Replies to post #327266 on Zeev's Turnips Patch-No Politics (ZEEV)

[chainik]

Public,

Good point concerning HUI/POG; it can not explain, however, why junior miners are lagging. Using your argument, these marginally profitable/exploratory companies should go up big time when rising POG moves them in the profitable range. Most of the small miners I follow did not move a lot ,and in many cases they are two-three fold lower now than at the peak a year ago.

I have a trivial (optimistic) explanation why HUI underperforms: many of those who are interested in gold sector are now buying GLD instead of stocks.

Another trivial (pessimistic) explanation: within a few months rates (and USD) will go up; gold and HUI will go down.

Personally I favor the second scenario and reduced my exposure. Since this opinion is not very firm, I will buy the pullback if we get one (g)

[basserdan]

*** Gold related post (HUI) ***

Did he just completely miss the main reason for the HUI's "poor" performance, or did I miss him talking about it?
===============================================================

Hi PH,
Fwiw, amarksp from the Mostly: Classical board had this to say:

My comments on Adam Hamilton article... which I emailed to him...

http://www.zealllc.com/2004/huilevpf.htm

To: Adam Hamilton
Sent: Saturday, November 27, 2004 3:49 PM
Subject: HUI Leverage Article...

Nice article this week, thanks.

There are 2 other points why HUI is lagging POG:

1) Increase in producer cash costs, especially energy costs and sustaining capex cost per ounce. Also, average grade mined has gone down which increases average cash cost/oz. Producer cash costs have increased over $35/oz year to year with energy costs alone causing about half of this increase ($17/oz). Thus, HUI producers net income/cash flow is NOT benefiting dollar for dollar on each dollar rise in POG. Bottom line, the POG has risen about $50 over the past 12 months but cash costs have increased over $35 over this same time period.

2) Many HUI producers and gold juniors have issued significant new shares to finance new mine capex. This dilution results in a lower market cap per reserve/resource ounce as well as market cap per production ounce which is how most gold companies are valued. See:
http://www.resourceinvestor.com/pebble.asp?relid=7069

This article appears to highlight that new share issuances have impacted HUI share performance:
"A lot of the gain has more to do with stock issues than rising prices. This is seen in a weighted average price per share gain of 6% relative to a market cap gain of 8% since the last day of 2003 until close of trade on Friday. "

Thanks again for your well written article, this is most appreciated.

http://www.investorshub.com/boards/read_msg.asp?message_id=4668323