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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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.

Source: http://seekingalpha.com/article/1518092-comstock-mining-offers-enormous-upside-for-gold-bulls

Are Gold Miner Dividends Sustainable?

Although the gold price has proved volatile in recent months, many gold miners continue to offer investors an attractive dividend. But is it sustainable?

For investors looking for a dividend from the large cap gold miners, the last decade and a half has proved fruitful. Frank Holmes, CEO and chief investment officer of US Global Investors, recently noted that the world’s top 20 gold companies have increased their dividends at a compound annual growth rate of 16% over the last 15 years, while gold only rose 12% annually over the same period.

At the moment, Barrick Gold’s (NYSE:ABX) dividend yield is 3.90%, while Goldcorp’s (NYSE:GG) dividend yield is 2.07%, Newmont Mining Corp.’s (NYSE:NEM) dividend yield is 4.09%, and Kinross’s (NYSE:KGC) dividend yield is 2.48%.

The miners themselves were optimistic about dividends heading into this year. According to PwC’s 2013 global gold price report, 100% of senior miners surveyed planned to use cash to continue to pay dividends this year, with 80% saying that they planned to increase the proportion of profits paid as a dividend.

Indeed, speaking about the climate for M&A in the gold space at the Bloomberg Canada Economic Summit last month, Barrick Gold president and chief executive officer Jamie Sokalsky said that investors are hoping for free cash flow, which he said they would perhaps rather see “returned to them in a higher dividend at some point.”

All else being equal, dividends from the gold miners do help mining equities look more attractive to gold ETFs, explains Elizabeth Collins, director, basic materials equity research at Morningstar.

“But unfortunately for gold mining equities, gold ETFs provide leverage to gold prices without the added headaches of cost inflation, production level disappointments, and political risk,” she adds.

This week, Australia’s Newcrest Mining (ASX:NCM) announced that, as a result of a reduction in profitability for the 2013 financial year following a sharp decline in the gold price, it expects that it will not pay shareholders a final dividend.

The company notes that as growth in production and earnings continues from two of its mines over the coming years, and costs and capital expenditures are reduced further, it “is confident it will be well-positioned for both an accelerated reduction in debt levels and a return to dividend payments.”

Back in April, Newmont Mining — which uses a gold price-linked dividend policy, with each quarterly dividend based on the company’s average realized gold price for the preceding quarter — cut its dividend to $.35 per share, based on the average London PM Fix of $1,632 per ounce for the first quarter of 2013. In February, the company’s quarterly dividend was 42.5 cents per share based on the average gold price of $1,718 per ounce for the fourth quarter.

Certainly, the ability of many miners to continue to pay an attractive dividend depends on the gold price’s moves. Earlier this year, RBC Capital Markets ran a “downside stress test” on North American gold producers, to see how robust miners’ balance sheets are. While the test found that most of the companies appear to be able to weather gold prices of $1,500 or $1,4000 per ounce, at $1,200 per ounce, within 24 months most companies would have to cut capital spending and dividends.

“I think many gold miners’ dividends are sustainable as long as gold prices don’t fall. Many miners are cutting back on exploration and capital expenditures in order to boost free cash flow and return more cash to shareholders. However, many gold miners’ dividend levels are either directly or implicitly linked to gold prices. So if gold prices fall, so too would dividend levels,” says Collins.

Source: http://www.minyanville.com/trading-and-investing/commodities/articles/GG-NEM-ABX-KGC-NCMAX-gold/6/7/2013/id/50235

Gold, Stocks, Oil and Gas Trend Analysis and Trading Signals

Gold and gold miner stocks have underperformed in 2012 disappointing most traders. That being said it has traded in a large sideways range since September 2011 and remains stuck in this range as of this week. Investments trading sideways are not my preferred investment of choice because some commodities and stocks for that matter can trade sideways for years before making another bull market rally.

That being said in the last six months gold has started to show life that a new bull market may be starting. 2013 is starting to look as though gold, silver and precious metals miners could lead the market higher if they can break out of their basing patterns. Until we get more bullish price action I am not planning to get long.

Take a look at the gold ETF and Gold Miner charts:
These daily charts show the trend (up/down) along with short term extreme overbought/oversold trading days. The key to long term success is to trade with the trend 90% of the time. Only years of experience will you know when it’s ok to break the rules and even then the odds are stacked against you.

Gold Weekly Chart:

Gold Daily Chart:

Gold Miners Daily Chart:

SP500 Stock Market Analysis:
The last five years I have been fine tuning my SP500 index trading with the use of cycles, sentiment, volume, momentum and the volatility index. Until just recently some of the data I use for generating these extreme overbought/oversold conditions were only available after the market closed. This made the high volatile trading sessions difficult to truly know if an extreme level was reached during the trading session. The exciting news is that a new data feed and a top notch programmer is allowing me to turning this once manual calculation of 17 data points taking me an average of 25 minutes to figure out into a system that generates signals in real time complete with profit taking signals, tend direction and a protective stop which self-adjusts depending on the market volatility and cycle stages.

Two other benefits are that during extremely high volatility levels and mixed cycles the system does not generate any signals. This allows us to avoid the large daily swings in price that typically shake even the most seasoned traders out of the market for repeated losing trades. Also during potential trend changes when cycles and volatility become choppy trading signals are not generated helping to avoid the volatility that takes place during reversals points when the bulls and bears are pushing each other around.

Below is a very basic version of the trend and signals for the SP500 index as it does not show profit taking, trend reversal stops or protective stops for individual swing trades yet, but it’s coming soon.

Crude Oil Weekly Chart:
Crude oil has been making a move higher in the past four weeks but it’s now testing resistance and the chart shows a high volume doji candle. This is pointing to a pause or pullback in price should take place.

Natural Gas Weekly Chart:
Natural gas futures have been under pressure the past couple months but it may have put in a bottom last week. The daily and 60 minute charts show strong buyers stepping in here.

Weekend Trading Conclusion:
In short, gold and silver remain in a sideways/down trend on the daily chart. The weekly long term outlook is very bullish and once I start to see real buyers enter the market in terms of volume and price patterns I will start to accumulate a long position.

The stock market overall remains in an uptrend. We are waiting for a pause ro pullback before getting long the index. But that being said there are other sectors and commodities starting to look ripe for big moves. They are not there yet but getting closer each day.

Keep in mind that stocks, commodities and trading in general go in waves. There are times when you are busy with trades popping up left right and center and there are times when setups just do not happen. On my free stock charts watch list in November and December I posted 16 stocks and ETF setups and only one stock went south which happened to be a short trade (count trend trade). You can view my watch list here for more info: https://stockcharts.com/public/1992897

Crude oil is giving mixed signals and I am avoiding it until the daily chart gives us a bullish setup.

Natural gas weekly chart looks bullish but the current price is now trading at resistance. It must break this level before a full reversal can be confirmed.

If you would like to keep up to date on market trends and trade ideas be sure to join my newsletter at http://www.thegoldandoilguy.com

By Chris Vermeulen
Please visit my website for more information. http://www.TheGoldAndOilGuy.com