The fundamentals of gold discovery

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Gold discoveries, or the supply and demand for gold, are a less significant driver of gold prices than for most other commodities. The reason for this is that:

1. Gold inventories greatly exceed annual production and consumption

2. The high rates of recycling/recovery - due to high price and the nature of its applications

3. The transient nature of speculative 'gold' demand

Regardless, the following presentation by Goldfields gives a good idea of how underfunded gold exploration has been, and how global gold resources have not been replaced.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

A better way to conduct capital raisings

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I am very cynical about the way listed companies raise money. The practice is fairly similar around the world. I have been engaged in capital raisings from different perspectives, i.e. both as an analyst writing research to promote issues, as an analyst under some pressure to sell a lemon, as an investor, and I would say the existing process is inefficient for all concerned, to the point of being unfair.

The problem is greatest for small stocks firing on one cylinder. Maybe its not their place to set standards...maybe there is a need for an entirely new way of conducting equity raisings. I personally favour an incremental path to capital raisings so that companies can dispense totally with brokers and even issues. I would suggest companies are allowed to release new stock based on a model which incorporates the following considerations:

1. Rising share price - it can only raise money when the moving average of the share price is rising, and it can only buy back shares when it is falling

2. Market liquidity - based on turnover, market spread & depth - the company could only issue 10% of the moving average for its share trading for the previous 5 days.

3. Market capitalisation - the company can only issue 1% of its market capitalisation in any one day.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gippsland - worth keeping?

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Have investors been fed a lemon. In the short term investors might feel so. In last 2 weeks Gippsland has been posting a lot of encouraging news. It then announces a capital raising which raised $3.2 million. Post-capital raising we learn that there is no firm off-take, and the company has only just appointed a Corporate Advisor to negotiate the details of the agreement. The problem with this is of course that its a bit of 'bait and switch'.

Do shareholders have reason to be confident that they will see a sustained rise in the share price? There is of course selling pressure in the 'high 5's' (i.e. 5 cents), whilst considerable support in the mid 4s. The question is - will that support evaporate when the underwriter (if there was any) has offloaded all the stock? This remains to be seen. It remains to be seen whether Gippsland will be able to commission this protect. I am actually confident it will. Both tantalum and tin have solid demand at the moment. Stark has been a long term supporter of this project.

Shareholders might however be cautious about paying too much for the stock. The announcement can be read here. We might expect that any agreement with Stark will be finalised in the next month...but that is old territory. It has been there before. It might be a few more months before the company is able to secure finance. The company must have known that, so this strikes me as a little unfair in terms of reporting....the timing of this news is disappointing.

This is common practice of course for small stocks firing on one cylinder. Maybe its not their place to set standards...maybe there is a need for an entirely new way of conducting equity raisings. I will outline my suggestion for capital raisings here.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Rare earth elements (REEs) - another good story

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Korab Resources has discovered rare earths among its phosphate deposit in the Rum Jungle area of the Northern Territory. Its amazing how much rare earths you can find when you are looking for them. Actually rare earths are not really rare at all....though some of them are rarer than others. Its a suite of some 26 elements if memory serves me. There is of course a rare earths boom on at the moment...but I give its longevity little hope. The fundamentals are positive in the short term, but by 2015, it will be extinguished. The problem is that you can't really have a boom until consumers are actually consuming. Companies don't want to invest so much in a recession, and they are not prone to invest in new materials unless there is able supply. The market is however good for a supply shock...but not for a decade I'd say.

The other problem is that its hard to get excited about a boom if you don't know about it. This is the problem with platinum and palladium. Would anyone buy a metal they don't know. This is why gold makes more sense. Are you going to go off and research 26 different metals in order to get exposure to 1 or 2 companies... Not yet I'd say. I think this boom will fizzle out soon...and the focus will come back to gold and silver. Maybe it will be a correction in the market...maybe it will be the fact that the processing infrastructure to recover rare earths is rather expensive. Mind you, these tribulations will not stop people making money in the short term. The other problem is the long development lead time. I remember investing in the Lynas Corp rare earths story 10 years ago now.

So I see people have bid up Korab without much information at all. Good luck with that.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

MIL Resources (MGK.ASX) - finds Chinese partner

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One of my favourite stocks has rallied 35% today from 3 to 4c. MIL Resources (MGK.ASX) has obtained support from Sinotech, a Beijing-based company, which has agreed to buy 30% of the company's equity raising $5mil, as well as finance future activity subject to commercial due diligence. This is good news because it provides a large financial partner.

In the short term it is dilution, but the investment will provide support, and they hold some very appealing projects in PNG. More importantly is that they will have deep pockets moving forward.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Commodity prices up today

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Good day for commodities - gold rallied $21/oz up to $1374/oz, silver is up $0.70/oz, base metals are also higher...mostly because of weaker USD. This should ensure a good day in the Australian market. The Dow was also higher, up 75pts.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Book sale - Mining Fundamentals $19.95

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The gold market is hot at the moment. This is a great time to be investing in mining stocks. I am thus wondering why our Mining Fundamentals eBook is not selling well....particularly since its in its second edition and I worked my arse off to provide a tool for those interested in mining stocks. It encapsulates all the knowledge I could think of and researched since I started trading specs since I was 13yo. In those days I was the only teenager at the ASX library in Bond Street. Since then I have studied geology, geophysics, mining, accounting, economics, finance, been a mining analyst, and briefly as geologist...didn't like field work....so went straight into consulting.

I think the problem is a lack of interest in research....as you can get plenty of tips online...but I am wondering how you are picking one good stock review from another. It might also be that no one is buying the book, so there are no testimonials on the eCrater shopping cart. Everyone seems more interested in Japanese and Philippines property reports.

For this reason, I will offer the 2nd (professional) edition to anyone who buys the book up until 17th October 2010. I would appreciate it if buyers could write a review on the book and I will post them as testimonials. The book is over 180 pages. Thanks for your interest.

I trust you are all making money....its been a very good year...particularly the last 2 months. :)

The way to order is to simply buy the old $19.95 edition, and I will upgrade you to the $39.95 (2nd) edition. You can email me any questions.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gippsland up 21% so far

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I was a little concerned about Gippsland the other day. I bought when they appeared to have established a technical support. They sell to 4.2c from 4.8c from which point I bought. This raised in me fears that, despite the appeal of tin and tantalum, this project might have problems with illegal mining. Unless there is discipline with respect to tantalum mine supply from the Congo region, this project probably makes less sense. Anyway, all price concerns have been eroded because I did not sell despite technical signals alluding to such. I now see they are up 17% already today. So where are they going? Well, there is some good news going forward:

1. Sales contracts - with the German group again perhaps

2. Financing - maybe by the World Bank - as they originally took a sniff before walking away

3. Strong tin and tantalum prices

4. The spin off of the company's gold-base metals interests in Ethiopia, which have appeal

5. Perhaps even a JV partner? Unlikely as they already have a partner in the form of the govt if my memory serves me.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Empire Resources (ERL.ASX) - drilling imminent

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Unsurprisingly, Empire Resources has come out with a positive statement about its copper-gold project. Less desirable is a capital raising...however... in a rising copper-gold price market, who cares. I'd throw money at it in this type of market. The resource to date is 1Mt at 1.78% copper and 0.78g/t gold. I would have been satisfied if they were running just 1%Cu, so this is high grade, high value material. The prospect of drilling up to 21 conductors offering similar grades is appealing, so I see a lot of potential in this stock, which based on Google Finance's listing of 94mil shares, gives them a market capex of just $7mil. That is very low for a future mine.

I alluded to the prospect in my last post that it might be a heap leach operation...that is not correct I think unless its a bioleach. We'll see. My memory did not serve me well.

In the current market I think this stock is going to capture the imagination of traders, so I would not be surprised to see a move in the stock, despite its capital raising. Of course, it will depend on strong copper prices and the nature of the issue. Technically, they look like breaking the 7.5c resistance, and I suspect they will build support at that level, with the issue around 7c. They might even thrown in an option...let's wait and see.

The prospect of exciting drilling results ought to capture the imagination of the market, so I can see the stock returning to its old highs of 12c. See Google Finance for chart. See also this latest news.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Attractive exposure to gold-copper stocks

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I am currently holding a number of speculative gold-copper stocks, which I tend to trade whilst I work. The ones I am currently active in are:

1. Azure Minerals (AZS.ASX) - they are probably going to double their resource base based on current drilling, which will allow them to greatly add to the net present value of their most advanced project (high grade copper, some gold) in Mexico. They also have JV partners like Oz Minerals and JOGMEC earning stakes in other projects, so there is some news coming from this stock in the next few months.

2. Marengo Mining (MGO.ASX) - this is a stock which I have been trading less successfully. I have a bit of paranoia about it because I recognise that whilst it is a large project, its a long way from mining anything. For this reason, I will stay out of this stock until they come back to 15c support.

3. Empire Resources (ERL.ASX): This is a WA based company with a gold-copper project in WA. It has a substantive resource, from memory suitable to heap leach processing. Forget the details now, but it looked like a nice small stock to trade. It has just broken out.

4. Ausquest Ltd (AQD.ASX): This company appears just read to mount a run. The chart looks great for a run up to its previous resistance of 19-20c. They have a substantive $20mil in cash, plus an appealing position in African greenstones, so one can expect some appealing gold drilling in future.

5. Vital Metals (VML.ASX): This stock is consolidating between 10-12c, however at some point it is destined to break out. They are still performing sampling, though I expect some interesting results from this explorer.

There are some other stocks I looked at which did not have much appeal to me. e.g. Platinum Australia (PLA.ASX) is always going to be a worry. Expect those pesky African workers to demand higher wages and to disrupt mining operations with protracted strike action as palladium prices rise, and they expect their cut of the action. Reed Resources (RDR.ASX) has exposure to vanadium, which does not interest me, and whilst they have lithium, its a small resource, and not so appealing commodity long term. These stocks will rise by year-end I do not doubt, but they are not my front-line stocks.

The outlook for the commodity stocks is looking good because the US Fed, Japan and European Central Banks are also looking at quantitative easing, which will debase your currency, unless you are holding 'hard' commodity currencies, and this tends to push up prices as commodities are priced in USDs. Gold, copper, tin are at historic highs, and even the softer metals are being rising despite their significant inventories. The weakness of nickel discouraged my purchase of a much-liked stock Metals X (MLX.ASX), however their run is likely to relate to their tin assets. I think they still have these.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com