Today marks the fifteenth day in which the TSX has experienced a large point gain or loss, most of which have been triple digit. In the U.S., the Dow Jones has investors on the edge of their seats as volatility reigns supreme. A worsening economy, a US debt downgrade from Standard & Poor’s and a move from the Federal Reserve to keep interest rates near zero for at least the next two years are resulting in unprecedented uncertainty. Michael Cohn, chief market strategist at Global Arena Investment Management in New York stated, “We’re definitely in a recession of confidence, and that’s what it’s all about—confidence.”
In what has been one of the more dramatic sell-offs and recoveries in recent memory, many investment professionals are comfortable sitting on the sidelines until some stability returns to the equity markets and direction, whether that be up or down, is confirmed. But some money managers see opportunities in this environment. “Volatility is the friend of a long-term investors because he or she can take advantage of it if they have a strong stomach to buy stocks when they are getting crushed,” according to John Buckingham, chief investment officer at Al Frank Asset Management in Aliso Viejo, California.
With the U.S. capturing global economic headlines during the past three weeks let us not forget our friends in Europe. The German economy, the largest in Europe, nearly stalled in the second quarter as the European sovereign-debt crisis weighed on confidence. France’s recovery unexpectedly ground to a halt while Italy and Spain remained sluggish and Greece’s economy contracted.
In these turbulent times many investors are thinking the same thing: gold. In 2011, the yellow metal has jumped 45 percent, hitting a high of $1,817.60 on August 11th after the U.S. debt downgrade. “Gold is the quintessential hedge when there are worries about the economy,” said Dave Meger, the director of metal trading at Vision Financial Markets in Chicago.
Although gold is the word of the day, some feel that shares of gold producers, which have not escaped the sell-off in equities, are set to surge on gold’s record prices and, at some point, will outpace the gains of the metal itself. “You win a lot more with the shares,” stated John Hathaway, who manages $2.5 billion as a managing director at Tocqueville Asset Management LP. While Barry James, who manages $2 billion as chief executive officer at James Investment Research Inc. in Xenia, Ohio, simplified the argument for gold equities, “There’s the leverage effect of owning a mining stock. Miners can get it out of the ground for a few hundred dollars and that gets multiplied as the price of gold rises.”
One TSX miner has been making a transition from a diversified mining investment banker into a junior gold producer. Endeavour Mining (TSX: EDV) shifted their focus towards gold after the 2008 market melt-down saw their share price fall from over $11 to a low of $1.20. Since then, the company has been undertaking a quiet yet successful transformation and has a producing mine in Burkina Faso and two development stage projects in Mali and Côte d’Ivoire. In response, Endeavour’s share price has doubled and currently trades at $2.42. But it appears that the company’s executives are not satisfied. Management states in their most recent financial statements, “Endeavour’s strategic acquisition program is targeting complementary producing, or near-term producing, gold assets.”
Canaccord Genuity analyst Nicholas Campbell likes what he sees and, on August 5th, issued a “speculative buy” on Endeavour Mining with a target price of $5.00 per share. Within Campbell’s report he writes, “We believe that EDV’s strong balance sheet ($2 per share in working capital) should provide some downside protection during a challenging junior mining environment and allow it to take advantage of depressed equity valuations to further grow its production through acquisition.”
Disclosure: at publication date Endeavour Mining is a client of MiningFeeds.com.
Like most Canadians, the TSX took a break for Canada day celebrations on Friday after posting four consecutive positive days. And to the south, U.S. stocks posted their biggest weekly rally in two years with the Dow Jones Industrial Average rising 648 points after Greece took action to avoid default on its debt.
“It’s a week of major reversal,” said Stephen Lieber, Chief Investment Officer of Alpine Woods Capital Investors, a New York investment firm with $7 billion under management.
Stocks rose this week after Greek Prime Minister George Papandreou secured enough votes to pass the first part of an austerity plan aimed at meeting European Union aid requirements and lawmakers backed a bill on June 30 to authorize the measure. Greece could receive as much as 85 billion euros in new financing, including contributions from European banks and private investors, in a second bailout aimed to prevent default by the debt-laden nation.
“People are relieved that the Greek situation is seemingly contained for the next couple of months. Also the most recent economic news out of the U.S. has not been as bad as feared,” said Lex van Dam, hedge fund manager at Hampstead Capital, which manages nearly a half a billion dollars. TSX miners fared well as investors’ risk appetite reflected the sentiments of Mr. van Dam. We take a look at the three top performing mining stock on the TSX in a week where investors let out a collective sigh of relief and the bulls outnumbered the bears.
1. Capstone Mining Corp. (TSX: CS)
Weekly gain: 20.5%
Closing price: $3.59
On July 20th, Capstone Mining released the results of an initial mineral resource estimate for the Mala Noche Footwall zone (MNFWZ) at the Cozamin mine in Zacatecas, Mexico. Measured + indicated resources were reported to be 74.2 million pounds of copper grading 2.32% and 1.7 million ounces of silver grading 36.6%. Earlier that week, Capstone closed the acquisition of Far West Mining. “The size and grade of this new mineral resource estimate allows Capstone to now consider production expansion scenarios as well as extended mine life in an upcoming prefeasibility study to begin in the third quarter of 2011,” said Brad Mercer, Vice President Exploration.
On May 26th, 2011, TD Newcrest analyst Craig Miller reissued a buy rating on Capstone and has a 12 month price target of $4.75 on the stock, down slightly from TD’s $5.50 target issued late last last year.
2. Labrador Iron Mines (TSX: LIM)
Weekly gain: 20.1%
Closing price: $12.25
On July 30th, Labrador iron Mines reported a year end loss of $3.97 million in their fiscal 2011. But tucked in the press release was a sound-bite that investors had been waiting for. On June 29, 2011, the first loaded iron ore train departed the company’s Silver Yards facility for the Port of Sept-Iles. This historic event is the first commercial iron ore train from the Schefferville area in almost 30 years.
Labrador Iron Mines was featured by MiningFeeds.com as one of 10 Base Metal Stocks to Watch in 2011 and Haywood Securities analyst Geordie Mark noted, “Labrador Iron Mines is set to become Canada’s next iron ore producer coming into production this month. The company intends to deploy the cash from its recent financing and cash-flow from operations to expand output over the next few years so the timing looks perfect to take advantage of elevated iron ore prices.” CLICK HERE – for the full article.
3. Volta Resources Inc. (TSX: VTR)
Weekly gain: 19.0%
Closing price: $1.63
On July 29th, Volta released an updated NI 43-101-compliant mineral resource estimate for the Kiaka gold project in Burkina Faso, . The report, prepared by SRK Consulting United Kingdom, highlighted a 3.01 million ounce of measured + indicated gold resource. “Our drilling programs have more than doubled the mineral resource base from last year’s estimate at Kiaka while also significantly increasing the confidence of the geological model,” stated Kevin Bullock, Volta’s president and chief executive officer.
Burkina Faso, formerly called the Republic of Upper Volta, was renamed on August 4th, 1984, by then President Thomas Sankara in an effort to shed the country’s colonial past. Figuratively, “Burkina” means “men of integrity” in Mòoré and “Faso” means “father’s house” in Dioula – from the two major languages spoken in the West African nation. For his efforts, Mr. Sankar was later killed by an armed gang with twelve other officials in a coup organised by his former colleague, Blaise Compaoré. Lately, the incumbent government has been dealing with rebellious soldiers who have taken to the streets demanding daily food allowances and a housing subsidies among other things. On May 31st, the presidential guard was sent to put down the most recent rebellion. Nearly 60 soldiers were arrested, according to military authorities, who have announced that they will be charged with “rebellion and theft”.
Blink and you may have missed it. If the recent downturn in commodities is coming to an end, as some suggest, it was a brief correction. While the recent slump actually contained the worst week for commodities since the recession of late 2008, many believe it’s a mere blip. Hussein Allidina, head of commodity research at Morgan Stanley in New York, said “The declines exhibited last week provide a good entry point for both investors and consumers.” Allidina belives the macroeconomic environment remains positive for commodities in general.
Long term mining bulls will find bargains this week. Silver prices have fallen from a recent high of $48.48 an ounce to near the $35 dollar mark. The 30 day spot price on copper fell from $4.38 on April 21st to $3.91 on May 11th. Platinum’s recent high was $1873 on April 29th, it fell to $1750 on May 12th. And after storming to a high of $1565 gold promptly fell back under the $1500 mark, before a modest recovery.
The TSX, which lists 55% of the world’s public mining companies, has fallen more than 4% in May. The exchange is clearly a commodity driven one, and is particularly influenced by mining stocks. Of the components of the S&P/TSX 60, twelve stocks are miners. Are there bargains to be had amongst this group? Do a little digging, as we have, and you will find that all twelve have retreated this month. We sort through the red ink, and show you how much each stock is off, from worst in first.
1. Eldorado Gold Corporation (TSX:ELD) -16.8%
Price on April 29th:$17.61
Price on May 13th: $14.65
2. Teck (TSX:TCK.B) -12.8%
Price on April 29th: $51.43
Price on May 13th: $44.85
3. Goldcorp (TSX:G) -12.5%
Price on April 29th: $52.89
Price on May 13th: $46.28
4. Agnico-Eagle Mines (TSX:AEM) -9.8%
Price on April 29th: $65.92
Price on May 13th: $59.44
5. Barrick Gold (TSX:ABX) -9.7%
Price on April 29th:$48.32
Price on May 13th $43.63
6. Agrium (TSX:AGU) -9%
Price on April 29th: $85.76
Price on May 13th: $78
7. First Quantum (TSX:FM) -8.7%
Price on April 29th: $134.83
Price on May 13th: $123.10
8. Kinross Gold Corporation(TSX:K) -7.9%
Price on April 29th: $15
Price on May 13th: $13.81
9. Potash Corporation of Saskatchewan (TSX:POT) -6.6%
Price on April 29th: $53.45
Price on May 13th: $49.92
10. Iamgold Corporation (TSX:IMG) -6.2%
Price on April 29th:$19.41
Price on May 13th:$18.21
11. Yamana Gold (TSX:YRI) -5%
Price on April 29th: $12.06
Price on May 13th: $11.46
12. Inmet Mining Corporation (TSX:IMN) -4.6%
Price on April 29th: $66.40
Price on May 13th: $63.36
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