The CME has reduced margins on a variety of instruments, including crude oil and gold futures.

http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv12-221.pdf

The market rallied higher once again on more rumors (some kind of unworkable bank deposit scheme: what Europe’s loan-deposit ratios look like), and denials of yesterday’s rumors (L-Pap now says Greece to say in EU, blah, blah).  The second chart shows what’s involved with PIIGS banking deposits.  Using hook theory,  trading rumors is the modus operandi, and not just plain rumors; but rather, inside-job rumors.  It’s only a matter of time before this market collapses, but one has to slough through the rigged foul stench along the way. Fund managers scramble all over themselves to load up on “safe” German Bunds and US Treasuries [Bond Funds Prepare for Worst out of Greece].  Looks like an historic top in those.

Lee Adler and I conducted a gratis podcast covering actionable points. Among other aspects I mentioned that ”managed money” has positioned themselves short the precious metals at the highest level since 2008. However from a trading perspective, the chart on silver looks negative with convergence overhead.

source: GGR

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Russ Winter and Lee Adler discuss the precious metals and precious metals stocks, as well as the stock market outlook.

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Here are today’s gold stock screens and data, along with cycle conditions and projections for gold and HUI index, and Chart of the Day picks for swing trades. Indispensable daily information for gold and precious metals stocks traders.Click here to download complete report in pdf format (Professional Edition Subscribers).

See the current full sized chart with a complete explanation and analysis and get daily updates on the 4 week, 6-7 week, 13 week, 6 month, 9-12 month and long term cycle projections in the Wall Street Examiner Professional Edition Daily Market Update.Try the Professional Edition, including this Precious Metals update risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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This post is an example of the Actionables available on my subscription site. This is distinct from the Daily Rant pieces seen on Winter Watch.

I was an active and successful mining shares investor in the early days of the precious metals bull market. I learned a lot about mining during that period.   I also learned that mining is very tough business subjected to extra risks and cost pressures.  To win in this sector output has to be increasing faster than you costs (energy, labor, etc).  Additionally mining stocks have been ETFed to death, and trade too much as baskets not individual stocks. Accordingly I have only rarely used this sector in recent history. However, right now, certain mining stocks seem to present unusual levels of opportunity, even without any further moves higher in PM prices.

Further, I think we are at an inflection point where the value of the product produced will outrun the input costs.  I have given my view on silver here and here.

One stock I am evaluating is Pan American Silver (PAAS).   PAAS has been severely marked down by the recent Argentine energy nationalizations. There have also been operational difficulties in Argentina because of import restrictions.   Eyeballing the valuations it seems the market has assigned zero value to one top mine (Manantial Espejo) and a world class development deposit (Navidad) that are located in Argentina.  Repairs from problems at Manantial Espejo are complete and operations are normal. There are no indications that a nationalization of mines is a real threat. Company presentations can be gleaned here. 

PAAS produces 22 million ounces of silver annually led by three excellent properties: Alamo Dorado, La Colorada in Mexico and the aforementioned Manantial Espejo.  The acquisition of Dolores (a fourth excellent property) brings this to 24.5 million. About two-thirds of PAAS production is very low cost (sub 7.50).  86% of revenues came from silver and the rest gold, zinc and copper. Late stage developments Navidad (there is some uncertainty here), La Preciosa, and the potential mill expansion at Dolores,  could double production by 2015 and the addition will be low cash costs.  Mine life for existing producers is estimated at nine years, but annual reserve brownfield replacement has been better than 100%.

PAAS recently bought out and merged with Minefinders, a company I followed from the early days. PAAS bought this right, not overpaying, and will receive significant consolidated cost benefits in its northern Mexico operations.  MFN’s Dolores (already producing) is one of the largest silver deposits in the world and in the hands of the  larger, stronger mine, PAAS, has tremendous greenfield potential. MFN derisks PAAS, an aspect the market has failed to appreciate.

At 16.50 the proforma market cap of the two companies is $2.6 billion,  but working capital after debt (none) is $0.6 bn, bringing enterprise value down to $ 2 billion.  Existing operating cash flow is estimated at $500 million a year (assumed price $25 silver) over 2012-2015. By 2015 output doubles, and PAAS can easily internally finance these expansions.   PAAS is an extraordinarily cheap call on silver prices. I am setting up this trade for a 1.5% of my capital position by selling  June 17 naked puts (implied vol is 51).

This post represents the personal opinion of Russ Winter, and not the opinions of the Wall Street Examiner Company or it’s officers or employees. It is not a recommendation to buy the securities mentioned. You should do the necessary due diligence, or consult with an investment professional before any securities purchase.

Russ Winter’s Actionable- Actual trading with tactics and strategy from a master. Learn more and subscribe now.

Here are today’s gold stock screens and data, along with cycle conditions and projections for gold and HUI index, and Chart of the Day picks for swing trades. Indispensable daily information for gold and precious metals stocks traders.Click here to download complete report in pdf format (Professional Edition Subscribers).

See the current full sized chart with a complete explanation and analysis and get daily updates on the 4 week, 6-7 week, 13 week, 6 month, 9-12 month and long term cycle projections in the Wall Street Examiner Professional Edition Daily Market Update.Try the Professional Edition, including this Precious Metals update risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

Enter your email address in the form to receive email notification when Professional Edition reports are posted.

Here are today’s gold stock screens and data, along with cycle conditions and projections for gold and HUI index, and Chart of the Day picks for swing trades. Indispensable daily information for gold and precious metals stocks traders.Click here to download complete report in pdf format (Professional Edition Subscribers).

See the current full sized chart with a complete explanation and analysis and get daily updates on the 4 week, 6-7 week, 13 week, 6 month, 9-12 month and long term cycle projections in the Wall Street Examiner Professional Edition Daily Market Update.Try the Professional Edition, including this Precious Metals update risk free for thirty days. If, within that time you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

Enter your email address in the form to receive email notification when Professional Edition reports are posted.