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Minyan Mailbag: Action in Gold Stocks

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Where there's smoke, there's usually fire.

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Prof. Lewis,

I'm seeing a lot of action in Newmont Mining (NEM) January calls and March calls. Do you see anything cookin'? Also, do you see any type of support on Minefinders (MFN) or are these more fundamental in nature and not worth looking at the chart?

Thanks,
Minyan Scott,

MS,

There's nothing specific going on in NEM that I am aware of (other than gold being $803, of course). Goldcorp (GG) is also seeing a lot of activity in the calls. We saw the same call option buying after the August plunge in the shares too. I suspect it's just smart money setting up for a rally.

As I mentioned yesterday, the XAU/Gold ratio got down to 0.20 yesterday. That's been a poor place to be a seller of gold shares over the past 20 years, but a great place to be a buyer as you can see from the chart below.


Click here to enlarge.


As for MFN and "support," I'm not sure the pictures are all that important for these little juniors, especially when they're thinly traded, like Banro (BAA) or Nevsun Resources (NSU). You have to be an investor in them, not a trader.


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Speaking of NSU, per a press release last week from the company, NSU is very close to getting its permit for its Bisha mine, which is why it's held up better than most of the juniors over the past month. Once permitted by the Eritrean government (my guess is sometime in early January), there's a good chance that Lundin Mining (LMC) may go ahead and make a bid for the company.

LMC has already supposedly made a $5-per-share friendly bid back in late 2006 that NSU's management turned down. Since closing down the mine in Mali, NSU's management has supposedly now warmed up to an offer from LMC, and LMC has taken down two private placements from the company over the past several months. Where there's smoke, there's usually fire.

-Prof. Lewis

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Position in BAA, MFN, NEM and NSU.

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