This will probably be my very last stock and mining market prognostication (made before becoming an officer of Stellar Biotechnologies which we expect to become public in January):
Most stock market calls, even those of current "Bears", are for the recent strength to continue well into the first quarter or half of 2010.
My somewhat off-kilter (even I was surprised when I checked the evidence this morning) call for these markets is really out of the consensus range, so I thought it was worth sharing:
On the general U.S. stock market as represented by the DIA, QQQQ and SPY:
Most often, (this past year was a terrific exception) "Sell in May and go away" is good advice. Not in 2010, I think.
I'm looking for the market to start an almost immediate and significant (8-18%) decline after January 3rd. I believe any rally above the 2009 highs in the first half of the year will be limited to 2 1/2 to 7 1/2% above the highs and to be completed (if a rally continues at all) before March 1, 2010.
My note to self - tax issues aside, tighten stops dramatically on all longs, and go short on the first sign of any reversal.
On mining shares (and gold and silver - GLD and SLV) as represented by GDX and GDXJ:
Most often, "the seasonal" in these dictate a top in the February to May timeframe. Not for 2010, in my opinion.
It appears that the early December 2009 top is that important top for 2010 and the decline and large liquidation has already begun. The heavy public participation in these markets may not see its all-time high for a year or two or three or more, but the current level seems the equal to the 1980-1981, 1988-1990 and 1996-1998 periods, and mining share markets following those were no picnic. Except for mining stock private placements and tax considerations, I would dramatically tighten stops and sell any good rallies over the next 2- 6 weeks.
Note to self - Wait for the summer seasonal bottom (not surprisingly, I expect it to be earlier than usual in 2010) to re-load on the buy-side. "All bets are are off" and I would reverse and "go long" on breaks above the December highs.
What does it all mean? Look for continued, surprising strength in the U.S. dollar for at least a few more months. Look for long-term capital gains "capture" selling to dominate stocks, metals and mining for a few months. (Coincidentally, I concur with the "double-dip" recession scenario, and am convinced that the deflationary period we've been in will continue for a few more months, at least, before the "piper is paid".)
Longer term for the general market: I'm in the long-term, "trading-range" camp (see years 1968-1982). I believe the general stock market bottom in 2009 is extremely important and, despite my bearishness for the first half of the year, I do not expect to see it approached or violated in 2010. Mid-year 2010 should present an excellent buying opportunity for another 4 month to 10 month rally especially for small-cap, biotech and technology stocks.
Longer term for the mining shares and precious metals themselves: I'm in the long-term inflation camp (somewhere between U.S. 1976-1981 and Weimar Republic 1921-1923 . . . sigh . . .). I believe the 2010 lows (probably in the May to August period) will be the last great buying opportunity for the next 2-7 years.
To read interview click www.MetalsNews.com or go to http://metalsnews.com/featured.aspx?ArticleID=56249
or see below:
Dr. Allen Alper Interviews Darrell Brookstein of The Nanotech Company, LLC
Dr. Allen Alper
Interviewer:
We're talking to Darrell Brookstein with The Nanotech Company, LLC. So, why don’t you tell me a little bit about your background and your company and how you're proceeding? Also, I know our readers would be interested in what you think of nanotechnology and the mining industry. Where it is today and where it's going?
Darrell Brookstein:
Yes. My background actually began in the natural resource sector. Out of college I started focusing on mining stocks, and from 1976 to 2000 I was involved in natural resource venture capital. I wrote a newsletter your readers may remember called The Prospector for 11 years, which was probably the top newsletter in mining shares in the '80s, and I had a brokerage firm, that was the leading U.S. brokerage firm in Canadian mining shares for the better part of that decade as well. I edited a book called, Small Fortunes in Penny Gold Stocks with Doug Casey, and we produced that in the early '80s. Then I wrote another book called How to Make a Fortune Trading Penny Mining Shares.
So, that's really my background, and I was involved in the financing of many of what became major mining companies in the '80s and '90s and ended my natural resource focus for the time being in the late '90s when my group helped put together Ultra Petroleum, which eventually went public and trades on the American Stock Exchange. Also we developed the financial and corporate structure of a mid-size natural gas company called Penneco Energy, which was taken over by Marathon. In the late 2000s, early 2001, I started to focus on something I'd been looking at since the late '80s, which was the cutting edge of science and technology, nanotechnology, MEMS, microfluidics and micro-electronics. And I said, "Boy, as soon as I can find somebody who actually knows something about these things and can tell me if I'm going in the right direction this just seems like an exciting area."
I ended up meeting Erkki Ruoslahti, who is considered probably the leading bio-nanoscientist, and we shared some common interests and developed a business in 2001 focused on the financial and investment side of nanotechnology and other advanced technologies. I acquired the key website, Nanotechnology.com, and wrote the first and only book that's ever been written on successful investing at the cutting edge of technology called Nanotech Fortunes, which is available on Amazon and our website. I started producing a variety of different newsletters related to both the science and technology and also investing in the cutting edge of technology. There's a lot to talk about from there, but that's the background.
Interviewer:
Now, what would you say the current state of nanotechnology is? Where do you think it's going, and also, where would you advise people to consider to investing in or exploring in nanotechnology?
Darrell Brookstein:
Well, what many people don’t know or realize is nanotechnology is already influencing major companies. More than 150 of the Fortune 500 have major internal nanotechnology initiatives. I mean, typically hundreds of millions of dollars annually by the individual companies. For example, 3M reported last year that more than a billion dollars in their sales came from nanotech products. Obviously, General Electric, DuPont, Chevron, Intel, IBM are leading folks in nanotechnology. IBM's the leading international intellectual property holder in nanotechnology.
Intel, for example, has been at the nanoscale now for well over three years, and they are now at 45 nanometers and below where they're doing engineering, clever engineering (by the way, the width of a human hair is 80,000 nanometers). So we could definitely say they’re engineering at the nanoscale, and I would argue that that's nanotechnology as well.
These companies are moving forward very quickly. Then you have a small group of about 80 to 130, depending on how you define it, publicly traded nanotech stocks, and of them, we think about 25 of them are actually interesting. We’ve really never recommended any of them for the long-term. We've traded them successfully, quite successfully, over the last three years, but we haven't recommended any of them for the long-term.
Right now we're mostly looking at long-short strategies where you make a long $10,000.00 worth of one stock and short $10,000.00 of another. In the nanotech field it would be like buying $10,000 worth of Ford and selling $10,000.00 worth of General Motors. You pick things in similar areas and you go long-short. We think that's the way to make money with some consistency in these crazy, currently down-trending markets.
But the “small tech”, nanotech and cutting-edge technology deals are still (with few exceptions – and I'll name one or two of the exceptions) a few years away from having consistent revenues, much less earnings. Some exceptions would be Illumina (ILMN), which is what we call “small technology”. It's not quite the nano-scale, but it's deeply microscale. They're competitive in “lab-on-a-chip” with Affymetrix (AFFX), and they're doing a fantastic job. There are two to three other companies that are making money and have earnings beyond revenues.
Another one would be Abraxis (ABII), a true nanotech-based, bio-pharma company or biotech company which delivers cancer-killing toxins in a nanoparticle of albumin, which is a human milk protein and is having great success in breast cancer. We think it will be applied to other cancers as well. Similar technologies to Abraxis's technology that are not owned by Abraxis are also going to have huge success in drug delivery.
On the broader question of where nanotech is going, when you hear “greentech”, “clean tech”, solar, alternative energy, all of these things are being developed, enhanced and moved forward by nanotechnology. They're really another way of saying “nanotechnology” because the commercialization of those technologies, products and industries is not moving anywhere without it.
Interviewer:
That's very interesting. I'm glad I had the opportunity to talk with you. What is your focus at The Nanotech Company?
Darrell Brookstein:
We advise both advanced technology companies and investors on how to proceed in this direction. We have the scientific and technical background as well as the public market and private market, venture capital and private equity background to help both sides of that equation (the companies themselves and the investors in those companies).
Interviewer:
I enjoyed talking to you. You’re very knowledgeable in both nanotech and the mining sector. I appreciate it.
I have been looking for a way to be of service to our most loyal readers. Especially in this extremely difficult economy, we need trusted, experienced and knowledgeable advisors.
We are developing a way that I may be able to provide a unique service for a few of you: More on that later.
Let’s take a look back at 2008 and a look forward at 2009/2010 and see what we got right and what we missed, and how we should proceed in the coming years.
What we missed:
In March 2008, I suggested for the first time since 2002 that investors start investing 1/24 of their funds for advanced tech stocks on a dollar-cost-average basis, every month for the next 24 months. I fear I was a year or more early.
In May 2008, I proposed that the stock market and small-tech bottom would be in place before the end of 2009. While I now believe such a bottom may technically be put in place this year, I don’t see a significant advance beginning before 2011 at the earliest now.
I apologize if this cost you money. While negative on the economy, I now believe even I was too early on the markets and March-May 2008 was part of a different world that no longer exists. There were no bailouts. There were no multi-trillion dollar stimulus programs (yes, by the end of 2010 it will not be $775B it will be more like $2.5T). I just thought things were horrible and getting worse; I didn’t know the roof was about to cave in. This was a time when TARP was merely a flexible, waterproof covering.
What we got right:
We warned to sell all small-tech & advanced tech stocks in October 2006, and that turned out to be good advice, as the typical stock in this group was down more than 25% to May 2008.
We have been warning continuously since 2003 that the venture capital model is broken, and finally this month Forbes, in a major expose, noted that the top firms in VC (to say nothing of the average) have not returned profits to their limited partners in eight years while collecting ridiculous fees.
Despite the warnings, we managed to guide our subscribers to significant profits in trading nanotech and small-tech stocks from early 2006 through 2008, far exceeding the notable indices, which posted negative returns.
We warned of a recession and collapse in real estate in 2006 and in November 2007 warned that this would be the consensus view before September 2008.
Where we are today:
It pains me say this, but while we have spoken about passing the early 1980’s double recession and the 1973/74 recession a while back, we have now made enough of a mess to say we have passed the Panic of 1907 and are fast approaching the Panic of 1893. While I am not a scholar in the field, the Panic of 1893 is considered this country’s most damaging depression with the exception of the Great Depression. This depression is starting to look in many ways like and echo the 1893 -1898 depression. It is unlikely that we will find a “bottom” for the economy before mid 2010 and if we keep putting the day of reckoning into the future like Japan did in 1990 (to today, continuing), we may see 11-16% unemployment and a bottom in 2013 or later.
My biggest question mark is how long this deflationary period will last. My work cannot see whether it ends in 3 months or lingers for 3 years. Certainly, whenever it ends years of high inflation (hopefully not hyperinflation) will follow. The human costs, market costs and financing predicaments will be immense. Please don’t listen to those who think this is all going to pass by June to October of 2009. The next layoff response is still months away (and it may not be the last) and the best day for a laid-off person is the actual day they are laid-off. Months later, when jobs are still hard to find and money is scarcer, it is much worse.
We expect the markets to do better than the economy. There will be some significant rallies, and while we do not expect the November 2008 low in the stock market will hold, it might.
Without going into detail further detail on the economy and the markets, we encourage everyone to buy precious metals and precious metals mining shares with a portion of their portfolio. The dollar will be “toast” within 3 years. Those who want more on this should send a note to darrell@ResourceDevelopment.com to be put on the mining, metals and natural resource stock list.
For small-tech and nanotech investments, there will be three clear roads to profits over the next 5 years:
Successful short-term trading (2 week to 2 month periods)
Long/Short portfolios
Long-term investments (3-6 year hold periods) made at low points over the next 1-3 years
Clearly, for the near future, I do not expect intermediate-term investments in the 4 to 24 month timeframe to have much profit potential.
For those of you who would like my assistance, I may be associating with a Registered Investment Advisor (RIA) over the next few months and hope to offer separately managed accounts (SMAs) through brokerage firms in each of the three winning strategy areas listed just above.
I have been looking for a way to be of service to our most loyal readers. Especially in this extremely difficult economy, we need trusted, experienced and knowledgeable advisors.
We are developing a way that I may be able to provide a unique service for a few of you: More on that later.
Let’s take a look back at 2008 and a look forward at 2009/2010 and see what we got right and what we missed, and how we should proceed in the coming years.
What we missed:
We recommended a portfolio of mining shares in 2008 and they suffered large losses to date.
We recommended too many high-risk companies with small treasuries that cannot sustain them through 2009.
We overemphasized silver stocks – gold stocks did much better.
I apologize if this cost you money. While negative on the economy, I now believe even I was too early on the markets and most of 2008 was part of a different world that no longer exists. There were no bailouts. There were no multi-trillion dollar stimulus programs (yes, by the end of 2010 it will not be $775B; it will be more like $2.5T). I just thought things were horrible and getting worse; I didn’t know the roof was about to cave in. This was a time when TARP was merely a flexible, waterproof covering.
What we got right:
1.We warned of a recession and collapse in real estate in 2006 and in November 2007 warned that this would be the consensus view before September 2008.
2.We bought at the April and August lows; excellent timing for the first three quarters, and we did not buy in 2007 as many did at substantially higher prices.
3.We advised only 3-6% of portfolio total in mining shares.
4.While we advise holding core positions for the long-term, we recommended the sale of all other mining shares at the TSX Venture signal at 1444 in late September 2008. The index is now about half that. (Core positions include Animas, Canplats, Rare Element, Silver Wheaton, Intl Tower Hill, et al. per previous Mining Insights)
Where we are today:
Except for our core positions we still advise being out of the market.
It pains me say this, but while we have spoken about passing the early 1980’s double recession and the 1973/74 recession a while back, we have now made enough of a mess to say we have passed the Panic of 1907 and are fast approaching the Panic of 1893. While I am not a scholar in the field, the Panic of 1893 is considered this country’s most damaging depression with the exception of the Great Depression. This depression is starting to look in many ways like and echo the 1893 -1898 depression. It is unlikely that we will find a “bottom” for the economy before mid 2010 and if we keep putting the day of reckoning into the future like Japan did in 1990 (to today, continuing), we may see 11-16% unemployment and a bottom in 2013 or later.
My biggest question mark is how long this deflationary period will last. My work cannot see whether it ends in 3 months or lingers for 3 years. Certainly, whenever it ends, years of high inflation (hopefully not hyperinflation) will follow. The human costs, market costs and financing predicaments will be immense. Please don’t listen to those who think this is all going to pass by June to October of 2009. The next layoff response is still months away (and it may not be the last) and the best day for a laid-off person is the actual day they are laid-off. Months later, when jobs are still hard to find and money is scarcer, it is much worse.
We expect the markets to do better than the economy. There will be some significant rallies, and while we do not expect the November 2008 low in the general stock market will hold, it might.
One thing we said in 2008 that we still believe is that when we compare the TSX Venture Exchange Index highs between now and March 2010 with the average of the April and August 2008 TSX Venture lows where our purchases were made, the profit potential will be extraordinary.
For the time being we are in a continuing bear market in precious metals mining stocks that I expect to end by September 2010 (and possibly by August 2009). The bottom will be indicated in one of two ways. Either a bottoming formation will be made in 3 to 6 months or the GDX (Gold stock ETF) price of $34.46 will be exceeded.
What will work now:
Buying for the long term at significant bottoms over the next 6-30 months
Trading for two week to two month timeframes
Equal dollar amount Long/Short investing
For those of you who would like my assistance, I may be associating with a Registered Investment Advisor (RIA) over the next few months and hope to offer separately managed accounts (SMAs) through brokerage firms in each of the three winning strategy areas listed just above.
I will be speaking at the Vancouver Cambridge House Conference Jan 25-26 and look forward to seeing some of you there. Visit http://cambridgehouse.ca/ch_jan2009.html
A 2009 Update to Nanotech Fortunes: Make Yours in the Boom; Winning Strategies (2005)
Revisiting in a Serious Recession or Depression
By: Darrell Brookstein, Author of Nanotech Fortunes Managing Director The Nanotech Company, LLC San Diego, CA Phone: (in U.S.) - 858 794 0848 Email: darrell@Nanotechnology.com
December 7, 2008
People at the highest levels of authority in our government, commercial and investment banks, hedge funds and leading corporations had no idea of risks involved in what they and their policies were doing; simple, basic understandings that should be expected of any fiduciary. Combined with a failure of oversight (not lack of regulation), greed, incorrect response to the problems based on incorrect assumptions, we are where we are today: in a serious, 18-30 month recessionary period, that can turn into either a decade plus long Japan-like situation (1990 forward) or international depression with just a few more missteps.
Given where we are, new paradigms that we detail for each group below are required for small tech-interested investors, brokers and investment banks, hedge funds, venture capital firms, angels, publicly traded and private companies and professional services providers in the space.
In Nanotech Fortunes, written in 2004/05, Chapter 15 – Six Steps to a Nanotech Fortune (pp. 144-193) was the longest and most important section. When the first copies rolled off the presses in May 2005, we felt that the first nanotech investment boom had not occurred and was unlikely to begin before the mid-2006 to 2009 timeframe. In late 2005, I noted we had a serious decline ahead in the equities in general, tech stocks specifically and nano and microtech-related stocks most seriously. Reiterating this again more strongly in December 2006, our Nanotechnology.com Small Technology Stock Index (the strongest related index) has recently fallen more than 52% from its high and we are trading at about 6-year lows.
We believe that depending on your level of interest and role in the nanotech-investing world, the devastating economic, financial and investment environment that has surfaced over the last three to seven months will have dramatic affect; you need to drastically change what you’ve been doing.
Let’s examine the edits we would make today to Chapter 15 of Nanotech Fortunes.
If you are:
A Publicly Traded Advanced Technology Company
Scarce capital to grow or survive is about to become even more scarce. Count on this lasting (with possible short-lived windows) at least 2-4 more years.
If you do not have excellent, targeted IR and financial PR, you are not going to survive unless you dilute yourself incredibly (or have a full treasury to last 5 years already).
We have yet to see a single, publicly traded nanotech, “small tech” or advanced technology company with the proper understanding of the correct roles of IR or financial PR, much less doing what we consider to be even a “good job”.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
A Private Advanced Technology Company
You’ve been having a hard time getting attention (much less capital) for more than a year. Sorry, but it is about to get much, much worse.
VCs and even Angels are looking for late stage, large dollar deals, and despite their continued failures to achieve positive investment outcomes they are likely to continue doing this.
The TSX Venture Exchange alternative that I’ve been speaking and writing about for years is even tightening up due to the recent natural resource debacle (not to mention the recession/depression in which we find ourselves).
In this atmosphere, only the most polished, most prepared, have a realistic chance of success. To put yourself in front of the best possible groups with the best possible presentation, you need maximum professional assistance.
We have a long history of working with micro- and small-cap public companies.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
A VC or Private Equity Firm
Venture and other private equity firms still have not gotten a handle on how to make money in advanced technologies. The keys for the near future will be to focus only on companies: A. requiring very little capital to achieve an exceptional ROI in a very tight timeframe and B. that save industries capital, lower expenses or make existing processes more efficient.
Our firm has uncovered only five companies that fit this model today.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
A Hedge Fund Manager
Except for a couple of atypical, VC-style private placements, hedge funds have done very little in the space. As their model suffers with the markets and economy through this most difficult period in their history, very little new is likely to be done.
This is an incredible opportunity for a forward thinker, not afraid to buck the pack. There will be no competition. A relatively small amount of capital, partnered with our firm’s merchant banking capabilities in “small” and advanced technology companies that save industries capital, lower expenses or make existing processes more efficient, would own the space for decades.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
A Broker or Investment Bank
We have seen a number of investment banks and individual brokers fail in building the type of nanotech and advanced tech practice I first wrote about in 2004.
A few have financed deals that have just done horrendously.
Incorrect ways of looking at valuation and faulty research are usually at fault.
I have tried to get more than one well-capitalized group to turn this job over to our team. A more “merchant banking” style formula, proper research and a better valuation process would give this concept the success and the string of wins it needs to establish itself and the forward thinking broker or investment bank will reap substantial rewards.
Individual brokers could market and earn fees on separately managed accounts (SMAs) that trade fully-hedged long/short, options strategies or pairs trade strategies (the only strategies we believe can succeed in the flat or down markets we anticipate) run by professional managers or they could manage these types of trades for their clients by subscribing to a professional newsletter.
Prior to the collapse in oil prices, alternative energy, green tech, solar and cleantech, etc. seemed to many investment banks to offer the greatest potential for creating wealth from cutting edge technology companies, but that’s hit a fork in the road (or a brick wall) for the time being.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
An Angel Investor
In 2004, the typical angel was an individual who invested $20K to $200K per deal and invested mostly on his own or with a small group. He or she saw himself or herself as pre-A round, seed investor willing to take serious risk to make a serious profit.
Since then things have changed a lot.
Angel investing is much more institutionalized, with large, geographically and interest-centered Angel groups making “group” decisions. These decisions, more and more look like venture capital firm decisions because the Angels no longer want to invest in anything in which a VC will not also invest.
This “group think” is destroying creativity and the institutionalization of the process appears to lower risk, but actually just ensures that small deals with high profit potential don’t get done: No one wants to do a deal that won’t be of interest to a large VC firm.
Some Angel groups would benefit from a higher-level scientific, technological and commercialization consulting than they can get within their group when looking at the cutting edge of technology.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
A Very Affluent Investor or Family Office
Except for a couple of atypical, VC-style private placements, the truly wealthy and their Family Offices have done very little in the space. As their model suffers with the markets and economy through this most difficult period in their history, very little new is likely to be done.
This is an incredible opportunity for a forward thinker, not afraid to buck the pack. There will be no competition. A relatively small amount of capital, partnered with our firm’s merchant banking capabilities in “small” and advanced technology companies that save industries capital, lower expenses or make existing processes more efficient, would “own” the space for decades.
Also, while all investors should get a professional financial plan or current plan review, ASAP, those with net worth between $10M and $80M are at particular risk. These individuals usually have advisors who are unfamiliar with high inflation/deflation hedging and are too small to have developed, professional family offices.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
An Advanced Technology Professional Services Provider
Up until the last 9 -18 months, this group was doing well.
Accountants, consultants and attorneys were about the only ones making money in the nano and micro space.
The world has changed, of course, and the universal tight capital is killing billings.
Marketing and reaching new clients is paramount at this time, and through our connection to Nanotechnology.com, we have access to the decision makers.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
A Stock Investor
A major up-move (related to short-covering and the Obama honeymoon period) for short-term speculators has begun and will likely end between now and February 28, 2009 (we look for a high of between 92 and 101 basis the SPY. Traders should begin looking for places to reenter short positions between 93 and 97).
Other than that, we see little chance of a real market bottoming for long-term investors before the period between July 2009 and September 2011.
On cutting-edge technology companies: Affluent investors should begin long-term investments only in early-stage private companies that can save industries capital, lower expenses or make existing processes more efficient.
Others should avoid the public markets for these types of shares until a bottom is in place in the Nanotechnology.com Small Tech Index.
All investors (especially those with net worth above US $2.5 million) should get a professional financial plan or current plan review, ASAP, with that rare advisor who understands how to plan/hedge for both rampant inflation and deflationary scenarios.
Please call or email me to explore how we can be of assistance in any of the above. We serve customers; we tailor individual solutions; we believe every situation is unique and deserves individual attention.
Darrell Brookstein, Author of Nanotech Fortunes Managing Director The Nanotech Company, LLC San Diego, CA Phone: (in U.S.) - 858 794 0848 Email: darrell@Nanotechnology.com
& where we are in the Mining Stock Investment Cycle
I won’t waste time regurgitating the genesis of the previous, three, historic weeks. I’ve been on record since at least November 2006, yelling for people to “wake up and smell the coffee” and get real about the real estate crisis.
Suffice it to say, that the resolution of all these engendered economic disasters, will be longer, the nadir deeper and the recovery more uncertain then any downturn except, hopefully, the Great Depression.
“We are all communists, now,” said one wag with whom I correspond.
Would, it were otherwise.
I don’t like it when investment pros wear their politics (or religion) on their sleeve. However, I don’t think you’ll find it so political if I may say, “A plague on both their houses”. Also, while my lawyer friends (yes, I have some) tell me that no crimes were committed (by that large number of folks who ran these huge companies), having been an investment bank CEO, myself, I believe what the heads of these huge financial entities allowed was criminal. “There ought to be a law” and they should “not pass go; go directly to jail.”
Before turning to the Rare Element trip, I know most of you are anxious to hear my current “take” on Animas Resources.
On Animas Resources (ANI: ANIMF)
We are waiting on “pins & needles” for the first release of drill-holes from the Animas’ 20,000 meter 2008-early 2009 program. We expect to see 2 to 4 result releases between now and year-end. The first seems to have been delayed past our expected mid-August date by the assay lab taking 9 weeks instead of the 3 weeks that we had expected in June.
However, there is more.
While I have no proof to offer, I believe a further delaying element is the announced (July 21) acquisition of the Lixivian property that lies within Animas’s claims. If you wanted to buy (at the seemingly “high” price of $650K) a property within your claims, you would certainly not want the seller to have positive data points. (Furthermore, nor might you want to even know them yourself, to avoid any indication of impropriety – in fact, a good attorney might counsel you to not intentionally discover ANY significant, new information until an agreement was signed).
We hope that the deal will be finalized within days.
The market participants in Animas shares (ANI – ANIMF) are keeping fingers crossed for the great drill news that we believe is imminent. In the current market ($1.18), US $ purchases between $1.05 and $1.35 should be a great trade for 3-6 weeks and unbelievable investment, long-term.
Rare Element Trip
Earlier in September, the Rare Element team invited me and some noted mining folks to visit their extraordinary Bear Lodge Property in Wyoming. From left to right below: Kevin Graham of GrahamAnalytics.com, Frank Quinby of Small Cap Catalyst, yours truly, Brian Fagan of StocksandSpeculations.com, now-retired mining share guru (and major Rare Element shareholder), Bob Bishop, Bob Moriarty of 321Gold.com, Don Ranta, Ph.D., CEO of Rare Element, Gordon Holmes of TheAuReport.com, James Clark, Ph.D., VP Exploration of Rare Element, Jeff Phillips, financial PR maven of Global Market Development, Mickey Fulp, MS Geology of MercenaryGeologist.com and Greg McKelvey, MS Geology, Rare Element Director.
We could make this very complicated, but I believe folks pay me to keep it simple. I learned several VERY important new things by going on the tour. I will lay them out in a simple, short outline below.
One thing you definitely don’t need from me is an explanation of the geology or the fine details of the potential metallurgy. This is a big (really HUGE) “back of the envelope” story, and there’s no need to make it any more difficult.
Here’s what the huge Bear Lodge property in northeast Wyoming looks like.
Pretty hospitable, right? (except when 60 degrees below zero in January!)
Here’s a view of a reclaimed meadow, that, believe it or not, was once full of unsightly trenches. (Those tiny black dots in the sunny distance are grazing cattle!) We’re ALL environmentalists. . . . You may show this to your friends who believe that mining HAS to ruin the land forever. “It just ain’t so.”
Yours truly, at a steeply inclined hole under the Bull Hill feature - an attempt to intersect highly mineralized, ore-grade rare earths.
That crumbly charcoal-colored stuff appears to be “the goods” and it started at around 10 ft.
LESSON #1 from the trip
The U.S. Geological Survey’s gross, geological, potential resource, ESTIMATE (my description of what the number indicates - think of all the caveats that are in that description – wow, a lot) of rare earths in Bull Hill are around 80 million tons at more than 4% rare earth minerals.
My “back of the envelope” is that 60% of that is there, and only 60% of that will end up in a kind of mineable reserve. Then, due to “difficult” metallurgy (ALL rare earth deposits have “difficult” metallurgy), only 70% of that will be recovered on an economically equivalent basis as a typical gold deposit (so, we’ll say 55% will drop to the gross line). Using a low average value per ton of $25/lb of rare earth, that’s 28.8 million tons carrying, get this - 2.3 Billion pounds of rare earths (with assumed poor recoveries) ! Worth . . . hmmm . . . .at least 3.15 million ozs of gold!
Reminder: Newmont earns into a large percentage of the gold at Bear Lodge . . . . . . none of the rare earths.
Lesson #2 from the trip
Really this is a reminder, not a lesson: when major mining companies develop a junior’s property they have NO incentive to: A. release the big news as fast as they can, nor B. to promote the property or its development (fear of competitive bidders), nor C. to develop the property even one ounce beyond the point at which they want to negotiate the junior “out” of the property.
Count on Newmont to disappoint, and you won’t be disappointed.
How will Rare Element “fight”? Count on Ranta, Clark and McKelvey, all steeped in the ways of the Majors, to know all the tricks and to make sure that as many majors as possible are paying attention.
Lesson #3 from the trip
Know the negatives in advance.
Receipt of the disturbance permit is now not expected until around November.
Due to the harsh winter weather (and the muddy spring), the delayed disturbance permit will ensure that Newmont’s development gold drilling will not start until May or June 2009. I would not expect to see any gold results until July or August 2009.
On rare earth’s: Drill is turning right now, and we would expect to see some very good results and further definition and outlining of the main resource this year, but this not a significant or expensive program.
Bottom line: Buy Rare Element (RES – RRLMF) NOW between US$ 0.50 and $0.80 and over the next few months while things are practically dead. RES is truly “a second half of 2009 story”, but sophisticated investors will be accumulating while the typical, retail traders are looking elsewhere – like now.
Lesson #4 from the trip
The 200-acre disturbance permit is a HUGE DEAL.
This allows, for example, seven drills to be turning on seven different 28-acre sites! Then, every single acre that is “reclaimed” from disturbance goes back to the 200-acre total. In other words, this permit assures the potential for the very most aggressive drilling and development program imaginable.
Lesson #5 from the trip
This is a Cripple Creek-style deposit/property. It is significantly larger and significantly more gold-anomalous, over a much larger area at surface than Cripple Creek. What is there at Bear Lodge? We won’t know for years . . . decades. Cripple Creek has produced 24 million ounces of gold and still has another 7 – 10 million ounces. Given its geological setting, deposit style, size and gold occurrences everywhere, in every rock type . . . Is it possible that Bear Lodge contains multiple, multi-million ounce deposits at surface and depth for a total of 20-40 million recoverable ounces?
Yes, it is.
Of course, it is unlikely that Rare Element itself will ever actually mine a single ounce of gold or pound or rare earth minerals, but, to the sharp investor, that is of no consequence. In my opinion, minimally, there will be proven to be ore with 3 million gold-equivalent ounces of rare earth’s and 2 million gold ounces to Rare Element’s credit (all exclusive of Newmont’s share). Again, in my opinion, we’ll have a high degree of confidence that this is so before the end of 2010.
Ore (rock containing economically recoverable mineralization) containing 5 million gold-equivalent ounces at even $80/oz (and don’t rule out $130/oz in the proper environment) would value Rare Element at $400 million.
That’s a really long way from today’s valuation of only about $17 million. That “distance” is what will protect us, whether the “real” number two years from now is 1 million, 3 million or 7 million ounces!
Back in Rapid City, SD, some very happy Rare Element shareholders reflect on the huge and dramatic property we have all learned much more about that day.
Where we are in the Mining Stock Investment Cycle?
In the intermediate-term: Our proprietary system indicates that a strong 5-week to 5-month rally began last week. Use this rally to exit from all junior mining shares that do not have the potential for at least 5 million gold-equivalent ounces and good financing capabilities (NB: these are extremely rare; we’re going to trim down to only 4 - 7 stocks – of course, Animas and Rare Element being two of those).
Tax loss selling will absolutely pressure junior mining shares this year between mid-October and the end of December. Hopefully, this will be a rally of the 5-month variety and not the 5-week type. We’d rather be sellers of these “weak sister” stocks in February 2009 strength rather than in October 2008.
In the long-term: We have changed our long-term opinion of the precious metals markets. Our technical indicators now show possible long-term tops in gold and silver were put in-place March 2008. Highs that are achieved in gold and silver over the next 2 years may well be identified as “bear market rally” highs.
Prior to this, we were confident that new, all-time highs would be made in gold and silver and that mining shares would not top until January 2010 to April 2012.
We are no longer confident about the metals (unless they break above the old highs by the time you get this . . . ha ha .. . gold is at $909 as I write!), but our opinions are unchanged on the mining shares most likely topping timeframe.
With the benefit of hindsight, of course, it would have been so much better to limit all our buying of mining shares to the last week or so.
Unlike many other newsletter writers, I’ll “tell it like it is.” Unfortunately, many of the purchases have proved to be atrocious so far (but we still see all of the companies dramatically higher over the next two years, yielding great profits). We are glad that these shares represent only a small 3-7% portion of our readers’ assets.
That said, we still believe that the average of the late-April 2008 prices and the mid-August 2008 prices (where we entered the market) will look FANTASTIC when compared to the highs that we expect to be reached between October 2008 and October 2010 (even more so, whenever the all-time high is eventually hit, between January 2010 and April 2012).
Any new high intraday trades in gold or silver (less likely, but should they occur) will trigger nearly immediate 7% + additional rallies beyond the “old” highs.
What would make us “wrong”?
The TSX Venture Index should not have two consecutive closes below 1446.90. . . but any single trade in the XAU Index (representative of big-cap mining shares) below the recent, multi-month, intra-day low at 110.70 (VERY unlikely) would scare the heck out of us and turn us very bearish on mining shares.
Reminders: Most folks should have no more than 3-7% of their assets in precious metals mining shares, and, depending on net worth, you may use the $237K model portfolio to identify the “pro-rata” position right for you.
Here is how we expect our $237,515 model portfolio appears for those who followed our inputs (US$):
Reminder: To receive these Mining Insights along with our subscribers send a note to darrell@resourcedevelopment.com - FREE, for the time being
26,000 Animas Resources @ $1.40 - $36,400
23,000 Rare Element Resources @ $0.78 - $17,940
2,760 Freegold Ventures @ $1.45 - $4,005
3,000 Pediment Exploration @ $1.80 - $5,400
2,225 Entrée Gold @ $1.80 - $4,005
3,000 Canplats Resources @ $3.10 - $9,300
7,500 Silvermex Resources @ $0.95 - $7,125
2,500 Silvercorp Metals @ $5.75 - $14,375
4,500 Coeur d’Alene Mines @ $3.05 - $13,750
500 Silver Standard @ $28.90 - $14,450
1,500 Hecla Mining @ $9.60 - $14,400
1,000 Silver Wheaton @ $14.55 - $14,550
1,500 Apex Silver @ $7.45 - $11,175
2,400 New Gold @ $5.60 - $13,440
7,500 Midway Gold @ $1.80 - $13,500
12,000 Orko Silver @ $1.35 - $16,200
15,000 Riverside Resources @ $0.90 - $13,500
]
10,000 Intl. Tower Hill @ $1.40 - $14,000
Disclosures and Disclaimers
GENERAL TERMS*
No investment opinion or other advice is being rendered on any stock or company. All of the trading stocks we recommend should be considered highly speculative; you can lose some or all of your money. It should be assumed that the Author and editor and their associates may hold or dispose of or trade in positions in any securities mentioned at any time. No fee in cash, shares or options was paid for this report. Please be responsible for understanding the terms and vocabulary of stock market investing. Here is an unaffiliated glossary site that may be useful:
The Nanotech Company, LLC, Darrell Brookstein and/or Resource Development are not registered investment advisors nor broker/dealers. Readers are advised that the material contained herein should be used solely for informational purposes. The
Author does not purport to tell, or suggest to, readers which investment securities they should buy or sell for themselves. Readers should always conduct their own research and due diligence and obtain professional advice before making any investment decision. The Author will not be liable for any loss or damage caused by a reader's reliance on information obtained in any of our newsletters, special reports or on our web site or sent by email or mail. Our readers are solely responsible for their own investment decisions. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase or sale of securities. Our opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. All information contained in our newsletters or on our web site should be independently verified with the companies mentioned. The editor and publisher are not responsible for typographical or other errors or omissions. There is no guarantee of investment results herein whatsoever, either explicit or implied. Past results are no guarantee of future results or even profitability. Investors are cautioned that they may lose all or a portion of their investment if they make a purchase or short sale in these speculative stocks.
