fundamentals, page-53

Loki, SLR is certainly not underperforming the sector so I don’t think this correction has anything much to do with SLR specifically.
SLR is outperforming the leader NCM as well as others like PRU and AQG.
RRL is the better performing larger producer. SLR's performance is somewhere in the middle.
RRL has only corrected by less than 20% after nearly doubling since the start of 2012. An excellent out performance.
SLR has corrected 50% of its 100% gain off its 2012 low. Also a good out performance of the sector.
AQG and NCM are very close to 2012 lows giving up almost all of their recent rallies while PRU has made a lower low.
If the market is anticipating problems, I don’t think it’s with SLR.

Over 12 months, SLR is marginally down, but over 18 months it's up over 40% so timeframes obviously make a big difference.
RRL is up nearly 50% over 12 months.
NCM is down around 30% over 12 months (down around 42% over 18 months).
PRU is down around 23% over 12 months (down around 35% over 18 months).
EVN is around even over 12 months similar to SLR.

SLR seems to be making relatively good progress and has been pleasing the market to date especially with the merger recently with good gains since it was announced.

I think the main reason for the underperformance of some is they climbed to overvalued prices on too much demand for too few large producers when the market was bullish gold.
I remember NCM climbing to forward PE’s in the high 30’s to 40’s.
I know it has a long mine life and very large reserves, but that was getting too high and any disappointment was going to be bad for the sp.
I can’t say I’m too surprised that it has nearly halved from its highs despite POG not changing that much.
I was asked to look at AQG back around the time I decided to buy SLR (roughly 18 months ago when SLR was $2.40).
I thought AQG looked over valued. It was around $10. It went on to $12 but now it’s down to $4.29.
NCM was around $40 at the time and also looked too expensive.
I was also asked to look at AZM as a junior. I replied I wouldn’t buy it at 60c.
It did go on to 80c but now it’s down to 9.5c.
Most of those I was asked to look at were well known and recommended by multiple brokers/instos.
Like I said earlier too much demand for too few stocks when everyone was bullish on gold.
Glad I did my homework and went with SLR which no broker was talking to me about.
SLR didn’t fall into that category of a large producer and was too high a market cap to be considered a junior with blue sky upside so I think it probably escaped the attention of the crowd and did not get too overvalued, but that will change soon enough as production steps up strongly and thanks to the merger. So I think it’s likely it will continue to outperform until it too ends up overvalued. It’s a long way from there.
I still don’t see it getting much attention. I think it did get overvalued at $2.60 two years ago on too small a production and cash flow at the time.
Overvalued now IMO has to be well above $6 at current gold prices.
At $4.50-$5.00 and A$1700 gold, on my numbers it is around fair value. My valuation and probably those of most analysts ignore copper credits for Murchison.

To get overvalued I think we need to see all the instos get set and then start pumping their buy recommendations.
When all the brokers are bullish gold again and when they are telling their clients to buy SLR, then it might get overvalued.
Maybe towards the middle of this year as we approach the 2013/2014 fin year when production is forecast to hit 400,000oz/yr we might start seeing more large brokers recommending SLR and the masses (including instos) start to buy in heavily.
In the mean time it’s excellent value under $4 while the sector is under pressure.
I think this might approach $5 before June as the 2013/14 fin year approaches and this gets priced on that years estimated earnings.
That would be a realistic chance of a 66% gain in 6 months if all goes to plan and POG just holds around here.

Personally I am much more bullish on gold, but am less inclined to put a time on my targets for POG mainly because I think there is manipulation slowing its advance but also because markets need time to rise- at least until they hit mania stage and go parabolic as gold did in the late 70’s.
The chart below shows the very strong correlation of POG to money supply from around the time of the strong ramping up of the money supply.
Before that, the USD was loved by all which kept POG very weak. That was aggravated by the central bank selling climaxing with the infamous British gold reserves sales that were made to manipulate the gold price lower to save a bank that was heavily short.
That period kept POG from following the strong increase in money supply from 1984 till around 2006.
Looking at this chart, this measure of the US adjusted monetary base as reported by the Fed reserve, in 1984 was around $200bill and is now at $2.7trillion which is an increase of 13 times.
The POG over the same period is up by a factor of around 4.
So while there has been a very strong correlation since around the start of QE, there is still a very large amount of ground to be caught up if the POG was to catch up to money supply increases since 1984.
As crazy as it sounds now, it needs to climb to $4800 which is around the $4500 level targeted by Alf Field using Elliot wave analysis and close to Jim Rickards $5,000 target.
$4,800 is based on the increase to the monetary base to date according to this chart- not based on or relying on further increases to the monetary base.
Of course there is no guarantee this will happen, I have looked at other measures of money supply that give me lower targets. The lowest is $2,400 based on M1 but it seems to me the POG is still way too low and every way I analyze it, gold is very likely to climb much further still. Then there will be higher targets after QE3 increases the money supply, then QE4,5 …?
This is why I invest in gold stocks- those that offer very good value at the current POG are excellent investments IMO.