March 24, 2019
With The Masters rapping up in Atlanta, we have Tiger, still in the hunt with a few holes remaining as I write this piece.
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Gold has substantially fulfilled our views as well as the views of TheTechnicalTraders.com to the down side target of no more than $1278. We could easily trade in a tight range now for a few weeks, before we resume the upside move and then take out the longtime overhead resistance around $1400 and then head to $1500 perhaps by years end.
You need to be in position very soon to capture what I believe will be the potential for many 10 baggers in resource shares and much more in the stock warrants on those shares.
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Enjoy your weekend but don’t go to sleep and miss this opportunity,
Dudley Pierce Baker
The mining industry can learn a lot from the Boston Red Sox. I just learned that lesson at PDAC 2019, the greatest mining show on Earth. More than 25,000 people attended in Toronto to meet, mingle, learn, look at core, party, buy, sell and schmooze.
I’ve been attending the mining show annually since 1992. I’ve missed two years. Before I go I have a list of goals that I want to achieve. Overall, it was a very good year at the show as I ticked off all the items on my to-do list and as always found a few more.
Wandering the booths and hallways and seminars, one of the things I learned was that there is a dearth of good projects under development. Simply put, we are consuming metals and not replacing them, causing analysts to believe the world will be in a deficit position over the next few years. This 2015 infographic from the Visual Capitalist makes the case for the coming copper crunch or you can read it in The Mining Journal.
Similar alarms are being sounded for silver and gold. The shortages in the battery metals (nickel, manganese, lithium, graphite and of course perennial bridesmaid cobalt) are obvious as the world decentralizes grid electricity.
Refined zinc metal output is expected be 13.81 million tonnes in 2019. The problem is, the output estimate for 2019 is lagging behind the expected metal usage of 13.88 million tonnes for the year.
We are consuming the metals faster than the mining companies can replace them.
How does this relate to Boston Red Sox, winners of last year’s World Series?
The Bosox over many years invested heavily in scouts to find a larger pool of young possible players, signed players at a young age, developed them patiently through the system, and brought them to the major leagues at the appropriate time. Not downplaying Steve Pearce’s World Series, the most important players on Boston’s championship run throughout the season and the playoffs were homegrown, like Mookie Betts, J.D Martinez, and Jackie Bradley Jr., Xander Bogarts was signed when he was 16 years old and made major contributions to the team’s success.
The cost of finding and developing young talent is far less than the cost of trying to acquire that talent once developed. Look at Bryce Harper’s USD$330 million contract with the Phillies after spending the first 7 years of his professional career in Washington. In Year 1 of that Washington contract, Harper was paid a total of $3 million and had a tremendous year, earning a spot in the All-Star game and winning NL Rookie of the Year. His 7 years in Washington were very cost-effective for the team and the returns he provided. Once developed, he priced himself out of the Washington budget.
There’s also Mannie Machado who in 2012 was paid $112,786 by the Baltimore Orioles. Drafted and developed by Baltimore, Machado provided Baltimore with gaudy numbers and strong defence. For you data geeks, his Wins Above Replacement (WAR) is 5.7. He was a bargain for what he contributed to the team. He just signed a 10-year, USD$300 million contract with the San Diego Padres, priced out of Baltimore’s budget.
Finding, drafting and developing your own players allows a team to control costs, keep these players under contract for a (relatively) low cost for an extended period of time, provides some degree of economic stability for the team, and de-risks the overall organization.
And that is one of the things that’s missing in the mining industry. There are few large projects in development to replace the copper, gold, copper, nickel, tin, silver, and battery metals that are needed. The majors have failed to invest in their minor league systems, leading them to have to effect risky M&A transactions to replace lost ounces.
This failure to invest in development started in about 2013, after the mining industry blew up following an acquisition spree. You remember Kinross’ 2010 free agent acquisition of Red Back Mining to acquire ownership of Tausita Gold Mine in Maruitania? Kinross paid $7.1 billion for an asset that was written down by $3.2 billion in 2013, crushing Kinross’ share price with it. There are other examples as well, but this write-down was massive and caught the market’s eye. Fear crept into the market and brought an end to M&A activity.
Following the fear came severe cost-cutting. The majors dramatically scaled back in all areas of operations, including not investing in the intermediates and juniors. If the juniors aren’t being funded they can’t explore (scout), the number of development opportunities shrinks, which reduces the number of opportunities for the intermediates to shepherd good projects along. And that decreases the odds that a major deposit would be found. And that of course means that fewer deposits are making it to the Major Leagues.
The cost of acquiring already-developed properties is extremely expensive. Grabbing proven ounces is what is driving the current $17.8 billion attempted takeover of Newmount Mining by Barrick Gold. It’s like the Phillies acquiring Bryce Harper for $330M after he was cheaply developed by Washington.
The Bosox are 6/1 favourites to win the World Series again, due mainly to the core of highly talented home-grown inexpensive players. It would be cheaper for the majors in the mining industry to invest more broadly in the juniors, knowing there will be winners and losers along the way, than to continue relying upon free-agent signings.
Mr. Clausi is an experienced investment banker, executive and director. A graduate of Osgoode Hall Law School called to Ontario's bar in 1990, Mr. Clausi ... <READ MORE ABOUT PETER CLAUSI>
In Part I of this report we talked about and showed you what commodities and transports where doing in relation to each other. Here in Part II, we show you in detail what we expect to take place.
This final chart highlights our Custom Smart Cash Index (in BLUE) as well as the CBOE Commodity Index pricing levels (in RED). This data goes all the way back to 2012 and highlights a number of key pricing rotations. First, we can see that Commodities have been decreasing in total value from 2012 till mid-2017. We can also identify a key support level that was established in the Commodities Index near the beginning of 2016 – coinciding just a month or so before the bottom in the Smart Cash Index.
We believe this Key Bottom in both the Commodities Index and the Smart Cash Index reflect a dramatic pricing shift that took place at that point in time. Although Commodities have yet to rally beyond upper high ranges, we can see the Smart Cash Index rallied to incredible new all-time highs. The rally that started near the end of 2016 in the Smart Cash Index was likely the result of a “Capital Shift” that we have discussed extensively in the past. With commodity prices staying historically low and an increase in economic optimism, capital shifted away from “commodity-based sectors” and into “technology and biotech sectors”. Now, it appears this rally has run its course and a new capital shift is taking place.
Until Commodities begin to break out of the downward price channels we’ve highlighted on this last chart, global capital will be searching for two primary objectives; safety and hedged returns. By this, we mean to say that global capital and investment will be seeking out strong Blue Chip and Mid-Cap performers that can produce safety in growth, dividends and hedge against currency swings or further eroding commodity price levels. Think of this as a move to “key elements supporting the global economies”.
Heavy equipment, support services, and retailers, tool suppliers, and mid-level equipment suppliers, transportation services for these items and the repair parts and services to keep these tools running efficiently. Human services, labor, labor services, medical services, and entertainment services are likely to do well over the next 12~24 months. In an economy where commodity prices are relatively low and Transportation and Capital is flowing quite well, one could easily identify that Capital will seek out and identify the strongest opportunity for safety and growth as sectors continue to shift. After a massive rally in Technology and Bio-Tech, we believe a continued shift towards Blue Chips and Mid-Caps is taking place right now. Technology and Bio-Tech will likely find some support in the near future and become “opportunistic investments” eventually. But right now, we believe global investors are focusing on different targets to hedge the risks that are associated with certain technology stocks.
In closing, our research highlights that Commodities are not increasing as one would expect in an expanding global market/economy. We believe this is one core factor that will continue to drive a “capital shift” toward opportunity and performance in the Blue Chips and Mid-Caps. Global investors will re-enter the Technology and Biotech sectors when pricing levels become more opportunistic – at some point in the future. This means we have a very strong likelihood of the US and global Blue Chips, Banks, Industrial Supply, Basic Materials and Human Services (Entertainment, basic human essentials, regional human services, and utilities) will continue to perform well.
The US and the global economy is growing, just not as one would expect in a “total growth” environment. We believe the global economy has shifted to support “fundamental growth elements” that are related more closely to the types of industry and market sectors that support the fundamental growth components. We’ve discussed our theory that the global economies operate in a “growth or protection mode” many times before. We believe the current global economic stance is more in tune with “moderate growth while still being overly protective”. Watch Commodities and the Transportation Index for signs of when the global economy enters a larger growth phase and when more opportunity for a broader capital shift will take place.
This concludes this two-part series and how we identify market opportunities for us to trade. Analysis like this has allowed us to generate substantial profits in the past 30 days with UGAZ 30%, NIO 21.6%, ROKU 18%, GDXJ 10.5%.
If you want to learn how we can help you find success throughout this shifting market and throughout 2019 and beyond, then visit www.TheTechnicalTraders.com
Technical Traders Ltd.
Stock warrants are defined on Wikipedia, https://en.wikipedia.org/wiki/Warrant_(finance):
"In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed price called exercise price until the expiry date. Warrants and options are similar in that the two contractual financial instruments allow the holder special rights to buy securities."
Common Stock Warrants provides a database of stock warrants trading in the United States and Canada in all industries and sectors. The service has been in existence since May 2005 and was initially named, PreciousMetalsWarrants.com. In 2013, services were expanded and the name was changed to CommonStockWarrants.com.
A Database of all trading warrants in the U.S. and Canada
A Listing of all trading warrants
Ownership of CommonStockWarrants is the sole property and responsibility of Dudley Pierce Baker.
Articles on stock warrants by Dudley Pierce Baker have appeared on many websites, including Kitco. 321Gold, Goldseek, TheMorganReport, 24HourGold, TalkMarkets, SeekingAlpha and many more.
Videos and interviews have been done with BNN, FuturesMagazine, ResourceWorld, EllisMartinReports, KorelinEconomicReports, PalisadeRadio, TheGoldReport, TheFinancialSurvivalNetwork, JayTaylor and others.
Books - In 2017, "The Stock Warrant Handbook, Your Personal Guide To Stock Warrants" was written by Dudley Pierce Baker and is a useful research tool to all investors:
What is a Warrant?
Background and History of Warrants
Why You Should Consider Warrants
A Warrant On What?
Private Placements vs. Trading Warrants
How I Determine Current Values
Are You A U.S. or Canadian Investor?
How to Place Your Trades
The Stock Warrant HandBook, Your Personal Guide to Trading Stock Warrants is available free to visitors of http://CommonStockWarrants.com and is also available on Amazon.com.
Excerpts from Wikipedia, the free encyclopedia:
Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. They can be used to enhance the yield of the bond and make them more attractive to potential buyers. Warrants can also be used in private equitydeals. Frequently, these warrants are detachable and can be sold independently of the bond or stock.
In the case of warrants issued with preferred stocks, stockholders may need to detach and sell the warrant before they can receive dividend payments. Thus, it is sometimes beneficial to detach and sell a warrant as soon as possible so the investor can earn dividends.
Warrants are actively traded in some financial markets such as German Stock Exchange (Deutsche Börse) and Hong Kong. In Hong Kong Stock Exchange, warrants accounted for 11.7% of the turnover in the first quarter of 2009, just second to the callable bull/bear contract.
Warrants have similar characteristics to that of other equity derivatives, such as options, for instance:
The warrant parameters, such as exercise price, are fixed shortly after the issue of the bond. With warrants, it is important to consider the following main characteristics:
Warrants are longer-dated options and are generally traded over-the-counter.
Sometimes the issuer will try to establish a market for the warrant and to register it with a listed exchange. In this case, the price can be obtained from a stockbroker. But often, warrants are privately held or not registered, which makes their prices less obvious. On the NYSE, warrants can be easily tracked by adding a "w" after the company's ticker symbol to check the warrant's price. Unregistered warrant transactions can still be facilitated between accredited parties and in fact, several secondary markets have been formed to provide liquidity for these investments.
Warrants are very similar to call options. For instance, many warrants confer the same rights as equity options and warrants often can be traded in secondary markets like options. However, there also are several key differences between warrants and equity options:
There are various methods (models) of evaluation available to value warrants theoretically, including the Black-Scholes evaluation model. However, it is important to have some understanding of the various influences on warrant prices. The market value of a warrant can be divided into two components:
Warrants can be used for Portfolio protection: Put warrants allow the owner to protect the value of the owner's portfolio against falls in the market or in particular shares.
There are certain risks involved in trading warrants—including time decay. Time decay: "Time value" diminishes as time goes by—the rate of decay increases the closer to the date of expiration.
Several years ago in New York at a Hard Assets Investment Conference, a newsletter writer with over 30 years in the business, asked me, “Dudley, what is a stock warrant?”
After regaining my composure, I responded just like I am addressing you, by defining a warrant and why you should be interested.
By definition, a warrant is a security, issued by a company, giving the holder the right, but not the obligation, to acquire the underlying shares, at a specific price and expiring on a specific date in the future.
This definition is very similar to stock options or LEAPS, (Long-Term Equity Anticipation Securities) except that warrants are actually issued by a company, whereas options and LEAPS are created/written by investors.
Warrants are traditionally issued in connection with a company’s private placement or equity offering as additional incentive to get the deal done.
Warrants are mostly a matter of common sense and arithmetic, so let’s not make this complicated.
Obviously, the longer the term of the warrant (time until expiration) the better your chances of great success.
However, just because a stock warrant has a 5 year life does not mean that you must hold the warrant for 5 years. With trading warrants you can buy the warrants one day and sell them the next day.
Exercising a warrant should never be one of your considerations, as it makes no sense to me.
Exercising a warrant means you (or your brokerage firm) sends the warrant certificate to the company along with the exercise price of the warrants and you then receive the common shares deposited into your account. If the warrants are trading you will have accomplished nothing other than paying a higher price for the shares.
When you want to sell the warrants just sell. If you continue to like the common shares, then just buy the common shares after you sell your warrants. You will be dollars ahead with much less paperwork.
If you would like more information on stock warrants visit my website.
Dudley Pierce Baker
Editor – Founder