Tuesday, September 20, 2011

This Is Why We LOVE Mining Stocks

Especially the ones that are really well-managed:   Hecla Mining announced today that it is going to set its quarterly dividend payout policy based on the average price of silver realized by the Company during the quarter.  Here's the formula they will use:  LINK  This is a huge statement about Hecla's confidence in their ability to continue growing their business (find new resources) AND their ability to manage their operations efficiently.  Further, yesterday Newmont announced that it will link its dividend payout to the price of gold AND the CEO said he thought the price of gold would keep rising.  And today, at the Denver Gold forum, Eldorado Gold announced a formula that would keep its dividend yield at 2%.  Expect that this will become a trend for the sector.  This is the kind of dividend policy every company should implement.

But for me, and even more important to my investment thesis for holding the majority of my net worth in metals and mining stocks, is what this action portends for the industry as whole.  Since most people do not study history, you should know that back in the 1930's, Homestake Mining - one of just a few publicly-held mining companies - saw its stock price go from $80 in 1929 to $495 in 1935.  It also eventually paid out as much as $56 per share in dividends by 1935, including several monthly special dividends.  How many of you own tech stocks or beloved industrial stocks that have dividends yielding 11% or have a 70% dividend/cash flow payout ratio?  LOL (that's strictly a rhetorical question).

Of course I don't expect history to repeat exactly like this, but I do expect that the large cap mining companies that want to see their stock price really appreciate in price will soon follow Hecla's lead.  I also expect that over the next few years we will see many of these stocks begin to have large dividend payouts and will be core positions in many mainstream mutual funds.  I will leave it to your imagination to think about what this will do to the stock prices of the large caps. 

In other words, I expect that the price gains experienced in the 1930's by mining stocks like Homestake will be dwarfed by the gains we will see in the sector this time around.  Just think about how many trillions in excess money supply are sloshing around the world's financial system now vs. back in the 1930's, when currencies were directly linked to gold...


  1. London Trader - Massive Physical Floor in the Gold Market

    With gold hovering near the $1,800 level, a trader out of London told King World News, “China is trading gold at a $17 premium today vs COMEX futures. Silver is trading at a premium of $2.48 vs futures price (COMEX). What this tells you is that these people in China are willing to pay the equivalent of roughly $12,500 more per contract than what silver is being traded for on the COMEX.”


  2. What's your opinion on aumn? Are you holding after the merger?


  3. (Dave)

    I think this merger could be really good for ECU. A professional management has been put in place and their emphasis will be on getting Valerdena up to production as quickly as possible before they continue drilling for the deep stuff. The Argentina property AUMN brings to the table could be very interesting based on drilling results so far and AUMN has nearly $100mm in cash. AUMN is not w/out risk but it could also be a home run.

  4. At least we're starting to understand how certain desks used to go without a losing day...

    So We No Longer Need NBBO, Right?

    Let's make sure everyone understands what's being talked about here - there were trades executed on quotes that hadn't yet occurred.

    Or at least this is what the timestamps represented.
    So, what's going on here? Well, there are a couple of possibilities. Some of them are truly sinister. For example, the entire quote system may no longer give quotes to all the people at the same time, and thus the premise that you're trading against a fair market is a total farce. Your quotes go in front of or behind others, and others trade in front of or behind you. What's worse that activity could be happening selectively when it's bad for you and good for someone else, and there's no way for you to know!

    The SEC won't stop this crap as is quite clear from the facts over more than a year's time so what options do you have left?


  5. Dave,

    With all due respect, I object to the use of the term "professional management" when a certain ECU employee is serving as president of the merged company. I am a long suffering ECU shareholder, and nothing much will change as long as he remains an officer. Companies of this nature can only be successful if the right people are in place to guide them. The current president was over his head at ECU and will certainly not fare any better in a company twice the size.

  6. (Dave)

    Which ECU employee is serving as President? Steve Altmann? If you read the news, you will know that Altmann is stepping down and leaving.

    Read the 5th paragraph: http://finance.yahoo.com/news/Golden-Minerals-ECU-Silver-iw-2956149130.html?x=0

    I'm very encouraged that Altmann is leaving because I thought he was incompetent. My understanding from someone who met with Jerry Danni at a recent conference in Beaver Creek is that AUMN guys thought ECU was run like a mom and pop operation, which i agree with, and will benefit hugely from a more structured, experienced managerial team.

    I invite you to research the backgrounds of the O&D's of AUMN to verify that for yourself.

  7. That is great news about Altmann!!! I obviously did not read that press release too carefully when it came out. I feel much more optimistic now. Thanks for the heads up!

  8. Isn't Hecla a dog? I dont follow it much but i heard they just print stock all the time. And it's had a 7 handle since forever...

  9. (Dave)

    re HL: shows what happens when you guy by what you "hear." HL is one of the better run mining companies out there. The current management has turned HL into a cash flow generator. It's one of the largest silver producers in the world. I can't remember the last time they issued shares. On the next leg up in silver/mining stocks, I expect HL to do a moonshot.

    PAAS and CDE are not well run silver mining companies. HL is.

  10. LBMA campaigns for gold to be Tier 1 asset for banks under Basel III

    Tier 1 gold

    However, the Basel III initiative is highly significant too because it would trigger a far wider use of gold within the banking system, not quite a return to the gold standard but the next best thing as far as demand for the yellow metal is concerned.

    Presently Tier 1 assets include government bonds such as Greek bonds and a widening of Tier 1 to include precious metals is seen as a way of shoring up confidence in the banking sector with assets that do not require official rating because there is zero counter-party risk.

    The Chinese central bank has openly called for gold to be a part of a basket of assets used to support a new super-currency from the IMF, another indication of mounting support at the highest levels for giving a greater role to gold in the global economy, and complained about the ongoing gold price suppression in cables revealed by Wikileaks (click here).


  11. Lloyd’s of London Pulls Deposits From European Banks as Confidence Withers

    Lloyd’s of London, concerned European governments may be unable to support lenders in a worsening debt crisis, has pulled deposits in some peripheral economies as the European Central Bank provided dollars to one euro-area institution.

    “There are a lot of banks who, because of the uncertainty around Europe, the market has stopped using to place deposits with,” Luke Savage, finance director of the world’s oldest insurance market, said today in a phone interview. “If you’re worried the government itself might be at risk, then you’re certainly worried the banks could be taken down with them.”
    Lloyd’s, which holds about a third of its 2.5 billion pounds ($3.9 billion) of central assets in cash, has stopped depositing money with some banks in Europe’s peripheral economies, Savage said, declining to name the countries or institutions.

  12. Elizabeth Warren On the US Deficit Problem and Fair Taxation


  13. Wednesday, September 21, 2011
    Bill Black: Why do Banking Regulators bother to Conduct Faux Stress Tests?

    By Bill Black, an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from New Economic Perspectives

    One of the many proofs that banking regulators do not believe that financial markets are even remotely efficient is their continued use of faux stress tests to reassure markets. But why do markets need reassurance? If markets do need reassurance that banks can survive stressful conditions, why are they reassured by government-designed stress tests designed to be non-stressful?

    Stress tests were first mandated for Fannie and Freddie by statute. Fannie and Freddie’s managers referred to them as “nuclear winter” scenarios – impossibly unlikely and stark disasters. The managers used the ability of Fannie and Freddie to pass the stress tests as proof that the institutions were safe and so well capitalized that they could survive even a lengthy depression. In reality, Fannie and Freddie had exceptionally low capital levels. Fannie and Freddie met their capital requirements under a newly toughened version of the statutory stress test weeks before they collapsed and were revealed to be massively insolvent.

    AIG passed its stress test immediately before it failed. The three big Icelandic banks passed their stress tests shortly before they were revealed to be massively insolvent. Lehman passed its stress tests. The stress tests ignored the actual primary causes of losses and failures – extreme losses on fraudulent liar’s loans and CDOs.

    For my sins, I read every one of FRBNY President Geithner’s speeches discussing regulation. Geithner is a one-trick pony. His answer, to everything, was stress tests. He claimed that the largest banks had developed advanced, proprietary stress tests that provided ever increasing assurance that they were safe and well-capitalized. The crisis revealed that the models and the safety were illusory.


  14. The land of milk and money...

    Bipartisan corporatism
    Class war!

    Sep 20th 2011

    Mr Obama claims to be on the side of the working and middle-classes, but I would submit that this sort of tax policy is in fact trivial. It's electoral public relations. The edges are precisely what this sort of thing is around. Our economy is riddled with a multitude of deeply-embedded structural flaws that allow the well-connected to enrich themselves at the expense of the rest of us, but nobody will do anything about it. There is a class war in this country, a war between the subsidy barons, the regulatory arbitrageurs, the patent monopolists and the rest of us. Mr Obama is a class warrior. The trouble is he's on the wrong side.

    One wants to have faith in one's fellow man, but when someone is charged with overseeing the redistribution of billions upon billions of dollars to banks and insurers no doubt staffed by people he knows, one might worry that prior business relationships, and the prospect of highly remunerative future relationships, might skew his decisionmaking, especially if he is left almost entirely free from public scrutiny.


  15. Suck It Up Warren - Moody's Downgrades Bank Of America From A2 To Baa1


    If you find yourself alone, riding in the green fields with the sun on your face, do not be troubled. For you are in Elysium, and you're already dead!


  16. uh oh

    Cornel West "Escalating Civil Disobedience Is Necessary To Wake The Country Up!"


  17. (Dave)

    Man, Cornel West isn't real is he? I always thought he was the product of a bad LSD trip...

  18. (Dave)

    Cornel West is the perfect example of why pregnant women should not do meth.

  19. Greetings Dave,

    It is important to note that Homestake was an exception to the rule for gold stocks in the 1920's and 1930's.

    In the following link (http://www.newlowobserver.com/2010/10/homestake-mining-exception-that-proves.html) we show the price history of Homestake from 1920 to 1940. Additionally, we provide the history of stock splits for the company. Homestake was actually the only gold stock that managed to trade up from 1924 to 1932. All other gold stocks actually crashed during that same time period. Our sources for this information are detailed in the article.

    The price action of 95% of the gold and silver stocks from the peak of 1924 to the bottom in 1932 was dramatic. All stocks in this category crashed in price as represented in the article at the following link (http://www.newlowobserver.com/2010/09/on-brink-of-secular-bull-market-in.html). The companies are named and the sources are cited for those who wish to examine the data on their own.

    While we believe that we're on the cusp of a superbull market in gold, more specifically silver, it would be helpful to represent the history of Homestake in relation to the other gold and silver stocks trading at the time.

    Hopefully this will remain on your site to enlighten those interested in the history of gold and silver stocks.


  20. (Dave)

    NL, with all due respect, there were only a few mining stocks listed on exchanges back in the 1920's. Homestake is analogous to one of several large cap mining companies today. In fact, I believe that ABX now owns the assets that were once Homestake.

    With regard to your "secular gold bull market" post. I see the date is 2010. This bull market started in 2000, so you are a bit late with that call.