Value is in the ground

Apr 12th, 2010 – Comment

If your view of the future is driven by concern about inflation what that implies for the value of gold then NG is a good hedge against that outcome.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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NovaGold

 

Hi Lou,

I purchased NG @ 5.75 in Sep 2009. It closed @ 7.84 on April 9,2010. Not bad performance in my books yet analysts consistently rate NG “underperform”. Am I missing something?

Thanks,

Richard

 

Hi Richard,

I don’t think that you have missed much but it does speak to the challenges of equities analysis as a practice. Every research report is date stamped on the day of release and provides a a good update as to the situation regarding a company as of that moment.

Its a snapshot, not a movie, a moment frozen in time. What happens after that is out of the control of the analyst. The renowned physicist Niels Bohr once said ” predictions are very difficult, especially about the future”.  Lets spend some time on NovaGold Resources Inc. ( NG TSX).

 

ng

The three year chart paints a picture of a stock that has had a nice ride from the lows of late 2008 and has created wealth for investors like yourself who have gotten on the ride and earned a return.

The golden cross in place since June of 2009 drove NG to an overbought situation that was signaled by the RSI from where it pulled back. It has tested support along the 200 day moving average and caught a bounce each time indicating that investors are buying on the dips. There is resistance at $8.00 so there could be a pullback to support from these levels.

What you have to know about NG is that their two big gold properties, Donlin Creek and Galore Creek, which have combined  resources estimates at close to 41M ounces of gold, are both in remote areas and will require expensive solutions to the transportation needs of both projects.

On the plus side you have hedge funds affiliated with the likes of George Soros and John Paulson stepping up to the plate in March of 2010 with a combined $175M to further develop the potential of the two deposits.

 

ng3

The one year chart provides a better view of the recent movement in the shares of NG which illustrates the resistance it is facing in the $8.00 range.

 

If your view of the future is driven by concern about inflation what that implies for the value of gold then NG is a good hedge against that outcome. A scenario that envisions an accelerating value  for gold suggests that at some price the transportation problems at Donlin Creek  and Galore Creek become irrelevant.

That’s the snapshot for today and remember the right hand side of the chart writes itself!

 

Happy Capitalism!

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