₪ David Pescod's Late Edition June 13, 2006
GOLD (Biggest Drop Yet) $562.10 -44.10
SILVER $ 9.84 -1.19
COPPER $3.095 -0.233
INDIA’S SENSITIVE INDEX -4.4%
JAPAN’S NIKKEI 225 -4.1%
TORONTO’S TSX INDEX -304 points (ugly)
According to reports on some sports sections of the paper this
morning, Russian police were called out to a certain location in
Rostov-On-Don, because of reports of large groups of men fighting on
Sunday evening and when they appeared, the found dozens of cars
and people gathered in an empty field on the outsides of this southern
Russian city.
It appeared to be a fight between criminal gang members. More
than 70 officers detained about 100 people before they found out that
the men were actually playing rugby instead of brawling.
One wonders what those Russian police would have thought of
what happened in financial markets today as gold has its biggest
plunge in 15 years, dropping $44.00; silver got pummeled $1.19, down
to $9.84 and markets everywhere got bruised. The Russian market
itself got clobbered and the Columbian market which was down 10%
yesterday and halted, lost another 8% today, while markets through
much of Asia suffered as well.
This is all coming about because of concerns about ever yet higher
interest rates. As interest rates go up North Americans can’t afford to
buy new homes and with less new homes to sell supposedly, there
would be less demand for metals—and for that matter, many of the
other products that these days are made in Asia. Truly ugly!
Our morning started with a report by Canaccord mining analyst
Graeme Currie issuing his weekly report and asking the question, “Are
We There Yet?” He writes, “Specifically, we have been looking for a
roughly 23-25% pullback in the sector” (junior mining).
As of this morning, he suggested we’ve already seen a correction
of roughly 22%. He writes, “As a general statement, we believe the
majority of the correction is the sector is now completed. Moving forward,
we are still not recommending broad accumulation. Once a
base is established for the sector in general, and for individual companies
specifically, one can then look at restructuring their junior mining
portfolio” he suggests.
“Coming out of such a sharp decline, we maintain the view that
unlike the year just past when investors were buying the sector, focus
will return to a stock-pickers environment”. He continues, “A summerlong
basing potential within the junior mining market is the most likely
outcome, in our view”.
This was written last night/this morning, so today we had another
unpleasant day as the Venture Exchange dropped 176 points, but we
are hoping the general view of Currie’s report is correct. To receive a
copy of this report, just e-mail Sandra at sandra_
wicks@canaccord.com.
For some more details, we contacted Currie’s cohort, mining
analyst Wendell Zerb who in the very speculative junior sector,
tends to be one of the more conservative types.
Back on May 17, 2006, when we last talked to him he had
suggested gold (then close to $700) was overpriced and would
soon correct to $610 to $630. Not quite right, as gold today hits
$562.
What next, we ask him today. “We’ve got to be closer to the
bottom than the top” he suggests and thinks that $575 should
hold. If not however, the next area of support is $540. If it does
drop, another drop in commodity prices would mean another
drop in equities.
Meanwhile, he remains still very bullish on base metals, although
he suggests “the run up in base metal prices simply
wasn’t warranted by economics”. We personally wonder about
all these venture funds that force commodity prices so high and
wonder how beaten up they might be ...
Zerb points to a price on copper even way down at $3.00 a
pound and suggests that even that price is not sustainable.
“While another drop in copper prices wouldn’t be good for the
equities and could be negative for the sector, there are a handful
of companies that could potentially make a lot of money at
even a fraction of $3.00 a pound”, he suggests.
As far as gold, he suggests over the long term, it still looks
good as some of the same bullish factors still exist such as
global uncertainty and geo-political problems, concerns about
the U.S. dollar in the longer run (although in the short term, it
has been strong) plus additional specific market concerns.
So we ask him then, “if most of this correction is already
over and we are looking for a bottoming story over the next few
weeks and months, which ones would you be nibbling away
at?” Despite the beating the market has taken, he doesn’t yet
have a very long list and at the top of it right now is Corriente
Resources (CTQ). Take a look at the chart on it and you’ll see that
it, like many other juniors these days, is now trading at close to
half its previous price.
Zerb is just back from a tour of Corriente’s properties in Ecuador
and he suggests his first surprise was that the infrastructure
for their project is much better than he had expected. He
feels this company, over the longer term will become one of the
more prominent mid-cap copper producers. He suggests it
could make fairly decent money at even as low as $1.05 a
pound for copper.
He also points out that their project is just north of where
Aurelian Resources (ARU) has had their absolutely enormous gold
discovery. He suggests that Aurelian is one of the best gold discoveries
we’ve seen in years and while it hasn’t yet all been
proven as to size, he notes that Corriente has several gold anomalies
not too far from the Aurelian discovery and all of a sudden,
those projects are going to be worthy of a look/see.
As far as other stories that he is watching, he is suggesting
that he is just back from a tour of the Aurelian discovery as well
and he suggests that this is quite the discovery. What could add
something to the stock he suggests, is if the majors suddenly
decide they want an interest in it. He also points out that there is
always geo-political concerns in the countries in South America,
but he feels that Ecuador is one of the countries he is fairly comfortable
with.
As far as one of his previous picks, EuroZinc Mining (EZM),
which went way past his targets when the illustrious Jim Cramer
starting pumping it on Mad Money, he had to move his target to a
hold from a buy, but now that it has pummeled to the price you
see today, he is suggesting that based on the potential cash flow
multiples of this company, at this level it’s one you should start
considering nibbling at or accumulating.
Atna Resources
Atna shows how poorly its faired like many of the junior mining explorers over the last few weeks and months. They’ve also lost a bit of the interest in their Pinson project due to Barrick
backing in, but at this price, suddenly it becomes one to watch….
Impact Silver
We do this chart for no other reason than to show how yet another widely watched junior silver explorer has faired in the markets of today that have gone from greed to fear, mighty rapidly!
Disclosures: Atna Resources, Corriente Resources and Aurelian Resources: Canaccord Capital covers these stocks and has a Speculative
Buy rating on them. (Speculative buy: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria.
Investments in the stock may result in material loss.) EuroZinc Mining: Canaccord Capital covers this stock and has a Hold rating on it. (Hold:
The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.)
Canaccord has recently led a financing for Atna Resources and Corriente Resources.
Canaccord has recently participated in a financing for Aurelian Resources. |
