and
$286.00 respectively.
The downdraft inflicted similar pain on the
equities. The Gold Bugs Index dropped to
314.73, recording a one-day loss of 27.16 points
(7.94%). And the XAU fared no better, yielding
10.75 points (7.08%), to close at 141.05.
Both gold and the mining stocks appear to
have stabilized today, with spot gold recovering
strongly from an early-session low around the
$545 mark and closing at $550.10, a mere $0.60
off its Tuesday finish.
The mining stock indices were basically flat,
with the Gold Bugs Index losing just 0.05 of a
point (-0.02%) to close at 314.68, and the XAU
dropping 0.25 points (0.18%) to finish at 140.80.
So what lies ahead now?
It’s impossible to say at this point. While
today’s action (or lack thereof) was highly
encouraging, the next few days will be critical.
There have been anecdotal reports of some
committed longs “reloading” their positions at
these lower levels, as well as some buying from
new bulls who had been waiting for a better entry
point. In addition, it is likely that today saw some
substantial short-covering, both by those who
made a killing in yesterday’s bloodbath, and those
who seized the chance to cut their losses on short
positions made at still-lower prices.
And, of course, we have and will continue to
see bargain-hunting buying from retail investors,
particularly those in India and the Middle East.
However, this buying will be met by selling
pressure from liquidating longs (some facing mar-gin
calls from bets in other commodities as well),
mining companies trying to lock in current prices
by selling gold forward, and shorts (both newly
minted bears and those who are trying to raise the
average price on their old, losing short positions).
Again, the next few days are vitally important,
and will help us determine how much bargain-hunting
money will come into the market, and to
what extent short-covering will resume.
In this month’s newsletter, I had predicted a
short-covering rally before the inevitable correc-tion.
I may have been wrong, and this may be the
correction. But if yesterday’s down-draft turns out
to be a one-day event, I would still expect a
longer-term correction this spring.
In either case, my advice is the same: Buy
carefully, and continue to take some money off
the table in your highly profitable, long-term posi-tions.
The good news is that, by and large, the dam-age
to the junior sector has been minimal. Greed
has returned to this market in fine force, with
many companies trading right back to near their
pre-sell-off levels.
So there are few bargains to be had. One that
catches my eye is Titan Uranium (TUE.V;
C$1.99), which had been on a tear recently, and is
now on sale. This company has more news in the
pipeline, and should bounce back upward soon.
Elsewhere, yesterday’s correction has brought
three new recommendations that I have had my
eye on for some time into acceptable buying
range. All three companies have exceptional man-agement
teams and great projects, and all look
primed to deliver big gains in the months ahead.
First up is Nayarit Gold (NYG.V;
NYRTF.PK; C$0.83), a fledgling gold junior with
a story that reads a lot like an early-stage version
of Gammon Lake (GRS.Amex; GAM.TO;
C$15.21), one our monster winners from the cur-rent
upcycle in gold and the commodities.
Like Gammon, Nayarit has pulled together a
huge land package along Mexico’s Sierra Madre
Occidental Belt, one of the world’s most produc-tive
gold and silver districts. Dubbed the Orion
Gold Project, this land package consolidates three
concessions and 8,324 hectares in Nayarit State,
Mexico.
Prior owner Lac Minerals explored the area’s
Orion and La Estrella targets back in the early
90s. The work included geochemical and geo-physical
surveying, surface sampling and almost
2,500 meters of reverse circulation drilling. This
latter program turned in several intervals of high-grade
gold and was highlighted by Hole 1, which
cut 1.5 meters of 28.2 g/t gold and 3.5 g/t silver.
These good results got pushed aside in 1994,
when Barrick took out Lac and subsequently
decided to shelve the project, which then reverted
to the control of private Mexican interests.
Following a reorganization that took place in the
Summer of 2005, Nayarit Gold emerged with an
option to take a 100% stake in those interests
(which included the Orion and La Estrella targets,
as well as the larger El Magnifico concession).
Since then, it has combined historic data com-piled
by Lac (and by the Mexican government)
with the results from an ongoing sampling pro-Gold
Newsletter Alert Page 2 of 4
gram. That program is testing both the surface
expressions of mineralization at Orion and the
potential in and around pre-existing underground
workings.
Based on the numerous high-grade samples
generated by Nayarit’s recent efforts, I believe the
company has a better-than-average chance of
recreating the success that Gammon Lake has
enjoyed with its Ocampo project.
If so, the story will unwind in a similar fash-ion,
with drilling tying together progressively
larger zones of continuous mineralization until,
one day, the market wakes up to Orion’s district-scale
potential.
In the interim, don’t let the $0.50 jump the
company’s share price has taken since the begin-ning
of the year scare you away. Nayarit’s modest
market cap and Orion’s huge upside suggest that
this company’s stock could take off like a rocket
in the near future on the back of either good
exploration results or higher gold prices.
My second recommendation is Dejour
Enterprises (DJE.V; DJEEF.PK; C$1.35), a
small-cap energy explorer with a deep, talented
management team and an aggressive streak when
it comes to acquisitions. As such, it falls neatly
within our requirements for ways to leverage the
energy craze.
Under the direction of Chairman and CEO
(and deal-maker extraordinaire) Bob Hodgkinson,
Dejour has rapidly cobbled together the fifth
largest land position in the Atahabasca Basin,
Canada’s uranium Mecca in northern
Saskatchewan. Simultaneously, he has established
working interests in a couple of high-potential
U.S. oil and gas plays.
Of course, Bob has had considerable help
putting these deals together. Director and COO
Doug Cannaday has over 25 years of experience
consulting for and running energy and mining
exploration companies, and his expertise has
proven invaluable in the selection of its projects.
On the uranium side, Director Dr. Lloyd Clark
is the heaviest of hitters. His resume includes nine
years with Saskatchewan Mining Development
Corporation, the former incarnation of uranium
giant Cameco. During his tenure there, Dr. Clark
led a staff of 65 geologists that discovered
McArthur River, the Athabasca Basin’s (and, thus,
the world’s) largest and most profitable uranium
mine.
In just two short years, these men have helped
Dejour to assemble and develop a massive,
391,000-hectare Athabasca land package. And
after spending much of 2005 plying the myriad
projects that comprise this package with a full
complement of geophysical surveys, they have
tasked their field team with a winter exploration
program, now underway, that will outline 10 to 12
drill hole locations.
And while we wait for that work to be fin-ished
and drilling to begin (sometime in March),
we’ll have plenty of potentially explosive data to
digest from Merit #1, the first test well driven on
its Tinsley Deep gas project in west-central
Mississippi.
Drilling on Merit #1 wrapped up last week,
having cut the Tinsley area’s major gas-hosting
formations and reached its targeted depth of
12,000 feet. Initial seismic data on the area con-servatively
pegs its potential recoverable
resources at 349 billion cubic feet of gas and 7.1
million barrels of oil from the Smackover forma-tion
and 284 billion cubic feet of gas and 6.7 mil-lion
barrels of oil from the Norphlet formation.
But if the data from Merit #1 prove positive,
the size of the land package Dejour can earn into
argues for a gas reservoir orders of magnitude
larger than these initial resources.
And if the results don’t pan out? Well, a recent
round of financing, once finalized, will give the
company over C$17 million of cash, enough to
fund a news-flow generating exploration program
on its Athabasca claims and, more than likely, a
few more strategic acquisitions.
In other words, there’s plenty for this compa-ny
to fall back on in the event of disappointing or
inconclusive results from Tinsley. If you want to
Gold Newsletter Alert Page 3 of 4
put in a wager on those results, now is the time to
do it. The risk of not doing so, of course, is that
the stock will run far ahead of current levels in
response.
My last recommendation is Aurea Mining
(MXA.V; C$0.40), a micro-cap junior with a
major-league land position in Mexico’s Guerrero
Gold Belt.
Located, appropriately enough, in Guerrero
State, the GGB lies just to the west of the massive
sulphide belt hosting Campo Morado, Farallon
Resources’ (FAN.TO; FRLLF.PK; C$0.70) dis-trict-
scale polymetallic project.
Of more relevance to Aurea, however, are the
10 million ounces of gold resources that lie east
and south of its 80,000-hectare land position in
the region. Those totals come from Goldcorp’s
100%-owned Los Filos, Nukay and Bermejal pro-jects,
from Goldcorp’s 21.1%-owned El Limon-Los
Guajes project (Teck Cominco owns the other
78.8%) and from Grupo Mexico’s Morelos Sur
discovery.
Aurea has traced no less than 11 geologically
significant intrusions along the Aurea North and
Aurea South concessions that comprise its land
position. And with C$1.25 million in cash coming
in soon from a recently announced private place-ment,
the company can embark on an aggressive
exploration campaign to test the most promising
of these targets.
At five million units (each good for one share
at C$0.25 and a full, one-year warrant redeemable
at C$0.35), the issue is only modestly dilutive.
More to the point, it shows that investor interest is
building quickly in Aurea’s chances of finding the
next major resource within the GGB.
I’ll provide more details as they develop, but
the bottom line is that Aurea is a company you
should approach carefully. It is a thinly traded,
high-risk exploration play, and any significant
buying pressure will send the share price flying.
But there are few high-quality, early-stage,
low-priced plays remaining right now, in a market
that is still hungry for them. The curtain is rising
on Aurea, and I expect that the aforementioned
buying pressure will come very soon. If you can
get positioned beforehand, near current prices, the
benefits could be substantial.
— Brien Lundin
Gold Newsletter Alert Page 4 of 4
Gold Newsletter Alert is published by Jefferson Direct, Inc., 2400 Jefferson Hwy., Suite 600, Jefferson, LA 70121. For subscription
details, call 504-837-3033 or send e-mail to gnlmail@jeffersoncompanies.com. Neither the author, the publisher nor their affiliates
have been compensated for these recommendations. The publisher, the author and their affiliates actively trade in investments dis-cussed
in Gold Newsletter, Gold Newsletter’s Mining Share Focus and Gold Newsletter ALERT. They may have a position in the
securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advi-sor.
Subscribers should not view this publication as offering personalized legal or investment-related advice, news and editorial view-points
on the investments discussed herein. ©2006 Jefferson Direct, Inc. All rights reserved. |
