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Could Sand be the Next Commodity that Changes the World?

Staff Writer, Chart

If you’ve been watching the news lately, maybe you caught a few of these stories:

  • On a sunny and windy May 8, 2016, German solar, wind and biomass energy output exceeded demand. Consumers were actually paid to use electricity. (Fortune Magazine)
  • Global renewable power capacity overtakes coal as 500,000 solar panels installed every day (UK Telegraph)
  • Tesla, Solar City Power an entire island in American Samoa with Solar Energy (CNBC)

It's not a matter of "if"…It's a matter of "when" and experts agree: The day of reckoning is here…At this moment, oil is caught in an absolute death spiral. Already, billionaires have been dumping oil stocks at frenetic pace.

  • Warren Buffett dumped his ENTIRE Exxon position, worth $3.7 billion.
  • Bill Gates unloaded nearly $1 billion worth of oil stocks.
  • George Soros couldn't get out of oil fast enough, selling off whole stakes of multiple positions …

This mass exodus comes alongside oil's fall to seven-year low, dipping below $35 per barrel for the first time since the 2008 financial crisis.

This situation is so severe, that legendary billionaire energy-trader John Arnold said that "half the U.S. energy industry will be bankrupt in 6 months".

"This is the end of fossil fuels," states CNN.

Pundits would have you believe a temporary "global supply glut" is to blame.

They couldn't be more wrong…

The real reason is much more ominous, and could push oil as low as $10 per barrel.

Make no mistake: This will decimate Big Oil's greedy profits… make OPEC obsolete… and crush the Saudi Royals and their radical oil regime…

Incredibly, this massive global shift all starts with simple grains of sand.

These tiny granules have unlocked an unlimited supply of fuel...

Enough fuel, in fact, to power the ENTIRE PLANET for over 36,000 years. And the cost of this fuel is zero. It’s free.

The incredible thing is, this is a “universal fuel.” It can be used for everything...

  • It can power your car...
  • Light and heat your home...
  • Run factories...
  • Propel cruise ships...
  • It can even power the ENTIRE U.S. electrical grid...

According to the International Energy Agency (IEA), this fuel could soon become the #1 source of energy on the planet... surpassing oil, gas, and coal power.

USA Today says this fuel is “sizzling hot”...

And Forbes magazine simply calls the opportunity “massive”...

Jon Wellinghoff, one of the world’s top energy experts and Chairman of the Federal Energy Regulatory Commission (FERC), says the use of this fuel is...

“...growing so fast it’s going to overtake everything...It could double every two years.”

- Jon Wellinghoff, Chairman, Federal Energy Regulatory Commission

That's Right. Take a look at sand.

Now, let's take a closer look...

Even closer still...

Thanks to a breakthrough in chemical engineering...

This fuel is so cheap – and so easily accessible – that Fortune 500 companies are rushing to set up their own “power companies.”

Google, for example, is investing $300 million to do it...

Apple is investing nearly $1 billion!

Everywhere you look, America’s biggest companies are going all in... including:

  • Facebook
  • Amazon
  • AT&T
  • General Motors
  • Costco
  • Target
  • Kaiser Permanente
  • Johnson & Johnson
  • FedEx

And many more Fortune 500 companies are pouring money into this fuel at an almost unfathomable pace.

Why Are So Many Companies Jumping In?

Because it’s suddenly become so cheap, companies can invest millions UP FRONT, and still come out way ahead of the utility companies.

In fact, Walmart’s investment in this fuel is so enormous – and so cost-effective – the global retailer is projected to SAVE as much as $1 billion annually on energy costs. And that’s just the beginning... This free fuel can be “harvested” in most parts of the world... in huge quantities... and WITHOUT drilling, mining, or growing grain for ethanol or any other crazy biofuel. According to data from the U.S. Department of Energy, this fuel is so plentiful and powerful that in one single week it can produce 1,000 times more energy than oil, natural gas, and coal do in a full year – combined!

We shouldn’t have all of these logos as stills in HTML. They were originally approved when the plan was just to flash them very quickly on the screen and then remove them.

Harnessing the Sun’s Infinite Power

In 1954, there a solution to make generating energy from the Sun practical and affordable.

Scientists working for Bell Labs created a new way to capture these energy particles and turn them into usable energy.

The way it works was a level of genius that would have made Einstein proud. The scientists fashioned a “solar cell” with metal conductors on the surface.

When sunlight hits these conductors, energy particles are absorbed. And here’s where the magic happens.

As the sun’s energy particles are absorbed, they knock the solar cell’s existing electrons loose. Because the solar cell is made of conductors, it is able to herd these electrons into a current and funnel it to an external device, such as a light bulb. Creating the world’s first infinite source of electricity.

The New York Times stated that this new discovery was: “The beginning of a new era, leading eventually to the realization of harnessing the almost limitless energy of the sun for the uses of civilization." Problem was, it was still so costly that it didn’t offer a viable alternative to oil, gas, or coal.

Over the years, improvements were made. But still, harvesting energy from our nearest star was much more expensive than fossil fuels – roughly 110 times the cost of oil, gas, and coal. It worked fine for your handheld calculator, but it would never heat your home. Until now... Remarkable advancements in chemical engineering have helped cut costs by a stunning, 99%!

Suddenly, sun power has – in many cases – become the CHEAPEST form of energy on the planet! Cheaper than coal. Cheaper than natural gas. And cheaper than oil. In fact, you could cut the cost of oil in half, over and over again, all the way down to $1 per barrel, and solar would still look cheap!

You want a strong, thriving economy? You want American workers to keep more of what they earn, and put less in the pockets of the greedy utility monopolies? Well, this is the Holy Grail! Consequently, solar is growing leaps and bounds.

Solar capacity has jumped 20-fold in the U.S. alone. That’s a 2,000% increase! In addition, the industry added jobs 10 times faster than the rest of the economy. And while cloudy days were a problem in the past, one new technology is so effective it can collect solar power at NIGHT... while there is NO SUN!

With new storage capabilities, it doesn’t take long to collect an inexhaustible supply of power. According to the U.S. Department of Energy, 10,000 times the world’s total energy use is generated every second by the sun... Every 40 minutes, enough energy-filled sunlight hits the Earth to power the entire world for one full year. And the cost? That’s the best part. You see, the sun’s power isn’t just cheap... it’s free.

A revolutionary fuel source is poised to decimate Big Oil's obscene profits, make OPEC obsolete, and
hand the United States 100% energy independence for the first time in 40 years.

Find Out How to Get the Full Report Here

Own the Next Super-Major Energy Titan for Pennies on the Dollar!

Solar cells have always been big, bulky, and INEFFICIENT. In other words, they don’t capture much sunlight. And of the sunlight they do capture, only a SMALL PERCENTAGE is converted into usable energy.

Consequently, the cost of solar power has been extremely high, as much as $76 per KWH. The company mentioned in the energy report has taken solar cells to a whole new level... helping bring the cost of solar power down by a stunning 99%. And the way it works is amazing.

In fact, their patented technology turns grains of sand, right off the beach, into highly efficient, wafer-thin solar cells that deliver dirt-cheap energy. That’s right. Sand contains tiny particles of a bluish metalloid called “Si.” Research physicists have determined that Si contains 14 electrons, arranged in four different shells. This is a very unique molecular structure. In fact, Si is completely different than any other element in the entire universe, and IDEAL for converting sunlight into solar energy. You see, Si is able to SHARE its four outer-shell electrons with other atoms. The sharing phenomenon creates a chain-reaction that CONVERTS sunlight into usable energy.

It’s a complicated process, and this company has taken it to a whole new level. You see, in its raw form, Si is full of impurities... These impurities inhibit the conversion process, making for expensive energy, once as high as $76 per KWH. That's what makes this company's patented technology such a remarkable breakthrough. First, raw Si is melted in a mono-crystalline electric furnace. During the melting process, a stream of Argon is pumped into the furnace to remove impurities and inhibit oxidation. The molten Si is then cast into square blocks and cooled. The blocks are then sliced into wafer-thin slices of pure Si…

The technology is scientific genius and creates highly purified Si, ready to convert sunlight into ready-to-use power. In fact, this tiny company's patented solar cells set a NEW WORLD RECORD for power output. Incredible… and the big thing: the cost… Again, traditional solar cells delivered energy at a cost of $76 per KWH. This company's technology is so efficient, and creates such pure Si, they are supplying a utility company with solar at 5 cents per KWH. That's right. This company's technology is so significant that utility companies are throwing in the towel and buying solar power! Let me repeat that: This company is supplying solar at 5 cents per KWH!

Other Applications of New Solar Technologies:

  1. Nighttime Solar An Israeli firm says it has developed a way to keep solar plants running at full capacity, 24/7, day and night! This is a breakthrough that could revolutionize the solar industry.
  2. Reverse Solar Imagine capturing “reverse sunlight” as it bounces OFF the earth and returns to space. This could double the effectiveness of solar.
  3. Liquid Solar Harvard’s done it again. This time, they’ve found a way to turn sunlight into liquid fuel. Sunlight-in-a-jug could be coming soon.
  4. Solar Paint Imagine slapping a new coat of paint on your house, and turning your home into a mini-power company. Now imagine turning that dream into a reality for your car! That means no stops at the gas station because the fuel source is literally painted onto your vehicle.
  5. Ultra-thin and flexible solar cells A U.S. patent has been awarded for a solar cell that is 100 times thinner than a piece of paper. Amazing. The solar cells are incredibly flexible and lightweight, making for endless applications in both the military and commercial sector.
  6. Solar Roads That’s right. No need for fuel. Your car could one day run on the power generated by the road itself!

Each of these Solar applications offers the potential for great wealth.


This article barely skims the surface of the potential of harnessing the sun's energy. Many of these technology enhancements are already being deployed around the world, offering a potential windfall investment opportunities.



Investing Outside “The Matrix”

By Charles Vollum,

Every time you log into a financial web site, connect to your online broker, or read an article in the financial press, you are assaulted by disinformation: “Dow Jones Breaks 19,000”, “US Home Prices Surpass Pre-recession Peak”, “Natural Gas Prices At Highest Level in Two Years”. These headlines may be true as far as they go, but are they telling you what you need to know as an investor? All of them use the US Dollar to measure prices and price changes over time. Yet, the US Dollar itself is constantly changing in value, especially since 1971, when President Nixon cut the last thin safety line connecting the Dollar to gold.

The “rate of inflation” or “consumer price index” is used by economists as a “deflator” to adjust nominal dollar prices to “real” prices – prices measured in “constant dollars”. But I think anyone who buys groceries, pays power and water bills, and tries to support a family knows that these official inflation measures are grossly understated. And try as I might, I have never actually laid eyes on a “constant dollar”, let alone had one in my wallet or bank account!

We live in a “Financial Matrix”, a simulated world where everything is measured using rubber rulers that can be stretched to fit any fantasy the politicians, central bankers, and bureaucrats want to push off onto the public. If we want to know the truth, there is really only one “red pill” to take.

We need to stop using dollar pricing, and start measuring prices in something real, something solid, something tried and proven over thousands of years of monetary experience: GOLD.

Gold, Silver, and the Dollar

Gold, silver and the US Dollar are all commodities that have a strong claim to being “money”.

Until quite recently, all three were used in daily commerce as money, and the US Dollar itself was originally defined in terms of specific amounts of gold and silver. Although the USD has only been around for about 220 years, gold and silver have been used as money for thousands of years. Each has been used to set and record the prices of other things.

There's a lot to learn from examining the “exchange rates” between these three. Actually, there are six possible pairings here. Three of these, Gold in USD, Silver in USD, and Gold in Silver (more commonly called the Gold Silver Ratio) don't need much explanation. You see them quoted every day in the financial media. The other three are less often seen: USD in Silver, USD in Gold, and Silver in Gold. Let’s take a look at each of these, starting with the US Dollar priced in grams of Silver.

Since both the USD and Silver are highly volatile, it should come as no surprise that their exchange rate swings wildly. Since the mid 1970s, one US Dollar has bought anywhere from 0.63 to 8.8 grams of silver – a 14 to 1 range. In 2011, the USD, priced in silver, fell to just 1.5% above its all time low. Since then, it has risen over 200%, and trades at about 1.9 grams of silver in early December of 2016. Even so, this stunning rise still leaves the Dollar near it’s all time lows against silver, as the chart below shows. There is plenty of meat here for a nimble trader, but a time horizon in decades and a cast-iron stomach for draw-downs are required to be a buy-and-hold investor.

Gold is the most stable and reliable measure of value among the three commodities, because there is so much of it ballasting and underpinning the world's financial system, and because the available quantity of it grows so slowly, about 1% per year. With this in mind, let's look at the remaining exchange rates: first, USD in Gold, and then Silver in Gold.

Until 1933, US citizens carried gold coins in their pockets, and paper bills were exchangeable for gold and silver coins at any bank. Prices were remarkably stable, and had been for a hundred years or more, except for periods of war or other calamities. In 1933, US citizen's gold was confiscated by the government, the dollar was devalued by 41%, and we entered a period in which the treasury attempted to hold the value of the dollar at 1/35 of an ounce of gold on the international markets.

This was largely successful until the late 1960s, when so much gold was required to buy up all the dollars foreign countries were selling that the US government simply gave up, and “closed the gold window” in 1971. The value of the USD collapsed over the next 10 years, hitting bottom in 1980. By offering high rates of interest and reducing taxes to stimulate productivity, the dollar slowly recovered some of it's value over the next 20 years, but expansive money policy eventually caught up with the dollar again in 1999.

From 1900 to 2011, the dollar fell from 1500 mg to about 16 mg, losing almost 99% of its purchasing power. Over the last five years, the value of the USD has risen somewhat, returning to the 2010 level of about 26 mg. But since 2000, the Dollar’s fall from about 123 mg of gold to about 26 mg today is a loss of almost 80%. Penny candy now costs 50 cents. The "Five and Dime" is now the Dollar Store.

There is no real end in sight – after all, fiat currencies like the US Dollar depend solely on the trust and faith their holders have that they will be able to buy things with them in the future. At some point, users become disillusioned and stop accepting them, and when that point comes, as it did for the earlier US currency, the Continental Dollar, and more recently for the Zimbabwe Dollar, then the entire currency system becomes an historical footnote. This is the true “Zero Bound” of bad monetary policy.

But that eventual fate doesn't preclude massive bear market rallies; in fact, this is to be expected, and welcomed. A strong dollar gives us a chance to buy other, more durable and desirable investments – gold and silver, stocks, real estate, and so on. Currently at 26 mg, the USD is far above the 9 mg price suggested by the decay trend line of the 2001-2011 period. Inverted to dollars per ounce, that means that a gold price of $3,500 would be back on the trend line, and some overshoot would almost certainly occur as well. And the longer the return to the trend is delayed, the higher the implied gold price will be.

The current exceptional US Dollar strength creates an excellent opportunity to diversify out of dollars and into precious metals, real estate, and other real assets.

So, what about Silver priced in Gold? Andrey Dashkov's excellent article, “The Gold-Silver Ratio – Another Look” concludes that the GSR is not very useful in determining the future prices of gold or silver in terms of US dollars. Pricing silver in terms of gold is another way of looking at the Gold Silver Ratio, but a better one, because it prices the more volatile commodity (silver) in terms of the more stable one (gold).

From a technical point of view, this chart shows a level of support and resistance at 0.53 grams of gold per ounce, with long-term support at 0.37 grams. The last few years have been spent in this band, and the current silver price of 0.43 grams is right in the middle of it.

Investor preferences can shift with time, and so can supply and demand. Silver may be experiencing a squeeze, as the bullion banks unwind their short positions, and there is undeniably a growing investor interest in silver, which may power the metal higher. But by focusing on silver's price in terms of gold, we eliminate the distortion of a depreciating dollar, and can see more clearly what is happening with silver itself.

Using Gold to Supercharge Investment Returns

Let’s look at how this can lead to more profitable decisions that can grow our real wealth faster.

If you make a chart (priced in gold) of gold, you get a straight horizontal line, at a height that represents the amount of gold. It never goes up or down, it always stays the same as time passes. This represents a fixed amount of gold, placed in a vault or safe. 1 kg of gold in the safe will always still be 1 kg of gold, every time you open the safe and check on it. So there is no "percentage change" for gold over time. Well, there is, but it's always ZERO.

Owning gold will not make you rich, but it can protect your wealth from the devastating effects of currency debauchery. If, in the future, your one ounce gold coin is “worth” $25,000, but a year of college tuition costs $1,000,000, and a first class stamp costs $10, you won’t be feeling very rich. Your gold coin will buy you 2,500 stamps, just like it will today; if you had kept the $1,200 USD cash in the safe instead, you’d only be able to buy 120 stamps.

The key is to measure value using gold. This decouples you from “The Matrix”, and lets you see how values are changing over time without the distortions inherent in currencies like the US Dollar.

If you make any investment, say you sell some gold and use the proceeds to buy some silver, or buy some shares of AAPL, or to buy a house, you can say that the price of that investment was the amount of gold (measured in grams, ounces, or kg) you had to sell to purchase the investment. Alternatively, if you had government-issued cash in a bank account, and used that to pay for the investment, you could say that the price of the investment was the amount of gold that you could have bought instead with the same cash.

Down the line, when you want to know if the investment has been a good one, or you wonder if you are sitting with a gain or a loss on the investment, you can look up its price in currency, and see how much gold that amount of currency will buy. If the number of grams or ounces is MORE than the investment originally cost, then you have a gain. If it is less, then you have a loss.

This idea of using gold as a measure of value can be applied to a company’s balance sheet and income statement to clarify its fundamentals. It can be applied to calculating net worth. It can be applied to technical analysis of price charts, including indicators such as moving averages, oscillators and relative strength indicators. In each case, the use of gold pricing removes “Dollar Noise” from the price signal, and increases the chances of making a profitable trade that actually grows your wealth, as measured in gold.

Another way to use gold to improve investment results is to hold your cash in the form of gold. If you are a US taxpayer, making investments in a taxable vehicle (outside of an IRA, for example) this will have some costs, as the US tax code penalizes “gains” on “collectibles” with a 28% capital gains tax. But avoiding 72% of the losses associated with holding government-issued currency is still better than taking the entire loss!

All cash holdings represent a trade-off. They give safety and the flexibility to act when opportunities present themselves. Keeping your cash in the form of physical gold eliminates many forms of risk: in particular, currency depreciation risk and counter-party risk. Your main risk becomes that of physical theft. But holding cash means foregoing opportunity as well. You are missing out on the gains you could be having by investing in an asset that is throwing off cash, or increasing in gold value. The right level of cash to hold will vary with personal risk tolerance and market circumstances.

But be aware that government-issued currencies are really debt obligations of the banks (and especially the central banks.) They may have zero maturity, but they are still debt instruments. You will need some local currency to pay bills and taxes, and in some cases, local currency can be a profitable speculation. It can be rising in gold value, but be aware of the danger of “holding a burning match”. Eventually you will need to spend it or find someone willing to part with their gold in exchange for it. At the moment, this is easy to do, but someday, it will become impossible. The transition will come suddenly, and probably with little warning, and you do not want to be the one holding the old maids when it happens.

The key to dealing with these problems lies in position sizing. Keep the position large enough to “move the needle” if it works out well, but small enough that a complete loss will not be devastating.

Another strategy is to use trailing stops to ensure that you exit positions that are declining in gold value. This takes a little work on your part, as there are no automated trailing stop tools that follow securities priced in gold. This may change in the future, however. And if the investment happens to be the US Dollar, you could set up a buy-stop when the price of gold hits a predetermined level to get the same result.

More Counter-party Risk Free Investments

Gold and silver are not unique in being free from counter-party risk. Other precious metals, especially platinum and palladium, offer excellent opportunities from time to time. The platinum-group metals have little track record as money, but offer many of the same physical characteristics that make gold so attractive. Their rarity (more rare than gold in the earth’s crust) density and durability make it easy to store large values in a small space. Their many industrial uses in electronics, automobiles and chemical engineering make them readily marketable.

Platinum, in particular, may be a good investment at today’s price levels. It has traditionally traded well above parity with gold, but recently has been trading near its all time lows. In the past, buying platinum for less than gold and holding it for a few years has brought substantial profits.

Another possibility is rare coins. With the advent of PCGS grading, it is possible to buy and sell them in a fairly liquid market. If the coins are made of gold, there is an underlying “support” at their melt value, but the numismatic premium can vary wildly, and can rise rapidly in times of economic stress, as investors look for ways to get their capital out of the burning financial system.

One other investment to consider is Bitcoin. This digital, free-market currency is completely free of counter-party risk. You are your own banker, no third party is involved in any transaction unless you buying or selling them on a licensed exchange. They can be sent instantly to any location on earth, and even carried in your head, with a so-called “brain wallet”. The details are outside the scope of this article, but a little research on the internet will show you all you need to know. Again, position sizing is critical. Bitcoins are speculative, and could become worthless… but they are also free of many of the defects of government-issued currencies, and have considerable potential to appreciate relative to gold. Currently they trade for about 20 grams of gold, but I would not be surprised to see them at or above gold parity (31.1 grams) in the next year or two.


To consistently achieve a goal requires the ability to accurately measure progress towards it. The constantly changing length of the Dollar “ruler” makes this impossible, using Dollars. Using gold pricing solves this problem, and gives a firm basis for comparing prices over any time period from days to centuries.


If these ideas intrigue you, please visit the Priced in Gold website. As a reader of the Mining For Profits eBook, I am pleased to offer you exclusive access to a video download discussing in more detail how gold can be harnessed to supercharge investment returns in the stock market. As a subscriber to Priced in Gold, you will also have a chance to ask questions about the counter-party risk free investment ideas in this article, and to request a free custom chart.


Charles Vollum has been involved with computer technology for 35 years. After studying mathematics and computer science at Reed College, he pursued a successful career as a software developer before starting his own computer company, Cogent Research, Inc., to develop and manufacture parallel desktop supercomputers in 1986. Selling and servicing these computers took him all over the world, and allowed him to see first-hand the effects of many currencies and monetary regimes. After selling Cogent Research in 1992, Charles embarked on a new adventure, sailing a 27 foot sloop singlehanded across the Pacific from North America to New Zealand, visiting many South Pacific Island nations and learning more about the world's money systems.

An active investor in gold and silver since 1980, Charles slowly began to realize the importance of having a standard of value not tied to any country's currency and monetary policy; that in fact, rising and falling 'gold prices' were really more accurately viewed as falling and rising 'currency prices', measured against the relative stability of gold. This insight led to the creation of the Priced in Gold website in 2007.

In addition to his work on gold pricing and investment, Charles is an avid photographer, sailor, ham radio operator, and home-schooling parent. When not out traveling, he lives in Hillsboro, Oregon with his wife and two kids.


How, When and Why- You Should Take a Profit

By David Morgan and David H. Smith,

Place your winnings under cover when they are sufficient or large. Fortune soon tires of carrying anyone long on her shoulders. Baltasar Gracian, 7th Century Jesuit priest

There are literally shelves full of books purporting to tell you how to make a lot of money in the markets, but precious few that even give a cursory glance at dealing with the idea of actually keeping much of it! We're here to suggest, that not only are there some very good ways to do so, but indeed you MUST occasionally take a few chips off the table. This tactic (strategy?) aligned with a proper mindset is critical if you expect to keep control of your financial investment dollars, as well as being able to maintain your "psychological capital."

To know and not act is the same as not knowing.

This old Chinese saying fits those who realize what needs to be done to place themselves on the right side of the financial change-wave, yet through inertia, laziness or lack of commitment, fail to act. So, don't read this essay and then fail to make a plan - any plan -that activates the energy and resources you'll need to tackle and take advantage of what's coming your way. Before the market takes it from you.

There is a strong case to be made of selling a bit into strength and “leaving something” for the next buyer. Anyone who has ever traded the futures market has probably learned this lesson the hard way. Professionals strive to buy in the bottom twenty percent of the market and exit within twenty percent of the top. This is sage advice and will serve you well, especially going forward, because the amount of emotion surrounding the precious metals as they make their final assent during the coming years will be almost impossible to resist!


Don't let your wealth-carriage turn into a pumpkin

It is our experience that the precious metals, more than any other asset, seem to invoke a "hold onto" philosophy, no matter how you look at it. When prices explode toward those final, convulsive highs, the metals “bugs” will be mesmerized with how fast their account is growing, not considering how quickly it can shrink when the market finally turns.

When the bell tolls for that historic run, the trading accounts of many investors will head back to or below where they started. Profits will rapidly evaporate during the first sickening leg down of the new metals’ bear market. Holding on, waiting for new highs, they will instead see the charts begin to print out lower highs and lower lows - the classic form of a good market “gone bad”. We hesitate to state with one-hundred percent conviction exactly how the future will reveal itself. The thing is, when the precious metals do become overvalued, we may hear seemingly supportive long-term news, such as rumors about a nation- state going back to some type of gold standard. Regardless, our purpose is to make certain that the reader knows how to measure value - indeed how to get a handle on determining value in relation to price - and why it is so important to understand that at some point, profits need to be locked in.

What if silver runs to $250 (anything is possible), drops to $30 and finally establishes a “new normal” at $50? If you’re in the ranks of the perma-bulls after such a run, you may have made good money, but that’s one heck of a paper profit to leave on the table! Worse yet, what if your average all-in cost was $80? It doesn’t have to be this way, but for most investors, that's exactly how the story is going to unfold.

You may have been a gold bug before 2000; perhaps as far back as the 1970's. This time around, you may have established and nurtured big share positions in the 10 best performing mining stocks on the board. You may have "stacked" a small mountain of silver bars and gold coins. But if you don't take certain actions before the clock strikes midnight, you're running a grave risk of watching your wealth carriage of huge profits from these efforts turn into a pumpkin on wheels...or worse.

Sellers Remorse - balancing holding on with "taking a profit"

You've probably heard the term "buyer's remorse". Imagine what it must feel like when you get out of a stock "too early" - and it rockets upward, teasing you to get back in again for the possibility of life-altering gains. Or making you so fearful that you watch the whole run from the sidelines. It can be every bit as painful (and "loss-of-profitable") as getting out too late. Most of those reading this probably had this experience on at least one occasion. Holding Apple Computer stock for years as you watch it go from $12 - $75 - $15. Getting bored, afraid, finding "a better stock" to buy, selling all of your Apple shares. Seeing it rise by hundreds of dollars a share over several years...while you watched.

We know of an individual who held a large number of shares of the exploration company, Seabridge Gold (NYSE: SA) at $0.43 cents. After a few years of boredom, the stock rose to $0.95 cents and seeing the chance for better than a double, he sold his position and went about other things. Shortly afterward, the stock began a 5-year just under $40.00.

"If you're (completely) out of the room, you're out of the deal!"

"The big money in booms is always made first by the public - on paper . . . and remains on paper" Jesse Livermore.

Don't forget, it works both ways. At one time you might have owned a large U.S.-based gold and silver producer. You might have bought it for a $1. When it went to $40, you might have held on "for the long term", expecting it to end up at $100. It tried to fund a $1billion plus mine expansion in Nevada while earning a fraction of that in revenue. In a tight-money environment and a multiple-year metals' cyclical bear market, it could not. So the share price of that $40 company zero.

Early in the new millennium's secular gold and silver bull market, (now, The Morgan Report) recommended a Spokane-based mining company with a property in western Montana holding potentially 260 million ounces of silver. At the time, in late 2002, shares of the company were going for about $0.35 cents apiece. Within less than two years, it had risen to $8, dropped below $4, built a base, and then surged over the next two years to an all-time high slightly in excess of $10/share. We recommended a stop sell at $8 and nearly everyone who followed that call made money. The 2008-09 global near-melt down took it to $0.48; thereafter prices rose to $4.44, then in late 2015, it almost bit the dust at...$0.11 cents. In early 2016, a Major mining producer took it out for around $0.80 cents a share.

The forever buy and hold crowd got in early, and with an iron grip, held on "for the long term." They watched it rise to $10, crater to .48 cents, and finally waste away to .11 cents. At this point, no doubt many investors gave up completely, selling out their long-suffering positions before it rose a bit and became a buy-out property. Would the kind of attention we suggest giving it -involving just this one stock - have helped an early shareholder hold onto, and keep a big chunk of those gains somewhere along the continuum, from .35 cents to $10, and then to .11 cents?

Your assignment, should you decide to accept. Read about the portfolio setup we describe later on in Second Chance, and think about what we suggest as a way of handling the rest of this precious metals' bull market. Then return to this page, look at this company's price range over 20 years, and by application through example, construct and "back test" a paper trade position using these numbers which would "float your boat" in the stormy price seas through which this stock sailed before it almost foundered, and was finally bought out.

We could have chosen a number of other mining companies who have had this kind of pricing history. Is there a way to avoid "sellers' remorse" and stay in the game in a meaningful way, in order to have a shot at these gains? Or conversely, to avoid being wiped out by keeping your entire position, riding prices over the top and holding on all the way to the bottom? Of making very big money...on paper, and keeping from giving it all back?

When We Get Close to the "Ultimate Top". The closer we get to the "ultimate top" in this historic silver and gold bull run - and we'll only know for sure in retrospect that it really has been logged - the more difficult it will be, not only to accept that it's starting to move against us, but also to begin taking steps to get off the bus. It won't be a given, no matter how much you've thought about this event, how much your resolve has been steeled to go through with the plans you laid out years before, how much you attempt to wall yourself off from the cacophony of opinions, data, "proofs" and guru grunts coming from the "experts".

Like the Greek adventurer Odysseus and his crew as they sailed home following the Trojan War, it's going to be easier said than done to resist the Sirens as, during the emotional storm at hand they seek to dash your investment ship on the rocks of indecision, greed, adversity, hubris, second-guessing and fight-or-flight behavior.

It's analogous to how people respond when they find themselves under a deadly physical threat. They often lose fine motor skills, experience tunnel vision as they hear and see only what's directly in front of them, decide to either fight, flee...or freeze in place. Recall once more from our first chapter, the words of Dr. Alexander Elder, in his insightful discussion of what it's like to compete in the investment war space. It consists, he says, (of) "battling crowds of hostile people while paying for the privilege of entering the battle and leaving it whether dead, wounded or alive."

Distinguish between Core and Trading Positions

As Bob Moriarty says in his excellent little book, Nobody Knows Anything: Learn to Ignore the Experts, The Gurus and other Fools,

" makes a lot more sense to take money off the table when you can. Have a plan. Have any plan, but take some money off the table." And, "If you won’t walk away when you are winning, the only alternative is that you will walk away when you are losing.”

Finally this quote, wherein Bob speaks directly to the conundrum involving the joy and pain our book addresses - and lends support to the underpinnings of our central thesis:

"I believe silver, gold, platinum, palladium and rhodium are going to go into a bubble that will make the NAZ stock market bubble of 2000 look like a Monopoly game. And the people who will lose the most money will be the bulls. Because they will never take money off the table. They always want to keep betting. Eventually the house odds win out and they lose it all."

Of the investing public, Livermore once said: "Play the market only when all factors are in your favor. No person can play the market all the time and win."

It's as though he is speaking to us today, when he said, The big money in booms is always first made by the public – on paper… and on paper it remains. This is such a compelling statement that we placed it on our book cover. It's message is a leitmotif of Second Chance. A cautionary remark that an investor their peril.

Why does the public invariably make only paper profits? Because not one person in ten thousand has ever asked, let alone given thought to, a small set of crucial questions. Questions which MUST be answered ahead of time by each and every investor who has dreams of keeping a significant portion of his/her earnings once the evolving metals' mega-move draws to a close.

Why do I trade/How Much is enough (for Me)? The idea that you have enough money so you only have to work if/when you want, can be a powerful goal-setting motivation. It becomes sustainable once you’ve reached a sort of “critical mass”, especially if you are able to keep expenditures below your level of income.

If your lifestyle ratchets up to “accommodate” the extra funding, it’s not going to work. How much would you need to live like this? How much time/effort/risk are you willing to expend? Don't forget that even the time involved in getting there is a cost. It takes "life-time" to make money. Can you dial back substantially – or all together – this expenditure over time? If you could live forever, would you really want to put up indefinitely, on a full-time basis, with the neuroses of the market’s crowds?

Let a quote by Felix Dennis, one Britain's wealthiest men sink in. In his book How to Get Rich, he says "If you are young, you are infinitely richer than I can ever be again."

It's worth taking a moment to reflect upon what Jim Rogers has to say about money management and how he goes about making it. Rogers drove around the world twice, once on a motorcycle and once in a car, and wrote a book about each trip. Admitting to being a poor market timer, he has nonetheless been willing to discuss how he does it. He just waits around for a situation that pretty much can’t miss – where he metaphorically sees “money sitting in a corner”. Then he goes over and picks it up..

Interviewed by John Train, he said you should "take your money, put it in Treasury bills or a money-market fund. Just sit back, go to the beach, go to the movies, play checkers, do whatever you want to. Then something will come along where you know it's right. Take all your money out of the money-market fund, put it in whatever it happens to be, and stay with it for three or four or five or ten years, whatever it is. You'll know when to sell again, because you'll know more about it than anybody else. Take your money out, put it back in the money-market fund, and wait for the next thing to come along. When it does, you'll make a whole lot of money."

Of course, in order to behave like this, you must have enough beyond daily needs so that you can earmark a portion for investment, and then refrain from consuming this seed capital while you watch for a “can’t miss” opportunity.

This appears to be how legendary hedge fund founder, George Soros (with whom Jim Rogers used to work), planned for things during the weeks leading up to the 2016 "Brexit" vote that would ask UK citizens whether or not they wanted to remain in the European Union. It is reported that the 85 year-old Soros actually came out of retirement in order to personally place massive bets against possible outcomes as a result of the contest. Word is, that, as a result of the vote, he was able to pick up quite a bit of money that was just "sitting in a corner."

As we've stated, the professionals strive to buy within twenty percent of a bottom. You can achieve this several ways. One is to begin your position by setting up a line with a series of orders to buy at Limit, good ‘til cancelled (GTC), scale down into weakness. Then turn off the computer and go fishing, head to the golf course or spend time with the grandchildren. Waiting for that special moment seems to work for just about every informed, patient, highly-skilled investor/speculator on the globe. Most of the time they do nothing.

But once they spy something special, it's ready, set, go! (This also works as a build/rebuild strategy when the metals and miners bull market undergoes a periodic "correction" as began taking place in August, 2016, giving back much of the previous 8 month's massive rally. Following our suggestions it would not have been difficult to pare back some of the bigger movers and attempt to re-purchase as far down as a given company's 200 day moving average.)

IF you can make...and take...big money out of the coming metals' and miners' mania, it might be possible the next time around that an attractive opportunity presents itself, to invest just like Jim Rogers. And in the interim, spend as much time as he does, doing something else. Crocodiles, sharks and pythons don't search for 3 meals a day. One big score and they're fine for quite a while. Can an investor make and hold onto money the same way? We believe so.

Even a Great Thing does not last forever.

In Crisis of Global Capitalism George Soros wrote that there comes a "moment of truth" (in markets) "when reality can no longer sustain investors' exaggerated expectations. This is followed by a twilight period when people continue to play the game but no longer believe in it..leading to a catastrophic acceleration in the opposite direction, commonly known as a crash."

We are most likely a number of years from such an event, which could mark the culmination of what had become the biggest precious metals and mining stock bull run of in modern history. In the meantime, our advice to you is to spend some time beforehand reflecting on how you're going to handle such an occurrence. And while you're at it, as your "hold 'em 'till near the end portfolio" keeps growing in value - consider taking some occasional profits into great strength from your satellite/trading positions. Just make sure to decide which ones are to be CORE holdings - those you may want to hold onto for the bull market's perceived duration, versus in/out trading positions (or portions of a core holding).

Using the passenger train analogy, Stewart Thomson of Graceland Updates sums it up nicely when he remarks, “Don’t try to drive the gold train. You’re not that good, nor am I. Just act professionally at each station. Train goes backwards, you pick up some passengers. Train goes forward, offload a few.”

See you at the Winners' Table!


Portions of this report were excerpted from David Morgan and David H. Smith's just-released book, Second Chance: How to Make and Keep Big Profits from the Coming Gold and Silver Shock-Wave.


David Morgan, is Editor of The Morgan Report: Building and Preserving Wealth. He is a favorite speaker at conferences in North America, Europe and Asia. Mr. Morgan is actively sought for financial talk shows across the globe. Sign up now for his free weekly eLetter at

David H. Smith is Senior Analyst for The Morgan Report and Contributor to He investigates on location, writes and speaks about precious metals' mines and exploration projects in Argentina, Chile, Bolivia, Mexico, China, Canada, and the U.S.



By Ellsworth Dickson,

Mining companies are evaluated in different ways depending on their stage of development

When examining the financial statements of a junior exploration company, you will not be able to ascertain a precise value for its mining project before it reaches production and, hence, its stock price. Many aspects go into determining the value of a mineral property – not just calculating how much of the commodity exists and multiplying the ounces or pounds. It is almost never possible to mine 100% of a deposit and it is almost impossible to mine just the orebody as some unmineralized rock will need to be mined as well.

Then there is the cost per ounce or pound to mine that depends on whether the mine is an inexpensive open pitting operation or an expensive underground mine. Add to that the processing costs, whether an access road or camp needs to be built, on so on.

 However, it is possible to obtain a rough estimate of what a mining company’s share price should be. The investor’s goal is to weed out those companies with a low chance of success and identify those companies with a good shot at success in an inherently risky business.

But before you invest in any kind of stock, you must know what kind of investor you are. Can you stand the stress of owning shares in a high-risk/high-reward junior exploration company or are you more comfortable owning shares in a company operating a producing mine with revenues?

To start off, one has to understand the exploration process. In a nutshell, this is how the Canadian mining industry works. I say Canadian because Canada has the most publicly-traded mining companies in the world. Being a resource-rich country, stock exchanges in Canada (Toronto Stocks Exchange, TSX Venture Exchange and the CSE) were and are still geared to facilitating the raising of funds for mineral exploration. As a result, Canada’s resource sector has played a major role in the economic development of the country. Naturally, exploring for mineral deposits as well as building and operating mines requires talented geologists, geophysicists, financiers, engineers, accountants, lawyers,  and workers with a variety of skills.

Today, Toronto, Ontario and Vancouver, British Columbia are home to the majority of both junior and senior mining companies. In fact, there are some 700 junior resource companies within a 10-minute walk from the offices of Resource World Magazine, our flagship publication here in Vancouver.

This heavy concentration of talent are constantly seeking good mineral projects just about anywhere in the world. It is not unusual for a junior resource company to evaluate dozens, sometimes hundreds of potential property acquisitions before choosing one they believe has potential. I say ‘potential’ because unless the property has an operating mine or has had a completed favorable feasibility study, it is still an unknown as to the economic viability of the project.

In a typical scenario, either a prospector approaches a mining company with his mineral property or, as in many cases, a junior exploration company identifies a good property. If the mining company likes the prospector’s claims, they will either buy the property outright or option it in stages whereby they can walk away if the first-stage exploration results are poor. Junior mining companies also stake their own claims in prospective areas – sometimes on a computer map and sometimes in the field depending on the jurisdiction. If the junior company defines a significant mineral deposit, it can either sell the project or the company itself to a senior company. On occasion, a junior may decide to build a mine on its own if it can raise sufficient financing and figures it has the ability to build and run a mine which is a very different skill set than mineral exploration.

The old prospector’s adage that “the best place to look for a mine is near a successful one” is usually true. Nature often emplaces mineral deposits in clusters or trends. That’s why there are mining ‘camps’ such as the Sudbury, Cobalt, Timmins and Kirkland Lake camps in Ontario or the Abitibi region of northwest Quebec. This is also true for diamond deposits where the Lac de Gras region of the Northwest Territories boasts several operating diamond mines.

Therefore, by following an important mineral discovery, other explorers will stake claims ‘along strike’ of the mineral trend in hopes of finding another deposit. This is an important consideration for the mining stock investor since the share price of companies with claims adjacent to a discovery will often show great increases – even if they have not found anything of value. This is nicknamed ‘closeology.’

Mining companies can be divided into five categories:

  • Grassroots explorers seeking an ore deposit
  • Companies that have found an ore deposit and are defining its size and grade
  • Companies that have defined a deposit and are preparing a feasibility study to determine the economic viability of the project
  • Companies that have completed a bankable feasibility study proving the economic viability of the project
  • Companies that are actually mining and producing a metal or mineral commodity

Grassroots Projects

Companies seeking to find a mineral deposit on a grassroots exploration project don’t blindly stake any old piece of ‘moose pasture.’ There has to be some kind of geological evidence that there could be a mineral deposit on the property. At an early stage, this evidence might include receiving attractive assays from the sampling of rock outcrops. However, stock buyers must beware, because what are called grab samples are usually the best looking samples the geologist can find. This means that while the metal grades might be very good, a grab sample is not representative of the typical mineralization on the property. However, high-assaying grab samples do prove there is attractive mineralization on the claims.

Following up on good samples, the exploration company may elect to conduct a geophysical survey over its ground – either from the air or the ground. There are maybe six or seven common geophysical surveys in use – magnetometer, electromagnetometer, gravity, resistivity, induced polarization and radiometric, to name a few. The average investor does not have to understand how to operate geophysical equipment. It is only necessary to understand the results, that is, did the survey define a geophysical anomaly that will be a drilling target? One can imagine that if there is a great deal of metal buried in the earth, that it has to have some kind of effect on the earth’s magnetic field, hence, a magnetic survey will measure the differences in the earth’s magnetic field in the area of interest.

A geophysical survey is often accompanied by a soil sampling program. Over thousands of years, tiny amounts of metal in a buried mineral deposit will gradually work their way upwards from the bedrock into the soils. Therefore, sampling soils can indicate there is a mineral deposit below. However, it is important to keep in mind that neither geophysical or soil surveys will indicate if there really is a significant mineral deposit below. The surveys only provide valuable clues and identify targets to drill.

The geologist will hope the geophysical and soil surveys will be ‘co-incident’ – in other words, on top of each other. Using the data from the surveys, promising targets can be picked for drilling. A diamond drill is often used to test these targets. The drill bit is studded with industrial diamonds in order to cut through the bedrock to recover core. The core is then cut in half and one-half is sent to the lab for assay and the other half is saved for study and display.

A diamond drill can be called a truth machine as it will truly determine what lies beneath. Many times diamond drilling will kill a project as the drill results just are not good enough to continue.

This is a crucial stage in the exploration process. While one drill hole does not make a mine, a high-grade intersection over a considerable length (discovery hole) can have an instant and dramatic effect on a company’s share price. When the company recovers many drill cores indicating good metal values over long intercepts, the share price usually reflects the value of the discovery – but not always. This is where promotion comes in.

The investing public has to be aware of the discovery in order for investors to bid up the share price. It is important for the mining company to get its story out there to investors. When you don’t promote, a terrible thing happens – nothing. Companies with good projects make sure the mining media know about their project in hopes of receiving ‘good ink.’ In addition, companies will buy advertising in investor-related publications and set up booths at resource investor conferences. By the time the mainstream media gets a hold of the story, usually the big moves in the share price have already been made.

On the other hand, stay away from companies that are overly promotional and make promises such as, “This stock’s going to $5.00.” The stock might go up on misleading information, false promises or manipulation, but at this stage nobody knows what the stock will actually do.

It behooves the investor to stay on top of exploration activities since a stock price will frequently drift lower for a considerable time, and then make a sudden move higher. The astute investor will try to identify those companies that have good potential, buying its shares at a low price in anticipation of higher share prices in the future.

Companies with grass roots exploration projects can’t really be evaluated in any kind of actual monetary sense because, obviously, there isn’t anything of value (yet). That’s why it is so important to choose a company with competent management, preferably with people who have a successful track record.

In addition, the company must have sufficient funds to carry out exploration, or the ability to raise them. Being junior explorers, the vast majority of them don’t have any revenues, yet mineral exploration is very capital intensive.  So juniors live on private placements, that is, investors who buy large blocks of shares directly from the company that are sometimes accompanied by warrants for enticement. It’s also good if management owns lots of shares as that’s an incentive to do well.

Finally, the project has to have some kind of significant mineral potential. Perhaps the project is in a proven mineralized area like the Carlin Trend of Nevada or some other prospective ‘address.’ Or maybe the company has a commodity that is in great demand. Perhaps there may be compelling geological evidence that there might be extensive mineralization.

It is companies at the grassroots stage that can realize tremendous share price gains when they intercept significant mineralization over decent widths. However, keep in mind that most exploration projects are long shots and it may be prudent to sell your position on the rising optimism of investors that have bid the stock up higher in eager anticipation of great drill results. If a company receives poor drill results, you can bet its share price will tumble quickly – it’s time to get out fast. It is generally not a good idea to put serious money into a highly speculative grassroots stock.

Companies with a Mineral Deposit

Once a company has identified a mineral deposit, the next steps are to determine its size, geometry and grade. In the past, different geologists in different jurisdictions reported mineral resources and reserves according to their established custom. Since mineral resources and the higher category of reserves could be reported in different ways, it was sometimes confusing to the investor. To make a level playing field the National Instrument 43-101 reporting standards were created requiring geological data, including the reporting of resources and reserves, to be disclosed in a specific manner by a qualified person. With everyone reporting data the same way, it is a more fair and consistent system of disclosure.

Bear in mind that a geological or mineral resource is not an economically proven orebody. It has to be moved up to the reserve category, typically by drilling , followed by pre-feasibility and feasibility studies to be considered economically viable. Mineralized rock is only considered to be ‘ore’ if it can be mined at a profit.

Sometimes a mineral property may have resources or reserves that were calculated many years ago, perhaps in a foreign country. In these cases, the company must disclose that these resources or reserves must be considered as historical resources and do not comply with NI 43-101 standards. This means the investor cannot rely on these numbers to evaluate the company’s mineral assets; however, the old numbers are valuable in that they support the premise that there is a significant mineral deposit present. It is up to the company to upgrade the historical figures to comply with the new reporting regulations. What are called ‘step-out’ holes will define the extent of the deposit, while ‘in-fill’ holes will determine the continuity of grade.

When the company has released resource or reserve figures, its share price is susceptible to the ups and downs of its particular mineral commodity.

In addition to delineating its mineral deposit, the company will probably undertake metallurgical studies to determine the recoveries of metal from its mineralized rock. There are a number of chemical and physical factors that come into play, but basically, if the metal cannot be extracted economically, there won’t be a mine.

At this stage in an exploration company’s life, the release of a substantial resource or reserve estimate can positively affect its share price. While these figures can only be considered as a rough guide, it does help in figuring out what the company’s value should be – see Example 1.

Example 1 represents the in situ (in the ground) value of metal and does not take into account any dilution during the mining process, that is, the cost of removing waste rock, metal recovery percentage, cost of diesel fuel and other expenses. In an open pit mine, there is the strip ratio with which to contend – how much overburden and waste rock must be removed to get at the mineral deposit? Don’t view the final figure as a real value. All it tells you is that the company does have a substantial resource. The per share basic valuation is, therefore, just a ‘ballpark’ figure predicated on a rough rule of thumb of a conservative 5% of the gross metal value. The 5% is usually used for base metal project evaluations; however, gold project evaluations sometimes use a higher figure.

 Keep in mind that investors and mining analysts like large tonnage mineral deposits as opposed to small vein-type deposits, so look for projects that have potential to expand resources. A press release might say that “the deposit remains open along strike and to depth.”

It’s a good idea to become familiar with the common types of mineral deposits and their implications, for example, vein, porphyry, skarn and volcanic massive sulphide (VMS) deposits. Vein deposits often have high grades with low tonnage, while porphyries and VMS deposits have large-tonnage, low-grade deposits. Skarns can be any size and shape with quite variable grades. Therefore, the investor is looking for high grades in vein deposits which, by their nature, are usually not too wide. However, the lower grade porphyries have got to have substantial widths in the tens if not hundreds of metres for drill results to be considered favorable.

Generally speaking, an open pit mine needs at least 0.8 grams gold/tonne (0.023 oz/ton) over several hundred feet to be economic. Underground mines need considerably higher grades – usually over 5.0 grams gold/tonne (0.148 oz/ton) over a mineable width – since underground mining costs are much higher than open pit mines. The economic threshold for underground mines also depends on how deep the orebody is and its geometry.

When evaluating diamond companies, the evaluation criteria are somewhat different. Metals such as gold and copper are elements – they are what they are – however, there are literally thousands of categories of rough diamonds because their value depends on clarity, colour and weight (carats), inclusions, etc. Therefore, diamond reserves are based on the value per carat per hundred tonnes.

Uranium projects are similar to base metal projects. The investor looks for good values over reasonable widths. Outside of the Athabasca Basin of Saskatchewan, where uranium grades can range up to 20% U3O8, most other projects will have much lower grades; however, those can still be economic. Like other metal projects, uranium projects can be evaluated on the value of the rock per tonne.

Feasibility Stage Companies

Companies that have defined a significant mineral deposit still won’t know if a mine can be financed and built until it completes a feasibility study. Hopefully, the company will have completed a preliminary economic assessment (scoping study) or a pre-feasibility study earlier. If these initial studies are favorable, one can have more faith the project will be successful.  In other words, the project has been somewhat de-risked.

In a formal feasibility study, engineers will take into account drill results (length of intercepts and grade), the size and shape of the deposit, availability of electric power and water, road, rail and/or tidewater access, availability of skilled labor and the location of the project. Mining projects in the Arctic will need higher grades to be economic as compared to similar projects in the south.

This stage can be a nerve-wracking experience for both the company and its shareholders. A recent feasibility study of a junior company was not viewed as positive by investors and the company lost 2/3 of its share value in one day. Many things come into play when an independent consultant prepares a feasibility study, including information an investor would not be aware of. This would include the geometry of an ore deposit. If an orebody is horizontal or vertical in shape, the mining process is straightforward; however, if the orebody is odd-shaped, this can greatly increase the cost of mining. In addition, metallurgical test results must also be incorporated in to the study, the cost of flying or trucking in diesel fuel, the cost of building a permanent camp, the cost of power, and so on.

With a feasibility study in hand, the investor can now carry out a more accurate evaluation of the company – see example 2, 3 and 4.

The calculated figures in examples 2, 3 and 4 work well for base metal companies; however, gold projects tend to be more of a ‘hybrid’ in that more weight is often given to how many ounces of metal are in the ground. Another important figure is the Internal Rate of Return (IRR). The IRR represents the life-of-mine cash flow coupled with the capital investment. A project with an IRR of 30% to 35% would be a financially robust operation. Also, look for projects with a capital investment payback of two to three years, which also indicates a financially robust operation.

Producing Mining Companies

The only category of mining companies that can be evaluated like other industrial companies are those companies that actually produce a commodity and generate revenues.  For example, gold producers must be assessed according to how much gold they produce, all-in cash costs, cash flow, net present value of estimated future cash flow, the payback of capital invested, remaining gold reserves and exploration potential and the price-to-earnings ratio.

The value of a producing mining company is affected by both internal and external factors. Internally, the company’s bottom line can be affected by processing lower or higher grade ore, by the shape of the mineral deposit that might result in dilution of good ore with waste rock, unwanted or environmentally unfriendly metals in the mineralized rock for which the company has to pay a penalty to the smelter, labor problems, etc. Increasingly, what is called social license must be obtained. If the local community hates a mining project or environmental stewardship is ignored, the project probably won’t go ahead.

External factors that can affect profitability include the rise and fall of commodity prices, the rise and fall of domestic vs. foreign currencies, civil strife and warfare as well as nationalization of natural resources by the government. Trouble spots in the world can also have an effect on gold companies since the price of gold is sometime sensitive to global events.

For calculating the share value of a producing mining company, use the methods outlined in examples 2 and 3 – only this time you will be using real numbers generated by mining operations instead of figures estimated in feasibility studies.

Another common method of evaluating producing mining companies is to conduct a comparative analysis, which is, comparing your company of interest with other similar companies in order to discern if it is undervalued as compared to its peers. All of the evaluations we have covered may be influenced by where the metal of interest is, in its natural price cycle.

One might think that with all the challenges that mining companies face each day, it’s a wonder that any of them are successful. Yes, the mining industry is full of risks, but it is also full of opportunities for the investor. After all, even though most mining projects started out as long shots, enough have been successful to build a huge industry that supplies the world’s needs for mineral-based products, while employing tens of thousands of mine workers, as well as creating many related jobs in service industries.

Other Factors

When evaluating mining companies, other factors come into play. These may include mass psychology, or market sentiment. Don’t underestimate the power of mass psychology.  Sometimes investors are like a flock of birds flying in unison. This ‘herd mentality’ can drive share prices to unreasonable highs or absurdly low values.

With rising commodity prices and a great demand for minerals, a bull market in mining stocks can develop.  On the other hand, the mining bear market from 2012 to late 2015 resulted in mining stocks falling so out of favor that even great companies had ridiculously low shares prices. Investors shunned mining stocks even if the fundamentals were solid.  It is certainly more fun to ride a wave of optimism where the trend is your friend propelling share prices higher than it is to fight against negative market sentiment.

The first half of 2016 saw a welcome recovery in mining stock valuations. As of late 2016, mining stocks are wavering; however, there are a number of favorable basics that could indicate the bull will return such as increasing demand for various base metals (zinc, for example) and industrial minerals (lithium, graphite, zeolite).

Don’t forget that a particular uptrend will eventually see a correction. Share prices may go up in the long-term, but there are always corrections. An investor may want to sell if things are looking ‘toppy’ and re-buy after the correction.

Another aspect to understand is just how your company of interest is going to increase shareholder value and its stock price. A company needs a logical and reasonable objective with its corporate and exploration plans going forward.

It helps to get arithmetic on your side. It is easier for a 50 cent stock to go to $1.00 than for a $2.00 stock to go to $4.00. In addition, you will make more money with the 50 cent stock because, being only 50 cents, you can buy a larger number of shares.

This doesn’t happen too often, but I am wary of companies where management pays themselves salaries that are far too high. Sometimes these salary figures are buried in the back of annual reports. It is hard enough to raise exploration funds, and the last thing an investor needs is management that milks the company’s treasury to support an extravagant lifestyle. This money should go into the ground.

A final word – timing is extremely important. Even if an investor has identified a good stock, it is better to buy a bad stock at a good time than a good stock at a bad time.


Here is the coupon code that entitles a subscriber to a 1 year complimentary subscription to the online edition of Resource World Magazine:

Coupon code: 92C4FA


Ellsworth Dickson co-founded Resource World Magazine in 2002. A graduate of the Haileybury School of Mines, early in his career he worked in the geology departments of a silver-cobalt and copper mine as well as in structural geology for an engineering company. After learning the publishing business as a part owner of the North Shore News, Mr. Dickson became a mining journalist in 1983 and was editor of World Investment News in the late 1980s and the George Cross Newsletter in the 1990s.

Resource World Magazine reports on the business of mining, oil & gas, green technologies and the events that affect these sectors. The magazine provides a platform to profile companies on a non-advertorial basis while its non-paid editorial policy is integral to the success of Resource World Magazine. The magazine provides readers with an objective perspective and relevant, timely information and is committed to its policies of journalistic integrity and remains a reliable source for information about the resource sector.