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Rubicon Minerals Corporation Message Board

  • wolfman_jack_8830 wolfman_jack_8830 Sep 14, 2011 8:16 PM Flag

    Gold equities better than the metal

    From Eric Sprott

    "In many of the funds we manage at Sprott, we’ve transitioned out of gold bullion and into gold equities to better participate in the continuation of the trend indicated above. As long-time investors in this space, we can assure you that the production growth rates will be significantly higher in the junior stocks. They continue to trade at discounted valuations, and we believe they offer the best opportunity to build exposure. Margin expansion is the key metric for this industry, and the market is now acknowledging the miners’ improvement in margin capture – which has occurred despite the increase in capital and operating costs. We meet with a large number of gold mining management teams on a weekly basis, and based on those meetings, it appears that the average cost of producing an ounce of gold today, all in, is now around $800. At $1,200 gold, these companies can capture roughly $400 in EBITDA. At $1800 gold, however, they’re now capturing $1,000 per ounce in EBITDA - representing an increase of 150% in profit margin. That is significantly far above what any other equity sector has been able to generate over the past year. Amazingly – despite this new reality for gold producers, we are still finding opportunities in select gold and silver mining companies that can be purchased today at 2-3 times their 2-year-out forecasted cash flow. These multiples are based on the current gold and silver spot price, and if these companies hit their production targets, and gold and silver continue their appreciation – we may discover that these stocks were trading at less than 1 times 2-year-out cash flow today. Having been in the business for many years, we can tell you that investing in a stock at 1 times 2-year-out cash flow tends to be a winning proposition – let alone in an industry that literally mines the world’s reserve currency out of the ground."

    http://www.zerohedge.com/news/sprott-shifts-gold-bullion-gold-stocks-explains-why

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    • Having read the paste, I would suggest that your conclusion is baseless. Which is "better" for any individual is wholly dependant upon a myraid of factors. I think what Eric is saying is that he expects miners to outperform bullion. I agree, however I have not yet seen that trend develope sufficiently for me to see an advantage over bullion, in consideration of the current fissures in the global financial structure. Which IMO represent high risk. Remember that each indiviudal has his or her own risk tolerance, a consideration that NO asset evaluation or investment conclusion should ignore.

      b.

      • 1 Reply to bogfit
      • No, Boggsfrt, the best investment for anyone is the one that returns the greatest percentage of gains over the term of the investment. You're putting style (methodology) over substance (results) in an easily verfiable test and I have no doubt some stocks, like Ruby, will indeed outperform the metal. And that's why I came here tonight with a banjo on my knee and a song in my heart for the readers here, as recorded by DION.

        Ah, now said I love a girl and-a Ruby is her name
        Hear me talkin' now
        This girl don't love me, but I love 'er just the same
        What'd I say, whoa, oh, oh, oh, oh
        Ruby, Ruby, I'm-a want ya
        Like a ghost I'm-a gonna haunt ya
        Ruby, Ruby, Ruby will you be mine, sometime

        Ah, each time I see you, baby my heart cries
        Ah, it does, Ruby
        I tell ya I'm gonna steal you away from all those guys
        Are they wise
        Whoa, oh, oh, oh, oh, from the happy day I met ya
        Now I made a bet that I was goin' to get ya
        Ruby, Ruby, Ruby will you be mine?
        Hear me talkin', in time, now

        Hey-hey, Ruby, Ruby, Ruby, baby
        Hey-hey, Ruby, Ruby, Ruby, baby
        Hey-hey, Ruby, Ruby, Ruby, baby
        Hey-hey, Ruby, Ruby, Ruby, baby
        Come to me, now
        Hey-hey, oh, oh, oh, oh
        Gonna get ya
        Hey-hey, Ruby, Ruby, Ruby, baby
        Well, I tell ya

        Now I love this girl, I said-a Ruby is her name
        Believe me, now
        When this girl looks at me she just sets my soul aflame
        Doncha know, whoa, oh, oh, oh, oh
        I got some hugs and-a kisses too
        Yeah and now I'm gonna give-a them all to you
        Now, listen, now Ruby, Ruby, when will you be mine
        Gonna get you sometime, Ruby

        Hey-hey, Ruby, Ruby, Ruby, baby
        Hey-hey, Ruby, Ruby, Ruby, baby
        Hey-hey, Ruby, Ruby, Ruby, baby
        Hey-hey, Ruby, Ruby, Ruby, baby
        Hey-hey, oh, oh, oh, oh

        Ah listen, listen, listen, now
        Ruby, Ruby, Ruby, Ruby will you be mine
        Ah, in time, everybody now.......(FADE)

    • ""In many of the funds we manage at Sprott, we’ve transitioned out of gold bullion and into gold equities to better participate in the continuation of the trend indicated above."

      -- not sure if he meant that those funds have fully sold out gold and bought into gold shares. If so, that move is too aggressive and risky. This is still stage 2, history has proven at stage 2 bullion outperformed general gold shares cause bankers/gov can still heavily manipulate metal prices(comex 50% gold delivery fraud and silver 60% fraud doesn't explode anything yet now), the majority of the public own zero oz metals, and China/the rest of world can still cope with Fed in the dollar depreciation game cause the inflation rate is still tolerable. Just think about it, in the next 3-6 mths, euro is dying, dji has 1000 points to cut, any fund/portfolio without gold bullion as the base is either naive or ridiculous !

      JMT.

    • wolfman, Thank you for your post. Eric Sprott is one of the most savy investors on the planet. I have done well with him for quite some time.

      He moves aggresively with conviction and often appears too far out in front. Time will tell, but I'm with him on this as my time frame is longer term.
      pio

    • Sprott is the same guy who almost went bankrupt with his previous PM Funds! GL.

    • Eric Sprott could eat no Fot!

 
RBY
1.67+0.05(+3.09%)Jul 21 4:00 PMEDT

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