10 November 2009

Silvercorp (NYSE:SVM, TSE:SVM) announced its latest results yesterday. Long term readers of my research know I am a fan of low cost producers with quality reserves. Silvercorp is indeed a future leader in the silver market and could provide return hungry investors with some juice over the next 2-3 years.

The highlights are:

• Net earnings of $8.9 million, 83% higher compared to $4.9 million in the same quarter last year;

• Earnings per share of $0.06, double the earnings per share of $0.03 in the same quarter last year;

• Production of 1.2 million ounces of silver and 15.2 million pounds of lead, representing 35% and 43% increases, respectively, compared to 0.8 million ounces of silver and 10.7 million pounds of lead produced in the same quarter last year;

• Total production cost of negative $5.61 per ounce of silver and cash cost of negative $6.33 per ounce of silver, net credit of other metals, making Silvercorp an industry leading low-cost silver producer;

• Generated $15.9 million cash from operating activities or $0.10 per share; and,

• Total cash, cash equivalents and short term investments increased to $79.0 million.

Source: Company announcement www.silvercorp.ca

Source: Finviz.com (above information is on the US Listed stock)

Silvercorp (NYSE:SVM, TSE:SVM) essentially produces silver at a negative cost ie: recovers more from its sales of other metals (lead, nickel etc) to cover the cost of its major business which is silver. This cost recovery business model is, I believe, an ace in the hole for Silvercorp. Chinese unit labour costs are low by international standards and I don’t see a cost increase on the horizon. In fact, I am fairly confident that the net cost of SVM silver will continue to decline due to the global push on all commodities going forward.

From a stock perspective it has done well – its up 183% ytd. However bearing in mind the historic gold:silver ratio of 16, silver is chronically undervalued and has lagged gold so far this year. The current gold:silver ratio is 62:1...so inevitably over time this should decline to more historic norms around 16. Using this analogy, silver should be around US$68 per ounce rather than US$17. This norm wont revert overnight however due to the numerous of silver (both industrial and as a hedge to weakness in fiat currencies) I find few arguments to suggest that this price will remain this low for long.

 Looking forward, silver should outpace gold in terms of "monetary gain" as, its not widely known, that China (as a culture) value silver more as a "currency" than gold. The Chinese government is actively encouraging citizens to buy hard metals and there are retail retail shops across China where citizens go on a monthly basis to sell Yuan and buy silver and gold

(http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=88452&sn=Detail).

One could interpret the Chinese government’s actions as one of protection of the national psyche preceding a major shift in national reserves from US Treasuries to physical commodities (ok...this is old news however the timeline could become compressed...) with this active encouragement.

SVM offers a quality entry point to the silver market. Bear in mind this is volatile and you will experience disproportionate price moves on the stock due to the silver markets nature. This is a 2-3 year hold leveraging on the ongoing fiat currency “race to zero”. Position sizing and trading stop losses are critical to risk mitigation.

The stock trades on both the Toronto and NY stock exchange with adequate liquidity in both issues. My personal preference is the Toronto listing due to currency (prefer CAD$ to US$) – however the final choice is yours.

Its well worth keeping your eye on this stock.

Invest safely,

Chris

Disclosure: I have a position in SVM

About the Author

Dr. Chris Wharton-Hood is a market commentator and research analyst. He is a PhD graduate with a specialization in Corporate Governance and is a financial coach specializing in synthetic dividend strategies for private investors.

 Tim du Toit is the editor of Eurosharelab. Kindly note that this blog is published for information purposes and is not investment advice. Please refer to our disclaimer.

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The Eurosharelab Blog is published by Serendipity Ventures (UG) haftungsbeschränkt a limited liability company incorporated in Germany. Our address is Von-Eicken-Str. 13A, 22529, Hamburg, Germany. Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Volume of retail trade down by 0.7% in euro area down by 0.4% in EU27 In September 2009.

The year on year change in September 2009 was negative 3.6% in the euro area and by 2.5% in the EU27.

The highest increases were observed in Poland (+5.4%) and Austria (+3.1%), and the largest decreases in Latvia (-30.9%), Lithuania (-25.7%) and Estonia (-20.8%).

In Germany the largest EU state the negative development in retail sales volumes appear to be deteriorating at a faster rate.

 Tim du Toit is the editor of Eurosharelab. Kindly note that this blog is published for information purposes and is not investment advice. Please refer to our disclaimer.

To subscribe to our weekly newsletter, click here  |  Follow me on Twitter

The Eurosharelab Blog is published by Serendipity Ventures (UG) haftungsbeschränkt a limited liability company incorporated in Germany. Our address is Von-Eicken-Str. 13A, 22529, Hamburg, Germany. Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

In this post I summarise the largest insider transactions of companies in Europe. I have focused on transactions made by individuals eliminating company transactions.

I hope you find the list a valuable idea generator of companies to investigate further.

Worth noting are large insider purchases at Ericsson and sale at Standard Chartered

Largest Directors' Purchases:

BANCA IFIS SPA

Banca IFIS SpA is an Italy-based company engaged in the financial sector. Banca IFIS SpA offers its services for small and medium companies, large companies, business people, and private individuals

CHAM PAPER GROUP HOLDING AG

Cham Paper Group Holding AG, formerly Industrieholding Cham AG, is a Switzerland-based holding company that operates primarily in two business segments: Specialty Papers and Real Estate.

ERICSSON (LM) TELEFON

Telefonaktiebolaget LM Ericsson (Ericsson) is a supplier of network equipment and related services to telecom operators. The Company offers a portfolio of telecommunication and data communication systems, multimedia solutions and professional services, covering a range of technologies.

ARSENAL HOLDINGS PLC

Arsenal Holdings PLC is engaged in the operation of a professional football club and the related commercial activities. The Company is also engaged in a number of property developments associated with its relocation to Emirates Stadium.

KLOVERN AB

Klovern AB is a Sweden-based real estate company. The Company is primarily engaged in the acquisition, development, retail and hiring of primarily commercial properties, located in large and medium-sized Swedish towns. Its portfolio includes offices, warehouses, shops, institutional buildings, restaurants, hotels and residential premises.

Largest Directors' Sales:

PERMASTEELISA SPA

Permasteelisa SpA is an Italy-based company engaged in the design, manufacture and installation of architectural components, as well as curtain walls, partition walls.

SACYR VALLEHERMOSO SA

Sacyr Vallehermoso SA (SyV) is a Spanish company that, through its subsidiaries, operates in five business areas: Construction, comprising various civil and non-residential construction projects;

Residential Development, focusing on the promotion of land and residential properties located in the Iberian Peninsula; Concessions, including the operation and construction of infrastructure concessions located in Spain, Chile, Portugal, Brazil, Costa Rica and Ireland;

Rental Property, focusing in the management of offices buildings, shopping centers and industrial premises, as well as hotels, residential properties and residences for senior citizens, and Services, providing such services as waste management, water treatment and purification, building maintenance and management of infrastructure.

PARTNERS GROUP AG

Partners Group Holding is a Switzerland-based, globally active financial company, engaged in the alternative asset management. It invests in private equity, private real estate, hedge funds and private debt, primarily in Europe and the United States.

STANDARD CHARTERED PLC

Standard Chartered PLC is a holding company. Through its subsidiaries, the Company is engaged in the business of retail and commercial banking and the provision of other financial services.

The Company has has over 1,600 branches and outlets. The Company operates in two business segments: Consumer Banking and Wholesale Banking

SANDVIK AB

Sandvik AB is a Sweden-based engineering company. It operates in three business segments: Sandvik Tooling, Sandvik Mining and Construction, and Sandvik Materials Technology.

Sandvik Tooling develops, manufactures and sells tools and tooling systems for metal cutting under such international brands as Sandvik, Sandvik Coromant, Walter, Valenite, ValeniteSafety, Dormer, Precision, Diamond Innovations, and others.

CORE LABORATORIES NV

Core Laboratories N.V. (Core Lab) is a provider of reservoir description, production enhancement and reservoir management services to the oil and gas industry. Core Lab has over 70 offices in more than 50 countries. The Company derives its revenues from services and product sales to clients primarily in the oil and gas industry.

The above information is an extract of the of the Weekly Top 10 European Insider Transactions as published byinside-analytics.com.

The Top 10 statistics exclude transactions by issuers (share buybacks), parent companies, subsidiaries and affiliated companies.

This message is automatically generated by 2iQ Research GmbH, Frankfurt, Germany. 2iQ does not take any responsibility for the accuracy, completeness of this data. For terms of use please check: http://www.inside-analytics.com/terms.html.

For disclaimer and terms of use please have a look at:http://www.inside-analytics.com/terms.html

 Tim du Toit is the editor of Eurosharelab. Kindly note that this blog is published for information purposes and is not investment advice. Please refer to our disclaimer.

To subscribe to our weekly newsletter, click here  |  Follow me on Twitter

The Eurosharelab Blog is published by Serendipity Ventures (UG) haftungsbeschränkt a limited liability company incorporated in Germany. Our address is Von-Eicken-Str. 13A, 22529, Hamburg, Germany. Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Ambrose Evans-Pritchard writing in The Telegraph yesterday published an excellent article on Zimbabwe titled 

For brave investors, Zimbabwe could be the ultimate turnaround story

With the economy virtually dollarised prices have stabilised and companies can retain foreign currency again. 100% foreign ownership is also welcome again.

With the economy completely decimated there is definitely a recovery story here.

The question is when and what horse to back?

I am not close enough to the situation or have a large enough risk appetite to invest in Zimbabwe, especially with Robert Mugabe still partly in power.

The whole article is worth 5 minutes of your time.

Subsequent to writing the above I spoke to a knowledgeable friend about Zimbabwe and he added the following:

Visibly the change due to dollarisation in every day life over the past 4 months for the Zimbabweans lucky enough to be employed and therefore now earning USD, has been massive.

Supermarkets have gone from virtually empty shelves to well stocked.

Not quite the range of goods that one gets South Africa but at least you can buy most things now BUT at a price. As a general guideline I would say that goods cost about 50% more than in South Africa on average.

The rich is getting richer and the general population is getting even poorer.

Unemployment is over 80%!!

The power sharing deal between Mr. Mugabe's Zanu PF and Mr. Tsangarai's MDC has unfortunately not changed much.

Mr. Tsangarai, even though he clearly won the elections received no meaningful backing from SADC or the African Union, who basically told him “Go into a power sharing deal with Mugabe or you will be left in the cold.”

Although the PM, Mr. Tsangarai has little power, he is almost single handedly trying to change things for the better.

Unfortunately, Mr. Mugabe, who is a past master at the practice of 'divide and rule' has successfully wooed over most of the MDC ministers with lavish gifts.

My concern is that even when Mr. Mugabe passes away, his hold on most things, including the police and armed forces, that I personally don't see a change to a democratic government headed up by Tsangarai, happening easily.

Agriculture and Manufacturing is virtually dead and mining is just about managing to struggle along.

Tourism, which ten years ago had become Zimbabwe's second largest foreign exchange earner, is now suffering really badly, with a large number of hotels, guest lodges and private game parks, having closed.

Finally, in recent days, Zimbabwe has decided to resurrect legislation making it compulsory for all foreign companies operating in Zimbabwe, to have a 51% local shareholding!!

To summarize, I would be very careful before investing in Zimbabwe at present.

 Tim du Toit is the editor of Eurosharelab. Kindly note that this blog is published for information purposes and is not investment advice. Please refer to our disclaimer.

To subscribe to our weekly newsletter, click here  |  Follow me on Twitter

The Eurosharelab Blog is published by Serendipity Ventures (UG) haftungsbeschränkt a limited liability company incorporated in Germany. Our address is Von-Eicken-Str. 13A, 22529, Hamburg, Germany. Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it

I am not gold-bug at all.

The record gold price levels at the moment has also not gotten me excited as I am not a momentum investor and generally avoid or sell anything hitting record highs and buy whatever is hitting record lows.

I am however concerned about the massive amounts of worthless paper currency being printed around the world at the moment.

I thus asked Chris Wharton-Hood a good friend and avid gold investor for his opinion.

His thinking makes a lot of sense.

___________________________________________________________

Golden Future or Fleece?

I was asked this weekend to provide an analysis on the current economic landscape with a view going forward on how the gold market will hold up.

This question is multi faceted however it can be summed up as follows:

1) There is no real recovery in the US.

2) Interest rates will not rise to stratospheric levels in the short term

3) The relentless printing of money will continue.

4) Only hard commodities remain viable in asset protection.

Lets investigate each of these points:

There is no recovery  

Jobs continue to be lost. The multiplier effect of the various stimulus packages have yet to reach the real economy as banks have been fearful to lend. Cash on hand is earning a whopping 5% spread on LT Treasuries and this is ultimately repairing the financial sectors balance sheet resulting in distortion of growth – just look at Citigroup (NYSE:C) announcing its cash hoard. 

 The recent quarter showed GDP growth. Most of that came in two areas: homebuilding and consumer spending. But when you look at those numbers more carefully you find the government all over them – consumers are doing very little except deleveraging themselves.

Consumer spending was boosted by a 22% increase in auto sales – directly attributable to the “Cash for Clunkers” program. Homebuilding increased 23% – a result of the government’s $8,000 new buyer tax credit. Lets look at reality – tax receipts. These were down 17% for the year. People are losing jobs and consequently not paying tax. Unemployment is reported at 9.9%, however considering the way that the government reports unemployment I suspect it is closer to 17% - not far off from the Great Depression peak of 25%.

Lets pause to consider that all the jobs created over the past decade have now been lost. The New York Post reports that federal programs are so inefficient that they probably destroy jobs rather than create them. According to the Obama administration, 640,329 jobs have been “saved” at a cost of $787 billion. That’s about $1.2 million a job! This is both wasteful and shameful.

No imminent rise in Long Term Rates in the US

I don’t see an immediate rise in Long term interest rates by the Fed unless there is a justification that the economy has turned around. With the Feds latest statement indicating “low rates” for an “extended period” we can see that the people in charge realize that there is no real recovery.

Interest rates will only go up when there is a turnaround in the job loss scenario and/or when the “foreign buyers” of Treasury bills realize that they are not getting their capital back. I am certain that the Chinese, Russians, Japanese and Indians have realized this and hence the major announcements this week regarding the IMF gold sale to India and Sri Lanka.

In bankers language lending money to a failed debtor who has no ability to pay you back is risky and stupid. The US is a failed debtor who should go to rehab. The party is over and the music has stopped. Investors who are left holding paper (worth no more than Charmin double ply) will be the ones without a chair. I believe that this should also be applied to investors holding Pounds or any other “broken currency”.

The ultimate carry trade that is being created (sell dollars, buy gold/commodity currencies such as AUD) will replace the Yen in the short term as the carry trade of note.

The relentless printing of money will continue

I am sad to say that there is no end to this bailout of Wall Street. Banks will continue to be bailed out as they are shut down and merged with other unhealthy institutions. Freddie Mac has asked for more money. FDIC will need more money.

The Bernanke and Obama spending train will continue to blow cash out of its horn with deficits expected to exceed US$1 trillion per year going forward.

Would you honestly lend this unreformed “spendaholic” any money?

The Federal Reserve cartel know that the only way they can finance this ludicrous spending plan is to print themselves into oblivion and weaken the dollar to such a point that paying back a Trillion dollars of debt with now worthless US$100 bills is the only escape.

The joke will be on the creditor nations.

The wealth destruction will be unfathomable.

For this reason I see a continued rush to hard assets in order to protect the purchasing power of creditor nations capital.

Only hard commodities remain viable in asset protection

We have established that as informed investors we don’t want to be caught with our pants down when the tide goes out on the dollar.

Recent moves by various Chinese SOEs in purchasing hard asset producers in Canada and strategic alliances in Brazil indicate a trend that is becoming more obvious.

The action itself is not new.

Chinese companies have been globalizing themselves for years since Deng Xiopeng declared that being rich was not a bad thing. What is becoming a lot more obvious is where the Chinese government is seeing strength and future growth in the years ahead.

Canada, Brazil and Australia have one thing in common and that is natural resources – a lots of it. Gold, soybeans, oil, iron ore – the basics for a growing economy are in these countries and China needs a lot to stabilize itself.

As the “worthless” dollar reaches the market, commodities priced in dollars will invariably rise (basic monetary inflation) providing a hedge against the dollar devaluation through the printing of money.

Most commodities are still in longer term bull markets and they should be a cornerstone of any portfolio.

The short term outlook

On a short term view, I don’t believe gold will go back to sub-$1000 prices.

If it does it will be brief.

There will be short term corrections which is inevitable. This should be seen as an opportunity for investors to buy more gold.

Looking at the current state of the world economy gold, silver and platinum should for at least 20-30% of an investor’s portfolio. This is much larger than the traditional asset allocation model of 5%. The reason for this is that there are very few sectors that offer the upside and wealth protection of gold.

General Equities are overpriced. Real Estate is subject to more downward drafts in valuations (just wait for the Option ARM reset in 2010 and 20111) and bonds are frothy across the world.

Upward pressure on the price is high. Barrick Gold (NYSE:ABX) recently announced its intention to unhedge its forward sales book. This is a very positive sign that the worlds largest gold miners sees higher prices going forward.

International demand by Central Banks to diversify their reserve holdings are also going to be pushing prices up. The IMF has announced sales however considering the pent up demand from Central Banks around the world these sales will not have a downward effect on the price of gold. If anything it will drive the price up as a number of countries have indicated that they want the gold (the recent sale to India when the market was expecting a China sale is a good example of how much demand there is).

On the down side we have a huge short interest in gold and silver by HSBC and JP Morgan. This growing position has been keeping the price of gold subdued. This has to unwind at some time and when it does the price of gold will fly.

My bet is the country demand will beat out the short players. None of these banks are big enough to take on the Chinese, Indians and Russians all at once.

So what alternatives does an investor have?

Firstly, physical gold should be a cornerstone.

I am skeptical of ETFs like NYSE:GLD. There is too big a short position for me to get to grips with its inventory. 

I am more partial to either NYSE:CEF or NYSE:IAU. I have less suspicion on the quality of the holdings. Key to CEF is purchasing it when the premium to NAV is less than 10%. You can logon to the central funds website to determine the NAV (its updated daily).

http://www.centralfund.com/Nav%20Form.htm

Secondly a portfolio of gold mining stocks gives your portfolio some juice.

Miners are leveraged to moves in the gold price giving investors some great returns. The gold mining industry is big and it’s easy to hit a lemon. It is also a complicated business to analyze if you are not a geologist.

Take the easy road and purchase the ETF representing the mining industry  - NYSE:GDX offers exposure that is broad and general for the mining sector.

Conclusion

Gold and gold related stocks should be a core to all portfolios looking for hedge against dollar volatility and financial chaos.

We are in the eye of the storm – the tail end of the hurricane will bring the most damage. 2011 and 2012 will be difficult years for investors. Gold and gold mining stocks provide catastrophic insurance to any investor’s portfolio.

___________________________________________

About the Author

Dr. Chris Wharton-Hood is a market commentator and research analyst. He is a PhD graduate with a specialization in Corporate Governance and is a financial coach specializing in synthetic dividend strategies for private investors.

Disclosure:

Long GDX, Long CEF

 Tim du Toit is the editor of Eurosharelab. Kindly note that this blog is published for information purposes and is not investment advice. Please refer to our disclaimer.

To subscribe to our weekly newsletter, click here  |  Follow me on Twitter

The Eurosharelab Blog is published by Serendipity Ventures (UG) haftungsbeschränkt a limited liability company incorporated in Germany. Our address is Von-Eicken-Str. 13A, 22529, Hamburg, Germany. Email: This e-mail address is being protected from spambots. You need JavaScript enabled to view it