Comstock Mining Offers Enormous Upside For Gold Bulls

Comstock Mining (LODE) is a high risk/high reward gold producer with a market capitalization of $107 million (with a fully diluted market capitalization of roughly $217 million).

Recently, while gold mining companies have plummeted in value, Comstock Mining‘s share price has held up incredibly well. Consider the following two charts. The first is of Comstock Mining since the summer of 2010. The second is Comstock Mining in terms of the Market Vectors Junior Gold Miner ETF (GDXJ) over the same time frame.

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(click to enlarge)

In this article I give a detailed analysis of Comstock Mining from which it becomes evident that the company’s strong stock performance is justified.

1: Company Overview

Comstock Mining holds a single property in Nevada on which it holds eight projects in various stages of the mining cycle (exploration, mine development, production). The company commenced production on its Lucerne mine in the second half of 2012. Production is limited to 20,000 ounces in 2013 but it is expected to increase over the next couple of years. The company also expects to build a mine at the Dayton resource area on its property that it plans to have in production starting in 2015. The rest of the property is comprised of several regions that all have exploration potential, although investors should not expect production in these regions for several years.

2: The Numbers

Comstock Mining appears to be relatively expensive when compared to other small mining companies using many key metrics. This reflects investors’ confidence in the company’s ability to extract its gold out of the ground profitably. It also reflects investors’ confidence in management’s ability to explore the Comstock property successfully and to find more gold.

A: Resources

Currently the company has roughly 3.2 million ounces of gold equivalent resources (some of this is silver expressed in gold equivalent ounces), which means that the company is valued at roughly $33 per gold equivalent ounce, or about twice that looking at the fully diluted market capitalization.

The company intends to grow its resources through exploration to nearly 5 million ounces of gold. While this may appear to be a vacuous claim (every mining company with an exploration budget can make a similar claim) Comstock Mining‘s management has a proven exploration track record, having grown its resources to 3.2 million ounces as of January, 2013 from around 1 million ounces since May, 2010. Most of these resources are located in just two of eight regions on Comstock Mining‘s property, and so it wouldn’t be surprising to see the company’s reserves exceed its 5 million ounce goal over the coming years.

B: Production

Comstock’s Lucerne mine began production in 2012. As a small company with only one producing mine, Comstock’s production is currently rather small compared to its current market capitalization at an estimated 20,000 ounces in 2013. However the company expects production to grow rapidly over the next couple of years, especially once its Dayton mine goes into production in 2015.


Silver cheapest in comparison to gold for two-and-a-half years and prices rose faster than gold last week

‘Should I be buying silver now? No I will wait until the stock market tanks and silver becomes even cheaper.’ This is a fairly typical comment from an ArabianMoney reader these days. The problem with following the lazy consensus, as any good contrarian investor knows, is that it is frequently wrong.

Why’s that? Well for one thing it means too many people sit on one side of the trade and not enough on the other, so the tendency is for a small movement to produce disproportionate price swings. Spot the legendary volatility of silver as an asset class.

Silver very cheap

So is silver cheap at the moment? One measure is the number of ounces of silver you need to buy an ounce of gold. It is almost 62 at the moment compared with around 50 earlier this year. That means you are getting a 20 per cent additional discount on silver on top of the $500 you are getting off gold’s recent all-time high.

But will silver become even cheaper if the US stock market finally takes a big correction? The nine per cent inter-day crash in the Japanese stock exchange last week certainly made this no mere theoretical possibility any longer. Gold prices actually bounced by 2.1 per cent last week and silver by five per cent.

You might expect a rush of money back into precious metals in a financial crisis. But this did not happen in 2008-9 when silver took a massive plunge to $9 an ounce and gold prices fell by a third. Understandably the fear of recent history repeating itself is engraved on the minds of many investors.

New normal?

Of course who is to say that we will get a repeat of 2008-9 in global financial markets. Certainly central bank liquidity is stacked against it and bank balance sheets are in much better shape. What we might see instead is something far more like a normal correction in an overbought stock market, and that could be gold and silver positive as we saw last week.

Certainly master-investor George Soros seems to already be there with his massively risky punt on the junior gold stocks ETF that we revealed on this website last week (click here). He is extending his risk on gold with GDXJ. You could achieve similar leverage to the gold price by buying silver now.

Silver prices are leveraged to the gold price and go up and down faster. That would make a two-and-a-half year low in the gold:silver ratio look a buying opportunity. The next issue of the ArabianMoney investment newsletter (click here) will have more proprietary information for our paid-for subscribers who we have to serve first.


No Bear Market In Gold. “Bullish Sentiment” in the Market for Physical Gold Bullion

You know that gold bear market that the financial press keeps touting? The one George Soros keeps proclaiming? Well, it is not there. The gold bear market is disinformation that is helping elites acquire the gold.

Certainly, Soros himself doesn’t believe it, as the 13-F release issued by the Securities and Exchange Commission on May 15 proves. George Soros has significantly increased his gold holding by purchasing $25.2 million of call options on the GDXJ Junior Gold Miners Index.

In addition, the Soros Fund maintains a $32 million stake in individual mines; added 1.1 million shares of GDX (a gold miners ETF) to its holdings which now stand at 2,666,000 shares valued at $70,400,000; has 1,100,000 shares in GDXJ valued at $11,506,000; and 530,000 shares in the GLD gold fund valued at $69,467,000. [values as of May 17]

The 13-F release shows the Soros Fund with $239,200,000 in gold investments. If this is bearish sentiment, what would it take to be bullish?

The media reports that Soros had sold his gold holdings came from misinterpreting the reason Soros’ holdings in the GLD gold trust declined. Soros did not sell the shares; he redeemed the paper claims for physical gold. Watching the gold ETFs, such as GLD, being looted by banksters, Soros cashed in some of his own paper gold for the real stuff.

The giveaway that Soros is extremely bullish on gold comes not only from his extensive holdings, but also from his $25.2 million call option on junior gold stocks. This is a highly leveraged bet on the weakest gold mines. With high production costs and falling gold price from constant short selling in the paper market, Soros’ bet makes no sense unless he thinks gold is heading up as the short raids concentrate gold in elite possession.

In previous articles I have explained how heavy short-selling triggers stop-loss orders and margin calls on investors in gold ETFs. Scared out of their shares or forced out by margin calls, investors’ add to the downward price pressure caused by the shorts. Bullion banks and prominent investors such as Soros are the only ones who can redeem GLD shares for physical metal. They purchase the shares that are sold in response to the falling gold price, and present the shares for redemption in gold metal.

Insiders familiar with the process describe it as looting the ETFs of their gold basis.

In my last column I described how the orchestration of a falling gold price in the paper market protects the dollar’s value from the Federal Reserve’s policy of printing 1,000 billion new ones annually. The other beneficiary of the operation is the financial elite who buy up at low prices the ETF shares sold into a falling market and redeem them for gold. Like all other forms of wealth in the West, gold is being concentrated in fewer hands, while the elite shout “bear market, get out of gold.”

The orchestrated decline in gold and silver prices is apparent from the fact that the demand for bullion in the physical market has increased while short sales in the paper market imply a flight from bullion. As a hedge fund manager told me, it is a Wall Street axiom that volume follows price. Bull markets are characterized by rising prices on high volume. Conversely bear markets feature declining prices on low volume. The current bear market in gold consists of paper gold declining steadily while demand has escalated rapidly for physical metal. This strongly indicates that demand for physical gold continues to be in a bull market despite the savage attacks on paper gold.

If the orchestration is apparent to me, a person with no experience as a gold trader, it certainly must be apparent to federal regulators. But don’t expect any action from the Commodities Future Trading Corporation. It is headed by a former Goldman Sachs executive.

And don’t expect any investigation from the financial press. The financial press sees a bear market while supplies of bullion decline, premiums over spot rise, and even publicly declared bears such as George Soros make highly leveraged bets that will fail in the absence of a bull market in gold.