Some Mining Stocks Start to Breakout Mike Swanson (07/06/14)

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1 Some Mining Stocks Start to Breakout Mike Swanson (07/06/14) Some mining stocks are starting to breakout. In my report last week I highlighted FCX as my pick of the week. It opened Monday at $35.98 and then closed at $38.51 on Thursday to end the week. That s a gain of 7.50% in just a few days, and I believe the move in FCX is just starting. People who bought on my recommendation and hold for the long-run will also make some good coin off of a 3.50% dividend. I got another stock I want to tell you about this weekend. First though I want you to realize that with FCX this is a big move in what is one the largest mining companies in the world that acts as sector leader. A 7.50% gain in a giant market cap stock like FCX is a big deal for the entire mining stock sector. Now FCX also mines copper and produces natural gas, but other copper mining stocks such as SCCO also exploded upwards and broke out of recent resistance levels. What FCX has done though

2 2 is clear a price point at $37.50 last week that has acted as resistance on it for TWO YEARS now! It has broken out of a stage one base and begun a new bull market. FCX is not the only big cap stock that did this last week. So did AEM, which I bought several months ago. AEM smashed through its March high and has cleared a stage one base. It s going up. Now I m telling you about the moves in these stocks not because I want you to buy them now. In fact even though I think they are going to go up much higher over the next few months I do not think you should buy them at this moment, because I do not advocate buying stocks after they made a big move. I will never tell you to chase anything. I m not a CNBC Fast Money man. And you do not need to chase things in fear of missing out, because there is always something else that hasn t moved yet worth buying. What you need to do is understand though is what is happening and that is why I am telling you about these two stocks. You see the HUI mining stock index has not yet broken out of a stage one base. It did not surge like FCX and AEM did last week. It did jump up in June to generate nice gains for mining stock owners, but at the moment it is digesting those gains and giving the last weak hands a chance to get scared again and sell out. And yes there are still many weak hands in gold, silver, and the mining stocks, because so few believe that a real bull market is starting. That is why even though FCX and AEM had big moves last week they were not mentioned once on CNBC. All the masses want to do right now is buy Facebook and chase overvalued technology stocks. They love to buy after things go up for years on end and they won t get interested in mining stocks until after they have gone up hundreds of percent from where they are now.

3 The moves in FCX and AEM are important, because when an entire sector begins to go into a new bull market some stocks always breakout before the sector as a whole does. And even after the sector breaks out some stocks break out later. At the start of mining stock bull markets it is normally the big cap stocks that breakout and rally first, because they are perceived as safer stocks by institutional investors and also do the type of volume necessary for them to invest in them. So the breakouts in these stocks are a good sign that the rest of the sector is likely to breakout soon too. That s why the moves are important and why I am telling you about them. I have been buying various gold, silver, and mining stock investments since February. Right now I own the ETF s GLD, SLV, GDX, and GDXJ. These funds are the easiest way for anyone to buy into the sector. GLD owns gold, SLV owners silver and GDX and GDXJ are ETF s that both own a basket of mining stocks. You can see from the below chart how just like the HUI has done GDX has put on a sharp rally from it s low in June. In fact it s up over 20% from that low already. Right now it s pausing around and its upper 200-day Bollinger Band, which is at just like the HUI is pausing. This sideways movement is likely to end within a week or two and once it does if the GDX smashes through its upper 200-day Bollinger Band it will begin a new bull market just like FCX and AEM have done. Everything is 3

4 4 lining up and I wish I could sit in front of you and hand you this report in person in order to make sure you are reading it and understand the importance of all of this. What we are witnessing is the end of a stage one base and the start of a full blown stage two bull market. Bull markets tend to last from three to five years and the people who make the most money in them are not the people who buy in near their end, but the people who buy in at their start. So beyond these ETF s I also own a position in the fund GNT and individual stock positions in energy stock PGH and mining stocks PAAS, KGC, GFI, SLW, ABX, HMY, ANV, GG, AEM, AUY, BVN and the following small mining stocks that trade on the Canadian stock exchanges: III, CUM, CRK, PRU, and ATY. GG is another big cap stock that is outperforming the sector and poised to be a leader in the coming months. It also pays a nice 2.20% dividend. I took a little stab at short-selling for a hedge in casino stocks last month, but got out of those positions as the US stock market went up. I might re-enter or buy a hedge ETF if it looks like the current US stock market rally tops out this month, but that s trading. It is in mining stocks now that I believe the real money is to be made going forward. I have been through several mining stock bull markets before and the stocks that tend to go up the most are the ones that generate high earnings growth, but start from a small valuation point. They sport low PEG ratios when you get in them. Most of the time they end up being small and mid-cap stocks. What happens is that they get smashed to silly low valuation levels in bear markets that enable you to get in at a cheap price.

5 5 As these companies open up new mines or simply make some capital investments to increase their production their earnings explode. When gold prices go up the stocks generate exponential earnings growth. This is why this week I want to highlight Crocodile Gold for you. It trades on Toronto stock exchange with the symbol CRK trading with a market cap of $138 million dollars. Crocodile Gold is based in Canada and has purchase four key mining properties in Australia. In 2013 it mined 74,000 ounces of gold from its Cosmo mine. Thanks to capital investments it is set to produce up to 95,000 ounces of gold from this operation this year. It also produced 27,000 ounces of gold from its Stawell Mine last year and will produce similar numbers from it this year. It also produced 98,000 ounces of gold from its Fosterville Mine in 2013 and is on track to mine 90,000 to 100,000 ounces of gold from it this year. It is also exploring and developing a project on its North Hill property and currently engaging in an N compliant feasibility study for it, which should completed in the next months. Pre-study projections are for 160,000 ounces a year in gold production. What is neat though is that the company s operating costs for its mining operations was an average of $1,027 for an ounce of gold when the industry average is $1,200 an ounce. This means that Crocodile Gold is cash flow positive and able to finance further explorations and expansion activities. It also has a management team with a track record of huge success. One the board of directors is Peter Tagliamonte who was the President and former CEO of Desert Sun Mining, which was one of the best stocks I ever owned. I bought it for under $1.00 a share and saw it go over $9.00 and then get bought out by Yamana Mining. The team as chief geologist is also Mark Edwards who helped develop the Mupane Gold Mine for IAMGOLD. The company has 8 cents a share in cash and is trading right under key resistance at 30 cents a share. It has been one of the top performing mining stocks since December and I believe it will make a big surge in share price once it closes above 30 cents a share. I bought the stock a few weeks ago and did a video for Power Investor members minutes after I bought it. I plan on holding my position for several years.

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