Gold & Silvery Penny

August 26, 2004

This newsletter has been produced as a result of numerous enquiries from my analyses published on various websites. It will be a short sharp technical analysis of several penny stocks specifically related to the gold and silver precious metals sectors. There may from time to time be a resource stock included from the diamond, oil or base metal sectors. But the primary object is the analysis of gold and silver precious metals penny stocks.

It must be remembered that penny stocks, although they follow the main trend of the market, are far more volatile. At market bottoms they tend to be extremely oversold and represent huge value. But at market tops they are usually massively overbought and their value is subject to a crazy amount of sales and marketing hype. Investors must clearly understand that although penny stocks produce some fantastic profits they are even more vulnerable to market swings than their heavier weight cousins. Technical analysis tends to remove the noise and market over reaction.

I classify a penny stock as one trading under $2. Should one of the selections move above this price I will continue to analyse it.

It must also be remembered that most of the penny stocks are small miners operating at the edge of mining costs or exploration companies that are not actual producers. A rising gold price gives them considerable leverage as profits rise dramatically over costs or the option rights to deposits increases substantially in value. Trading volume in many penny stocks is on the thin side and illiquid.

Let's start with Af. Lease (AFKDF), a classic penny stock that is trading at US 27c. It is a South African stock that has had a checkered history of broken promises by the former directors. The fall in the gold price caused a dramatic collapse in the share price on the JSE. A recent injection of capital from Rand Leases (RANGY) for the expansion of the mine into Uranium production has improved the fundamentals. The price of Uranium has improved dramatically over the past three years. Af. Lease has one of the largest easily accessible Uranium ore deposits in the world.

Although this is the history to this mines performance, the chart is of extreme interest. It has broken the major downtrend of the past year. There is a buy divergence on both the RSI and MACD oscillators.

I rate Af. Lease as an excellent addition to any penny stock portfolio for a run to US 45c in the short term.

Randgold Exploration (RANGY) is another mining operation that ran into a little trouble. I gave a sell signal on this chart about a year ago in Gold Action, based its weakening relative strength. It has a 40% share in the Marula mine in Mali. Major producer Anglogold also has 40%. This mine is a cash cow but the grades were not up to expectation for the past quarters.

However the chart data has a buy divergence on the RSI and the MACD oscillators as they refused to confirm the new lows made by the share price. I rate RANGY as an addition to penny stock portfolios. There is also its big brother Randgold Resources (GOLD) with very good technicals.

It is even more essential for investors to spread their exposure to penny stock across several stocks and not to put all the cash into one supposed winner.

South Africa's Bushveld Complex is the world's premier environment for PGM deposits, accounting for 80% of the known resources and 67% of the annual global production of platinum. Anooraq Resources (ANO) has entered into a Joint Venture Agreement with Rustenburg Platinum Mines Ltd. ("RPM"), a wholly owned subsidiary of Anglo American Platinum Corporation Limited. This has considerable potential as Anglo American have a history of profitable ventures.Technically the share price is about the break upside out of the triangular pattern of the past six months. A move above $1.35 would lead to an attack on the $1.50 resistance and a continued move above $1.50 will be extremely bullish.

ANO is a platinum penny stock counter for those investors looking to diversify portfolios across the precious metals spectrum.

Investors should diversify across several penny stocks and sectors.

Apollo Gold Corporation's (AGT) principal activities are the acquisition and exploration of gold and precious mining properties. They operate, own, develop and explores gold mining properties in the US and Canada. They also produce silver, lead and zinc as by-products from the gold operations.

Technically the MACD in the bottom frame is indicating a buying area. But it is the steady rise in volume that interests me.

A base is forming on the share price chart and a move above the short term resistance at $0.75 will break to the upside and trigger a new bull phase.

This is a penny stock to nibble at.

New Jersey Mining Company (NJMC) is involved in exploring for and developing gold, silver and base metal ore resources in the Coeur d'Alene Mining District of northern Idaho. The Company has a portfolio of mineral properties in the Coeur d'Alene Mining District.

Technically the share price trebled in five months at this time last year. There is a flat top resistance that has proved to be a difficult level to crack since the surge. But the upside trend remains intact. Once again the declining trading volume is a drawback. But a price move above US 75c on an increase in positive volume would be very bullish.

Popular silver stock Silverado's (SLGLF) long term two year daily chart shows the nosedive in early 2003 after the exposure of less than savory trading by a now discredited analyst. Since then it has formed a long base in the shape of a falling wedge pattern. Usually these patterns lead to vicious upside reversals once the pattern has completed. This two year chart it is not detailed enough to make proper buy or sell decisions and so I look at the six months data below.

When we look at the shorter term six months daily data for Silverado's (SLGLF) it Remains under the downtrend line. Although a base is building there is a significant set of overhead resistances at 7c and 8c. In addition the trading volume continues to fall.

I will only become interested in this stock once the 8c level has been breached on an increase in positive volume.

This is one to watch.

Metallica Resources's (MRB) explores, develops and acquires mineral deposits mainly in Mexico and South America. The Group is also involved in copper and gold porphyry exploration in Chile with Noranda Inc. and gold and silver in Mexico with Glamis Gold Ltd. Technically the base is still forming but the RSI in the lower frame is starting to move upside indicating that the price will soon follow. A move above $1.10 will trigger a buy.

Vista Gold Corp (VGZ) is an interesting chart. The share price has been forming a flat top broadening pattern for the past four months and looks ready for lift off.

But what is of even greater interest is the way in which the oscillator in the lower frame has refused to mirror he new lows on the stock price thereby setting up a buy divergence.

I rate VGZ as a penny stock buy at current levels.

Unico Incorporated (Arizona) (UNCN) has options in three mining developments of which subsidiary Deer Trail Mining is the leader. If ever you wanted a real highly speculative penny stock with huge risk but huge potential upside this is it. The chart is a disaster. It recently fell out of bed from 13c to 3c in a month. But the oscillator at the bottom is not confirming the new lows and setting up a buy divergence. DO NOT pawn your mother-in-law and invest in this stock. This is a petty cash nibble for penny stock portfolios.

 

A final word on penny stocks :-

  • They are extremely volatile and have huge risk coupled with huge reward potential.
  • It is essential to spread risk across several penny stocks in different types of operations.
  • DO NOT rush out and place all your cash in one penny stock on a great tip. Spread risk.
  • Trading volume can be thin so do not invest heavily into stocks that are illiquid and not easily sold.
  • The producers usually have less risk than the development and option rights groups.

 

 

I have recently published two analyses on Durban Deep on the various gold based websites. Now that the price of this leading gold producer has dropped under $2 it falls into my category as a penny stock.

There is much debate about the problems of this group with many people accusing the directors of skinning the company, bad management, issuing too many shares to keep the mine alive, high mining costs in the South African operations that may have to close down.

These are all the usual reasons why the sun will never again shine on this penny stock. At the current price it is a contrarians dream. As the number of hate emails rises the happier I become as this serves to confirm that my analysis of this stock as a serious buy is OK.

In simple terms DROOY mines 4000 kilos a quarter from its South African operations at a June quarter cost of R93 000 a kilo. The average gold price for the June quarter was R78 000 a kilo. So there was a huge loss and the irrational doomsters immediately forecast that the September quarter's results would be even worse and that the mines were about to close.

But the Australasian operations produce around 2200 kilos at a mining cost of R76 000 a kilo. Thus the average cost for the whole Durban Deep mines is R86 000 a kilo. The current gold has jumped from the June quarter to R89 000 a kilo and so the DROOY operations are at least break even. At under $2 I rate DROOY as a must buy for any penny stock portfolio.

'Gold & Silver Penny Stocks' is the sister publication to 'Gold Action' and is produced by Dr. Clive Roffey.

For FREE trial data contact :-

Dr. Clive Roffey
info@utm.co.za

Gold's special properties mean that it has a greater variety of uses than almost any metal.

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