My Dear Extended Family,
Tanzanian Royalty Exploration <email@example.com>
Why the Cluff deal is a Game Changer in the gold industry:
The scenario that gave comfort to hedge funds is the capital intensity of building a mine. That means all money in before profit out. The hedge funds believed by raiding the price of the shares of gold explorers and junior gold producers that they could strangle the company’s ability to raise funds free of major dilution, if at all. Unable to raise funds, the company would not be able take a property to the level of Definitive Feasibility where it is financeable by various industry standard methods free of the issue of significant common shares.
Hedge funds that undertook short and distort did so feeling they had no risk because they had crippled the company’s ability to finance. We are all familiar with the dirty tricks used, selling of good news and capping activities undertaken in order to keep the company from it historical financing methods.
Looking at the Cluff deal, the key elements to this game changer is the bypassing of the normal cash royalty company and raising significant money prior to Definitive Feasibility from a company not normally a financier of the mine development without dilution of any significant degree. Hedge funds beware! Your risk free game of destroying just got extremely risky, as gold begins its move to and above $3500 and non dilution financing is available, dependent on the property, before Definitive Feasibility, not the stock price. This is not a new way to structure a deal. It is the timing, size and source that distinguish it. Maybe Google might find this an interesting source for those billions in earnings?
Samsung is not your usual source of finance for the development of a mine.
Bakino Faso is ok, but not downtown Denver or Tokyo.
Cluff bypassed the normal lenders and financiers for minerals such as the gold royalty companies, international banks that specialize in mineral financing and quasi government lending institutions all that rarely will commit significant money to any project prior to a completed Definitive Feasibility Study and this is the KEY for your understanding.
Cluff vended a Gross Royalty Option limited in time to the financing entity as a small percentage of the gross gold sold as a sweetener to the cost of money.
Samsung has a return well above anything possible to find elsewhere with less risk than a junk bond inherently has.
This is bad news for the hedge funds who think they have killed good projects in developing nations by their short and distort tactic. This is bad news for the major royalty companies with projects in Africa, Cluff eliminated the normal route of cash producing royalty financing. This news is good news to those juniors with serious projects as they negotiated their own short term Gross Production Royalty agreement prior to having a Definitive Feasibility Study as a form of paying an attractive interest rate.
The key elements to this game changer is the bypassing of the normal cash royalty company and raising significant money prior to Definitive Feasibility from a company not normally a financier of the mine development without dilution of any significant degree. Hedge funds beware! Your risk free game of destroying just got extremely risky as gold begins its move to and above $3500 and non dilution financing is available dependent on the property, not the stock price.
The growing use of this method at that early time in a company’s history reverses the fundamental weakness that Hedge Funds took advantage of in the capital intensive business of developing major new gold mines for exploration and development companies as well as junior producers.
The formula for your understanding:
Prior to Definitive Feasability.
For a junior producer.
From a cash rich company not usual to mine exploration & development financing.
Not in the form of the cash royalty company as a middle man.
Statistics: Posted by DIGGER DAN — Wed Sep 19, 2012 10:36 pm
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The Investing Checklist….
30 JUNE 2012 BY CULLEN ROCHE
Here’s a great investment checklist from Bob Seawright at Above the Market. Thanks for the great insights Bob!
Understand the “arithmetic of loss” (a 10% loss followed by a 10% gain does not get you back to even).
Correlation is not causation; consensus is not truth; and what is conventional is rarely wisdom.
High fees are a major drag on returns; tax advantages and consequences matter a lot too.
All other things being equal, ETFs are better than mutual funds.
Complex instruments, reaching for yield and illiquidity are usually more dangerous than they appear.
Asset allocation is more important than the product selection of a portfolio’s component parts.
Since passive management beats active management most of the time, it is the appropriate default.
Be clear about and cognizant of what Barry Ritholtz calls the “long cycle” – secular and cyclical markets.
Our psychological make-up and the behavioral biases and cognitive impairments caused thereby conspire against our investment success and even when we recognize these problems generally, we typically miss them in ourselves (“We have met the enemy and he is us” – Pogo).
Forgetting that nobody is close to objective and that nearly everyone wants a piece of the action will cost you a lot of money.
An otherwise great investment plan can readily become a disaster is it doesn’t line up with our understanding, goals, objectives and risk tolerances.
Risk is a complex and multi-faceted thing – it’s much more than just volatility.
Manage risks before managing returns.
Never lose sight of the facts that investing is both probabilistic and mean-reverting.
Saving, trading and investing are very different things.
We always know less than we think we know; thus forecasts are rarely even close to accurate.
When making a trading decision, measure twice, cut once.
It’s very dangerous to fight the Fed and/or the government.
When reading financial or investment papers, the best stuff is usually in the footnotes.
When you have reached your goal, stop playing.
“For the simplicity on this side of complexity, I wouldn’t give you a fig. But for the simplicity on the other side of complexity, for that I would give you anything I have” (Oliver Wendell Holmes, Sr.).
Data should always trump opinion and ideology.
It is little consolation to lose less money than others or less than one’s benchmark.
History doesn’t repeat, but it does rhyme.
Save as much as you can as early as you can.
Always have a contingency plan.
Create and implement a written investment policy statement; review it often but alter it rarely and only for very good, data-driven reasons or due to a change in personal circumstances and after very careful consideration.
When the cost of a negative outcome is greater than you can bear, don’t do it (or get out), no matter how great the odds of success appear.
“This time is different” Is almost never true, especially in investing.
Statistics: Posted by yoda — Sat Jun 30, 2012 2:19 pm
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Rick Rule: We’re Entering A Great Era For Resource Investing
Recently, we crossed the seven billion threshold for humans on the planet. Most of these people are desperately trying to get up the living standard curve. And that requires resources.
Simple math tells us there is going to be increasing competition for a steadily dwindling — in both quantity and quality — global pool of high-grade resources. This ‘scramble for stuff’ is going to be one of the key defining trends of this century. And while it will have game-changing repercussions across societies, economies, and geopolitics — we are at a moment in time where tremendous upside awaits investors who recognize today the true future value of key resources and secure meaningful exposure to them.
Rick Rule has made a successful and storied career as a resource investor, and has rarely seen as attractive an alignment for the space as he does today. What is there to be so optimistic about?
1. We are going to face an awful lot of volatility. And I should start by saying that volatility can be good news for you if you are prepared for it. It gives you frequent sales. Why the volatility? In the first instance, there are seven or eight trillion dollars sitting on the sidelines just in the United States looking to be invested. That has some upward bias.
2. We are in a secular bull market in ‘stuff’. The bottom of the [global] demographic pyramid as it gets richer, and it is getting a bit richer, uses a lot more stuff than the top of the pyramid. So per capita consumption of stuff is growing, spread over lots and lots and lots of capitas.
3. Resource stocks have not kept pace with commodity prices. So resource stocks for the first time in several years are attractively priced.
4. The senior resource companies, including the mining companies that have been real under-performers for the last decade, are starting to make an awful lot of money. And one of the themes I think that you are going to see in the resource space is mergers and acquisitions.
Of course, there is plenty of bad news to offset the good here, and Rick warns that as attractive as prices may be here for many resource-based companies, they could easily go lower in the short term before powering higher to their true valuations.
The bad news is also pretty straightforward. It appears to me like we are headed towards a liquidity or credit crisis, as a consequence of the fact that the political will does not exist, to cause the citizenry of western nations to live within their means, and because the banking system as we know it is bankrupt. An example would be Germany; the lender of last resort for the European economic community had a failed bond auction. If the lender of last resort cannot lend, you have a fairly interesting set of circumstances. Of course, they did find another lender of last resort, and that is us. And the market has not seemed to figure out that we are in some danger of going broke ourselves.
I am completely conversant with the fact that resource stocks could get cheaper before they get expensive. [A good mathematician] knows that you have a mean line and a median line, because things do not revert to mean or median, they revert through the line. And the fact that stuff is gotten cheap probably means it gets cheaper. But the nature of investing in natural resources is investing on a net present value basis, and the stuff is cheap. We do not see it cheap very often.
So the key here is performing good-old fundamental analysis to find the undervalued opportunities, buying in, and then letting time work in your favor.
As for the resource sectors that interest Rick the most?
I am interested across the barrel, but I think I am particularly interested in sub five hundred million market cap resource plays in the western Canadian sedimentary basin, Canadian listed companies with repeatable resource plays in oil.
I am also very, very, very attracted to the uranium space. As a consequence of the events in Japan, the uranium space got cut in half, but uranium consumption has not budged. So I like the risk to reward checks to position in uranium.
What really has me excited right now, however, is that for the second time in the last ten years, the smaller gold stocks are attractively priced relative to the gold price. You know Chris, I found myself in the embarrassing position in 2010 to be a fairly well known gold stockbroker that did not have any gold stock recommendations. As a consequence of the fact that the gold stocks were assuming very, very, very high gold prices, but were not putting on very good corporate performances. We have seen the situation now where the bullion price has continued to go up, but the share prices of the stocks have gotten absolutely creamed. So what is probably most attractive to me of all are the shares of the pre-feasibility stage junior companies, and some of the smaller producers that have large organic development pipelines. We think that they are absolutely cheap, and that is something that does not happen very often.
Click the play button below to listen to Chris’ interview with Rick Rule (runtime 32m:58s):
Statistics: Posted by DIGGER DAN — Mon Dec 12, 2011 1:07 am
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