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Mining and explorer stocks


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Having invested in stocks a while ago (the likes of SOLG, RRR, AFF and ARF) with varying degrees of success I am now looking to re-enter. As suggested on the other thread, I have looked at PAF and Randgold. Are there any others that people like the look of that they can suggest I research? There seems to be a lot of upwards momentum in the last 3 months so now might be a good time to enter - or possibly a terrible time to enter!

Currently stacking 10oz Unas and Britannia bars 

 

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Whether now is the right time to enter depends on your time horizon and how optimistic you are about further rises in the price of gold. If you are after some miners to research, you might like to consider any of the following: Centamin (LON:CEY) Asanko (TSE:AKG) McEwan (NYSE:MUX) Gold Standard Ventures (CVE:GSV) Agnico Eagle (TSE:AEM) Detour Gold (TSE:DGC). Usual disclaimers apply: this is not a recommendation, I may own some, DYOR, etc., though I can say that I have seen all of these tipped in the last three months. I don't know how you feel about the royalty companies: they are expensive on a P/E basis, but they are well run and tend to perform well over the long term. These include Franco Nevada (TSE:FNV) Silver Wheaton (TSE:SLW) and Royal Gold (TSE:RGL).

 

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I would just get exposure via GDX/J or SIL etfs. I think its a mugs game trying think you can pick out the best prospects in such a hit & miss sector where the fortunes of an individual company can spin on a new discovery, or a mine collapse etc. 

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better mining companies are few and far between. (think of

it like how many actual einsteins are there?)

I would concentrate the lions share in miners that are

a, making a returnable profit at current prices.

b, little to no debt.

the biggest risk in the above companies would be political

risk. (and if whatever they mined fell in price significantly

of course)

lse:paf and lse:rrs are examples that would fit/mostly fit

the above criteria.

a much riskier higher reward play could be hochschild lse:hoc

a mostly silver play with debt.

 

HH

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Thank you all. Lots of research for me to get into there. Will look closely at HOC as suggested by hh as it looks like an interesting silver play. Good luck all, I will keep you updated - unless I do really badly in which case I will be very quiet. ;)

Currently stacking 10oz Unas and Britannia bars 

 

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Not a recommendation, just more research for you and please don't take my word for it, I am often wrong on these things. :)

That said, I am looking into Barrick Gold Corp (ABX) not so much an exploration company but one of the larger mining companies, lots of mines spread around various countries. Heavily in debt, managed to cut 3 billion from its 13 billion debt last year, aiming to cut another 2 billion this year, also looking to reduce its production costs and increase output which will add to revenue if successful. Has one of the lowest all in production costs of the large miners (group all in sustaining cost reported as $831 per ounce in 2015) but no profits for many years and cut its dividend last year to practically nothing.

To me it is a potential turn around play, might take a few years, risky because of the current debt, but if the company manages to achieve its goals it will be producing a lot of gold very cheaply, hopefully in an environment in which the gold price is rising. Lots of 'ifs' in there, highly speculative. There are better companies without debt and ETF's to choose from as core holdings. 

As always DYOR.

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On 10/04/2016 at 06:08, onlyroadtoheaven said:

Having invested in stocks a while ago (the likes of SOLG, RRR, AFF and ARF) with varying degrees of success I am now looking to re-enter. As suggested on the other thread, I have looked at PAF and Randgold. Are there any others that people like the look of that they can suggest I research? There seems to be a lot of upwards momentum in the last 3 months so now might be a good time to enter - or possibly a terrible time to enter!

Could look at a Tracker ETF. IShares do a global gold miners index tracker.

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3 hours ago, KDave said:

At least you get a nice Christmas dividend from PAF :) 

 

I would not advocate that dividends should be consider a factor in gold mining stocks, which are effectively a leveraged play on gold. If gold doubles, I would expect the mining sector to go up at least 4-5 times that from current levels. Likewise, they will easily drop 80% if gold takes a prolonged haircut. A dividend payout isn't going to be of any significance one way or the other. 

Still maintain that there is very little point in trying to handpick individual companies in this sector - just buy the whole sector via an ETF. If you still need convincing go to Bigcharts, and pull up the 2-year chart of XX:HUI, GDX, ABX, NEM - they all look identical. Mining is a relatively simple operation, and Gold price is by far the driver in this sector, not individual company quality.

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I'm not so convinced, myself. I would prefer a miner with a clean balance sheet and an experienced management with a strong track record. On the other hand, I would agree that diversifying among miners reduces the risk of a large impact from a natural disaster, or a political event. Also, picking miners requires reading company reports, or paying for tips from experienced analysts, and for many investors this is not an option, so ETFs definitely have a place.

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@vand I would argue that you should handpick PM mining stocks, there are some very well managed PM stocks out there, who's management never put a foot wrong over a number of years.

On the other hand there a companies out there who mess up regularly.

DYOR & if it involves some effort on your part looking at annual reports director shareholdings etc, do it , as it will stand you in good stead.

As an alternative to ETFs have a look at investment trusts in the mining sector.

The problem with common sense is, its not that common.

 

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I think there is a strong argument for most people to choose an ETF first as core holdings - they cost a percentage every year but if you are looking for a wide diversification of company risk at low cost (trade fees wise) that is the way forward. To achieve the same spread from stock picking you would need multiple trades of many companies, all of which costs money, and then you do it all again when you sell. 

Then there is the argument for the human side of investing in that we are all often our worst enemies, picking stocks that we like the look of and buying lots, perhaps passing over ones we don't like the look of only for them to rise where as our favourites fall - it is notoriously difficult to beat the market as they say, so an ETF is a logical choice if you are looking instead to match the market. An ETF makes the process much easier, less emotional and potentially much cheaper depending on your approach. 

All that said there should definitely be a place for Christmas dividends in everyone's portfolio :P

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@motorbikez I am not denying that there are well run miners, poorly run miners, and everything in the middle. However, it is generally true in investing that everything that is already known about a company is already reflected in the price, hence stronger companies with better prospects and stronger balance sheets already command a higher price. Unless you have personally taken the time to visit these companies yourself to inspect their operations and make your own judgement and believe that it is underpriced then why should it outperform?

Now, clearly you are not doomed to just return the sector average, but just picking the strongest companies is no guarantee that you will outperform the sector. Indeed you may underperform it, and it may be that the dreg companies that are all junk-rated are suddenly re-rated in an upturn and those are the ones that outperform the sector. It happens all the time. 

My point is that even most Investment funds with huge research departments devoted to picking out the stocks they think will outperform will get it wrong most of the time. It's not as simple as picking out the strongest stocks, but rather picking out those which the market has fundamentally mispriced. A monkey throwing a darts into a dartboard doesn't have an equal chance of beating a selection of carefully picked stocks - it actually has a better chance. If the pros can't get it right, why do retail investors think that they can? 

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And also imo, one of the strongest arguments for just buying the sector ETF is that it is much easier to stay unemotional so you don't fall (too much) in love with your investment. You are just buying the fundamental macro story, not trying to place your ego vs the market which can have disastrous consequences (your ego will also lose).

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sector etf represents a different set of risk to reward ratio.

for certain requirements ie little to no debt, it's easier to

find a set of individual shares that fits. different companies

have different all included sustainable cost(aisc). at

different price rises/falls they perform differently. the

preferred method is to read up on each miner that moves

an etf, it's no less work than research on individual companies.

my preferred choice is individual companies. both etf and

choosing individual companies have their uses depending on

what the investor wants.

 

(investment funds are held back by how much of a good share

they can buy, they are forced to choose less desirable options)

 

HH

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@vand To each his own vand, I've walked the walk so to speak & don't want or wish to advise anyone what to invest in. I'm merely pointing out doing a bit of research yourself & committing your own money soon disciplines you, & you learn fast from any mistakes if you are risking your own cash & I'm not talking about a few thousand pounds of beer money.

 

 

The problem with common sense is, its not that common.

 

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I don't buy into the efficient market hypothesis myself. It is reminiscent of the old economists' joke: two economists are walking down the street; one sees a £10 note lying on the ground and stoops to pick it up; the other says, "What are you doing?" - the first says, "I'm picking up this £10 note." The second replies, "There can't be a £10 note there, because someone would have picked it up already."

People, even in large groups, even when motivated to try to make money, are highly prone to cognitive biases. Because of that, stocks, commodities, and even entire markets can be badly mispriced. The whole of the 2008 crash could be characterised by saying that the market mispriced the risk of subprime loans.

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  • 3 weeks later...

fti this is a simple calculation of paf to see what we can expect for

the price.

lse:paf dec 2015 average gold price sale ~$1150, earnings per

share 0.6p for that half year. average cost per oz aisc ~$900

oil ~$45.

for no significant changes from now. average gold price ~$1180

so far 2016 or ~12% rise in profits. for a p/e of 12, year end

fair value price 1.2(year earnings)x12(p/e)x1.12(12%) = ~16p.

 

the figures can and will change but an important step to valuing

a company is to be able to work out the figures for yourself.

 

HH

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Does anyone know a good platform to use to invest in mining stocks? Does being in the UK affect the price in anyway for example some silver wheaton stocks ( I know its a silver streamer but you get my drift)?

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On 15/04/2016 at 14:53, Bumble said:

I don't buy into the efficient market hypothesis myself. It is reminiscent of the old economists' joke: two economists are walking down the street; one sees a £10 note lying on the ground and stoops to pick it up; the other says, "What are you doing?" - the first says, "I'm picking up this £10 note." The second replies, "There can't be a £10 note there, because someone would have picked it up already."

People, even in large groups, even when motivated to try to make money, are highly prone to cognitive biases. Because of that, stocks, commodities, and even entire markets can be badly mispriced. The whole of the 2008 crash could be characterised by saying that the market mispriced the risk of subprime loans.

I too also disagree with EMH, but that is not to say that you are always right and the market is always wrong. The mistake of contrarian investing is that they believe they are right even when the market action is going against them, and do not realise that the market is mostly efficient, most of the time. If something is going up there is a good reason for it beyond just sentiment, and if it is going down then there is usually equally a good reason.

There was an experiment where a university professor quizzed a large group of students "how many sweets in this jar?" Although the variance of answers was massive (a range of something like between 200 - 10,000), when answer was taken as the median of all the guesses given, the number was incredibly close to the true amount - something like only 7 or 8 sweets away from the true number (something like 2,500).  So this shows that the sum knowledge of all players in the market is the best estimate of the true value, most of the time. If we were to take a handful of sweets out of the cookie jar and asked everyone to reguess, there is no doubt that the estimate would be lower than the before, even if some people adjust their own guess and go the other way. 

It is at time when the emperor's new clothes are on display - eg, we repeat the experiment 1000 times, and then on the 1001st time we show them an empty jar - chances are that the aggregate of guesses would still come in above zero simply because we think it is a trick this time, ie we are affected by past bias.

http://www.pinnaclesports.com/en/betting-articles/betting-psychology/wisdom-of-the-crowd-applied-to-betting

 

 

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7 hours ago, Webster said:

Does anyone know a good platform to use to invest in mining stocks? Does being in the UK affect the price in anyway for example some silver wheaton stocks ( I know its a silver streamer but you get my drift)?

Sorry if this is a bit off topic - to trade stocks on the US market you need to find a broker who will arrange it, most of them do and it and just involves filling in a form of agreement, costs nothing to do. I hold a few shares on the NYSE, mostly oil majors but also a small stake in SLW and ABX - please DYOR if you go down the share picking route. The exchange rate spread did affect the price slightly to the upside in my case and will no doubt be the same when it comes to selling. Perhaps there are better ways to buy US stocks?  

I use iWeb share dealing, but there are many platforms which are no doubt better. Many people I know use Hargreaves Lansdown they are good, I use them for research primarily, but for me their fees were too high for what I am doing. Again DYOR on platforms, find one that suits your goals.

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@WebsterFor trading gold mining stocks, the most important exchange is Toronto. Just find a broker who covers Toronto, NYSE, and also NYSE Archipelago if you like to dabble in shorts, leveraged ETFs or options. I like Hargreaves Landsdown, but they are not the cheapest. Dealing from the UK doesn't make any difference, but buying foreign stocks always exposes you to currency exchange risk, so if GBP rises against CAD or USD, your price in GBP will fall. In the last two months, UK holders have benefited from CAD rising against GBP. You will need to complete a form called W-8BEN which allows American and Canadian companies to pay dividends to foreign stockholders without subtracting tax first: your broker should provide you with one.

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  • 6 months later...
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