Saturday, April 23, 2011

Silver Mining Stocks Undervalued

We have tried to give readers the most clear and direct opinion possible on silver throughout this bull market.  In 2009 the fundamentals for the metal made a price rise unavoidable.  August of 2010 marked the actual beginning of the strongest part of the move.  Most people still have no idea how much an ounce of silver costs, where to buy it or why you would want it.

Our last silver post recommended allocating capital to physical metal, exchange traded metal, mid/large cap stocks and small junior miners/explorers.  If your broker has no decent silver stock advice for you we offer a report on how to own the sector.

Owning physical metal is great but more capital appreciation is available in the mining shares if selected properly.  A small silver miner producing 2 million ounces annually at a cost of $5/oz probably cleared $20 million last year selling product at an average price of $15/oz.  Energy related expenses can be estimated at 25% of mining cost and to be conservative let's say that input has doubled making their per ounce cost of extraction $6.25/oz.  Silver has more than doubled so we could conservatively assume that they will sell production for $30/oz this year.  The current spot price is $47/oz so we have left plenty of cushion in that number.  This same company would clear $47.5 million selling silver at $30/oz.

As you can see in this chart silver miners have lagged the metal.  This divergence became more pronounced in early March.
Chart forGlobal X Silver Miners ETF (SIL)

When building a silver portfolio investors should know that there was major weakness in the space during the 4th quarter of 2008.  One company stepped in and provided bridge financing to many small miners.  They were smart enough to attach warrants to purchase silver from the mines they financed at an average cost of $4/oz.  These production warrants stay in situ throughout the life of the mine.  In our report on how to invest in the silver space we recommended that this company be the foundation of a strong portfolio.  We predict that it will turn into a dividend behemoth and a favorite of many trust department managers.  This stock should be purchased now.  We also recommend staying away from miners that are counter-parties to these production warrant contracts as they will not fully benefit from higher silver prices while bearing 100% of higher extraction costs.

Silver portfolios need to be at least 50% positioned now.  The balance of capital can be put to work before July 7th of this year.  All resource or mining related sectors stand to see huge capital inflows in the 3rd and 4th quarters of 2011.  There is no reason to try and outsmart the market by trading and skimming pennies.  Picking the best companies, allocating capital properly and leaving the portfolio alone is the key to making money and sleeping well at night.  Just a quick note on sleeping well at night.  Most people spend 1/3rd of their life sleeping (we spend no more than 20%) and they never want to spend any money on a new mattress.  Take some trading profits this year and purchase the most luxurious mattress available, preferably a Serta.  This is a purchase that will enhance all parts of your life.

Wednesday, April 20, 2011

Rare Earth Elements Update

Another week leads to another price increase in rare earth oxides.  This bull market continues to go unnoticed by the mainstream press.  Our last report on 4-4-11 showed a sample mix of oxides from one early producer with a blended market price of $150.20/kg.  This same mix now has a market value of $160.32/kg having experienced another 6.7% price increase in only 2 weeks.

Prices as of 4/4/11

Rare Earth Oxide
Q3 2010
 Q4 2010
Lanthanum Oxide
Cerium Oxide
Neodymium Oxide
Praseodymium Oxide
Samarium Oxide
Dysprosium Oxide
Europium Oxide
Terbium Oxide
Av. Composition


Prices as of 4/18/11

Rare Earth OxideDistribution200720082009Q3 2010
 Q4 2010
Lanthanum Oxide25.50%3.448.714.8823.6752.49133.10
Cerium Oxide46.74%3.044.563.8823.0552.62130.60
Neodymium Oxide18.50%30.2431.9019.1255.8181.38230.00
Praseodymium Oxide5.32%29.0529.4818.0354.3778.62215.50
Samarium Oxide2.27%3.605.203.4014.4036.58120.60
Dysprosium Oxide0.124%89.10118.49115.67281.54287.85700.00
Europium Oxide0.443%323.90481.92492.92585.31611.541180.00
Terbium Oxide0.068%590.40720.77361.67593.38620.38 1200.00
Av. Composition 11.5914.8710.3216.0262.18160.32
Composition 11.5914.8710.3216.0262.18160.32
How long will it take markets to wake up to this new reality?  Once they do there is still time to make investments because even large firms do not have the slightest idea what they are doing in this space.  We recently studied a 35 page report on one of our favorite stock picks in the sector.  The report used 2007-2009 rare earth oxide prices in their valuation model.  See above that prices are up over 1,500% in that time period.  This position has returned over 135% in the past year and remains undiscovered by the market.  A rapidly approaching US exchange listing will increase the companies exposure.

We are ahead of the herd in this space and our recommended stock mix has performed better than we could have ever expected.  An example investment of $10,000 made one year ago in the stocks we cover has grown to $42,088.07.  That is a return of over 320% in a year.  This market still flies under the radar and the stocks have not performed in line with the oxides that they are mining.  As you can see in the chart above the average blend of oxide prices has risen nearly 1,000% more than tripling the stocks performance!  Some of our smaller miners have very valuable deposits that will be likely acquisition targets for key western government supported consolidation vehicles.

Speak with your broker about placing capital in this sector.  In the event that he has no useful advice for you we offer a 7 page report that includes the following:

  • Industry primer
  • History of the elements
  • Explanation of the manufacturing markets that rely on these critical elements
  • Analysis of world demand and the current supply shock driving it
  • Projection of when new supply will meet that growing demand
  • A recommendation of which 9 companies to own in the space with a focus on the most valuable deposits controlled by firms with proper share structures, focused management teams and a true shot at early development in an effort to benefit from the consolidation phase
Please sign up to follow this blog and contact the editor KSIR Capital for more information.

Tuesday, April 19, 2011

What Drug Are Americans Taking & How Can We Get Some?

Better question is will the dealer take fiat paper currency for it?

What drug are the citizens of the United States on?  Watching a mainstream news program and having discussions with sophisticated citizens causes us to think we are the only one not enjoying the trip.  Politicians are generating record television ratings fighting over cuts of $1mil here and there.  Anyone proposing even $1bil in cuts is now called a renegade, a savior even a patriot that cares for the future of the great country.  The future?  This is insanity.

The US is running deficits of over $1.6 trillion a year and it's citizens can't make the connection that cutting $30-40 billion is a rounding error.  The citizens have been effectively brainwashed.  The education system has bred out any ability to use rational or logical thought in making a decision.  People are so worried about being politically correct and liked that rational thought is no longer seen as anything other than conspiracy oriented.

This is an absolute disaster and we offer no solution other than urging readers to SEEK SHELTER NOW!  The tornados that ripped apart the southeast should serve as metaphor for what lies ahead.  Purchasing physical gold could be the only possible way to avoid facing the black cloud brewing on the horizon.

What Is Debt? 

Debt is the key to the modern financial system in its current form.  The danger in using debt is that humans tend to make less calculated decisions when spending money that has not been earned.  This is the case even when the borrower agrees to be liable for future obligations.  There is always effort exchanged for money when it changes hands.  If the transactions involves a day of labor or an intellectual concept that improves efficiency, either transaction involves currency traded for something.  The payment is earned.  When this earned payment is then used in a future transaction, the memory of that effort precludes the spender from wasting the money.

Modern Day Slavery

The debtor is the slave of the creditor.  Loan sharks, while using primitive tactics, offer an example of how powerful debt can be.  The best way to control an asset is to have it pledged as collateral in a loan to the over-leveraged owner.  Once the owner is not able to service the loan the asset is seized.

This can also become the case in over-leveraged corporations.  When a company carries a heavy debt burden and sales begin to decline shorter term debt is often used to meet cash needs.  This behavior seems logical at first but as time passes only objective outside observers can see the actual peril the company faces.  Savvy investors will begin to purchase old debt at a steep discount to face value.  When the company files for bankruptcy protection these creditors take control of the company's assets.

How This Relates To Current Conditions

There is no acceptable explanation for the current financial situation facing the modern world.  Debt has been assumed in quantities so large that repayment has become impossible.  Central banks are purchasing debt from the treasuries of their host countries.

Ireland provides a wonderful example of how serious the problem is.  Unaware citizens allowed bankers and politicians to use the country as a financial brothel for several years.  Once credit began to dry up the bankers demanded that the politicians bail them out using a loans from other banks and the EU.  When this trade is examined, the same banks that caused the problem bailed out the country with more debt.  This is madness. Why are the citizens not torching government buildings?  The profits from this behavior were privatized and the losses are being socialized.  How long will it take these idiots to realize what is happening to them?  They are accepting austerity measures, tax increases and reductions in service while the banks are repaid in full for their paper losses.

The situation in Greece is similar but at least the Greeks are upset about it.  Spain and Portugal are next.  Africa has been bribed and enslaved but no one cares about that.

The United States will face justice that economic law promises no one can avoid.  The dollar has been abused and destroyed.  The citizens of the United States have voluntarily abandoned their freedom and liberty.  Installing a window in your home requires several visits from inspectors and permit departments while 1 in 5 adults are unemployed.  Health care legislation is passed without giving anyone coverage but requires documentation of all gold and silver transactions.  Everyone wants the government to meet their needs at someone else's expense.  We exchanged our freedom for a promise that someone else would be responsible for our needs.

Every part of life in the US is regulated so tightly that resourceful citizens are barely able to function.  The only sector that receives a pass is the financial cartel who through debt controls the politicians.  This group will profit from the demise of the currency and then be involved in creating a replacement.

How To Protect Yourself

There is really only one way to protect wealth from what is coming.  Purchasing physical gold is an excellent way to get rid of worthless paper currency.  Gold is not a commodity, it is money.  It has always been money and always will be money.  The current spot price of $1,500/oz should be seen as cheap.  $3,000-5,000 is the current intrinsic value.  There is no need to label that statement as conspiracy talk, just take paper money and buy physical gold while you can.

At some time there will be an effort to get the gold back from the citizens.  This happened in 1933 and it will happen again.
1933 Gold Confiscation Notice Verticle