D. Stewart Armstrong
Preface and Insights
One of the questions I receive most frequently is why xyz stock is down (never why is it up)? When the gold price is moving up, everyone is smiling, but when gold and the precious metals markets are moving downwards, everyone is doom and gloom and wants a reason—now! The financial press is only too happy to oblige with a daily commentary of blather. In other words, gold was up because the dollar was down, vice versa, or some other reason as for movement. Of course sometimes they have it right, but so often I feel their commentary is just to fill up space and appease the masses with a reason, any reason!
I want to suggest an insight to both investors and management. Nothing occurs in a vacuum. Another insight is that try as you might, you cannot talk up a stock or a company over the long term. I’ve seen companies “throw” a million dollars at promotion and move a company stock up to $3.00 only to see that stock fall to $.25 when the promotion stops and the tenor of the market changes. We also have to remember that sometimes these orchestrations are nothing less or nothing more than “pump and dump” machinations.
Therefore consider the cost averaging approach to both purchasing stocks (investors) and promoting them (management). My job then becomes to keep a certain stock of some quality in your consciousness—over time; up or down, expensive or er, less expensive. Get the picture? Fundamentals basically run the story—the story does not run the fundamentals.
Companies should “keep on keeping on” just like the old hippies used to “keep on truckin’”? Why? Because that is what they do. Some do it more successfully than others but that doesn’t change the fundamentals of the basic equation.
Making sense of Golden Phoenix
I must admit I’ve been trying to make sense out of Golden Phoenix being at $.15. That is what most investors are primarily concerned about—the $.15 share price so I will address that topic first. However, my opinion is that we have to transcend the share price and look closely at how the company is functioning in these treacherous financial waters especially within the context of the entire junior mining sector. Should one be asking the question “how can Golden Phoenix be an American success story when their share price is at $.15?” Or should they be asking “what is Golden Phoenix doing to create shareholder value and protect their assets?”
My understanding, from talking with Rob Martin is “damn the torpedoes, full speed ahead!” I would then respond to you by saying that it’s not always about the share price of a company but how that company is responding in an economic environment that is absolutely challenging beyond belief. Regardless of the price, and I know it is so very important in everyone’s decision-making process, I have to say that this is an environment where one needs to look at the underlying value of the company and what they are attempting to accomplish.
Indeed, we could go on about these dismal financial markets ad infinitum and ad nauseam because they truly are nauseating. Suffice it to say for this exercise, Golden Phoenix is a reflection of how all of these markets, and the puppeteers behind them, are pulling the strings. Jim Sinclair (www.jsmineset.com) has recently released a list of 22 criteria for investors to review in the choosing of a quality junior company. I am going to begin using this list as I review my own portfolio. Of course, I will also use my own standard five point criteria which I’ve been advocating for seven years:
- Quality, Experienced Management
- Top Echelon Projects
- The Ability to Finance
- The Willingness to Promote
- Company Ethics beyond Reproach.
As you combine these two lists, you’ll see where there is a great deal of overlapping. My list has room under each major category to include Jim’s specific ideas so you might consider mine as the one simplified and easy to remember, a broad overview list and Jim’s as the more detailed (refined) one.
My feeling is that Golden Phoenix meets most of these criteria.
Jim Sinclair’s criteria to consider (verbatim) for the selection of a precious metals junior is as follows:
1. Management ethics, found out by checking litigation, criminal and credit records. All this information is now easily attainable.
2. A property or properties with outstanding upside promise sustained supporting data.
3. History of success both on the ground (properties to mines) and in the financial markets (stock performances of at least 10 to 1 value).
4. Strong hands on board
5. Key man insurance
6. Order of succession in place.
7. No anti-takeover devices written into the indenture of your certificate.
8. Availability of knowledgeable person in the company to speak with.
9. You retain a property-qualified geologist to perform a desk review of all exploration, development and production information at company headquarters.
10. A property visit by this consultant if the position is to be of significance.
11. The company has access to financing.
12. The company has used financial restraint, therein having control over insider options, preferably none.
13. The company has no warrants outstanding.
14. A significant short position at this time is highly desirable.
15. The market must be liquid so therefore some respectable listing is preferable.
16. Preferably not listed on the Frankfurt Bremen Exchange.
17. Key executive and board members hold a reasonable amount of shares.
18. Goodly number of stockholders.
19. Owned by but not primarily owned by some respected fund interest.
20. Preferably not in any index.
21. The company has a good Sarbanes Oxley program with financial checks and balances.
22. Audited by a respectable firm with special attention to who does the subsidiary audits if offshore to the venue of incorporation and trading.
What more can you say? Jim, as usual, along with Dan and Monty and the entire crew have hit the nail on the head. I would say that it is almost impossible for most companies to hit on all 22 cylinders but I think something in the vicinity of a 75% score would certainly be worth considering. I find it quite interesting that Mr. Sinclair mentions ethics as the number one criteria. In this day and age, if you are falling short in the ethics department, you are certainly letting your shareholders down.
Finally I would say that Jim is really referring or at least considering his own company Tan Range Explorations as the template for compiling these 22 criteria. More power to him– he has worked very diligently on behalf of the gold mining community and has never pushed his company out front and center. He is an extraordinarily respected member of this community–and for good reason.
Review the GPXM Website.
As always, I suggest that you review their excellent website at www.golden-phoenix.com. Pay special attention to the Highlight section which is on the front page. The company normally places the latest news in this section.
Then, I suggest that you go to menu bar heading “Everything Else” and look under the sub-headings of “facts and figures ” and find “Photos, and especially “Spotlight” wherein they lay out an excellent historical perspective of the company. It is truly a well presented web site and it deserves your attention. If a picture is worth a thousand words, GPXM is worth a few million.
There are two products for which Golden Phoenix is in the hunt. One is molybdenum, and the other is gold. They are already a producer of molybdenum or “Moly” to which it is commonly referred. But remember that this company does have cash flow, they are a producer, and they will eventually be a discoverer of additional molybdenum and in my opinion they will also be a discoverer of gold at their Mineral Ridge property.
Several Questions
First of all, the web site specifically addresses commonly asked questions under the heading “Everthing Else” and “Chat Shack”
There are several questions that come to my mind when I review this company. First, how is the price of Moly holding up? Secondly, how is the price of gold holding up? Thirdly, what is the financial condition of Golden Phoenix?
The last time I looked, the price of Moly was in the mid-$30 level, holding strong. Additionally, there is serious demand for the product. Molybdenum is used as an alloy to strengthen metal. This alloy of moly and steel creates a material with a special kind of tensile strength– both strong and flexible. This is the perfect metal utilized in constructing pipelines and things of that nature. The emerging markets of the world have a great need for Moly and the grade of Moly found at the Ashdown mine is of exceptional quality. As far as the price of gold is concerned, I think I might be preaching to the choir when I say that I believe it is going well past $1500 an ounce within the next several years.
Short term, it is anyones guess and it may even get back into the $850 range but I strongly doubt that. It is probably the most manipulated commodity on the planet and that is why we have to view the gold charts with somewhat of a jaundiced eye. Personally, I’d be more than happy to purchase gold at $850.
In terms of the financial state of Golden Phoenix, I think we could say that it is on solid footing. Money is not wasted in this company nor is it peeled off to be used as huge bonuses for management. No, I’ve always found Golden Phoenix to be more of a “mom and pop” operation– one where shareholders are taken seriously and where they are not considered to be collateral damage or a Collateral necessity.
I think we also need to remember that management has their own futures tied to the success of this company (#17). That means in effect that if Golden Phoenix does poorly, many of these people who put their life savings into the company are also going to be doing poorly. They are not operating in a vacuum and they have the interest of shareholders firmly in mind.
Not alone—not in a vacuum
I’ve been thinking about writing this update on GPXM for quite some time because many of you have called in or e-mailed me about the state of the company. And I have to admit to feeling that many companies are in the same situation as is Golden Phoenix and facing the same obstacles. In other words, when I answer questions pertaining to Golden Phoenix, I can extrapolate those answers and make them applicable to many other companies just as easily.
Regardless of how well they do, outside of having some huge gold discovery, many of these juniors are at the mercy of the markets and of the hedge funds that are shorting so many of these kinds of junior mining companies. That’s not a “cop-out” — it’s the truth. We need to keep reviewing Golden Phoenix in the context of the overall environment and when the dust finally clears I do believe you will see this company standing strong.
I know they’ve hired a new public relations firm, Equity Trend, who are assisting GPXM in getting the story out there. I’ve spoken with this group and I know they are looking to build a solid company of their own; therefore I anticipate them doing a splendid job. They are going to be helping Golden Phoenix into the mainstream and perhaps if the stars align properly the favor may be reciprocated.
It’s that simple!
I will cover this last point much more thoroughly in a future article but I want to take a quick sidebar about the one thing that affects all of the hard money advocates, all of the mining companies, and most Americans. The leaders of these United States have gotten us into such a fix that we are literally on the edge of a systemic meltdown and they will do everything in their power to suppress gold and the precious metals complex. But ladies and gentlemen, here is the kicker– they really have no alternatives. This is it, this is the rainy day. This is the day that we hoped would never come but have been preparing for it nevertheless. Remember that this relentless beating on the junior mining companies, and on gold is a necessity in their eyes because gold competes with the dollar. It’s that simple. So we shouldn’t be surprised at their antics; we should be expecting them. One of these days they are going to run out of something– energy, gold, lies, fabrications, and everything else which stands in the way of truth. If you believe that as I do then you will understand why so many of these juniors are at ridiculously low prices and you will understand why gold is at $900 when it should be at $2000; why silver is at $18 when it should be at $40 It’s that simple.
If they don’t run out of something, then the citizens of this great country will find a way to take their country back and it may well be led by Ron Paul and his Campaign for Liberty (www.campaignforliberty.com/). It’s that simple. This is not a diatribe against America, this is simply the legacy of the last 50 years of proliferate spending and the consequences of political malfeasance, toxic beyond imagination. It is that simple. So don’t despair.
Be a part of the truth and not a hindrance to it. (Sinclair’s Item #1)And now, back to our story.
The Big Plan
Many companies always have this idea that they will find a discovery, create a mining operation, create positive cash flow, and then to sell a product in order to fund additional exploration. I’ve said this before and I’m certain I’ll repeat it, but nothing could be more difficult. However, I think Golden Phoenix is on track and there are big plans ahead. My opinion is to hold on if possible because I think we’re pretty close to a bottom with this company. Of course so much depends upon what happens with Mineral Ridge, their gold property, and how fast they can balance cash flow projections, and market expectations in conjunction with new exploration. Don’t forget, they do have their own new drilling rig of exceptional quality! They are considerably ahead of the game in that regard.
Additionally, GPXM is in a relatively decent position to endure this horrendous financial environment where it is quite clear that investors are throwing out the baby with the bath water. We are now faced with a question of confidence within the entire international geopolitical-financial frame of reference.
Personally, I think it is an especially attractive entry point and I am not giving up on the company for a minute. My own personal attitude is that one cannot talk up a company in this environment. That means that investors have to make up their own minds as to whether or not they should or can hold on to the shares they own. But I think we’ll both agree to the idea that it is never a good idea to sell at the bottom of any market!
I know there are a great many dedicated loyal shareholders who feel a bit on the edge of their seats. If it is any consolation, 80% of the junior mining companies are in the same boat as Golden Phoenix and that boat is called a bear market or something akin to it. I am like kid in a candy store as I look across this junior mining sector and see the amazing gifts that are now being offered to us, Golden Phoenix being just one of them.
More Big Plans
My opinion of GPXM is that they are looking to move into the big leagues as quickly as possible. I know they are looking for bigger deals and I think ultimately they are going to be moving to a different Exchange. Furthermore, a major emphasis on this company is to grow into their share structure. I’m not exactly certain as to how they specifically exercise that feat at this juncture. But my opinion is that they are going to find a way to do it and much of it goes back to this idea, #17, that these people have most of the family fortunes tied up in this deal and they are going to make it work come hell or high water.
What is one to do?
So what is one to do? It all comes down to timing and in some cases the time. We already know that the market is depressed when in actuality it really should not be. It should be on a tear. There are supply displacements, there are a supply demand fundamentals in favor of Golden Phoenix, and we know that gold is a political metal. I sometimes wonder if these hedge fund goons doing the short selling and market manipulation ever stop to observe what a company is really producing. Golden Phoenix is a producer of molybdenum first and a gold explorer secondly — not the other way around; although the day may come where that just might be the case.
The timing issue is difficult because many have had to sell shares of Golden Phoenix at $.15 when we thought we were going to be selling them at $.60 to a dollar. That’s the honest-to-goodness truth and there’s no way that I can wave a magic wand and make that happen overnight. If you believe in the company as I do, and if you believe the real reasons why the share price is at this level, and you have the means to hold on, carefully consider your options.
Building a Company
It is my opinion that Rob Martin, president of GPXM, along with David Caldwell and Don Prahl, the Board of Directors and the entire team is endeavoring to build a company. They are not trying to build a share price. As disconcerting as that may be to shareholders who are desperate for cash, they need to do what’s best for the company because ultimately, that will be what is best for both the shareholders and the company.
They are building it one step at a time and they have been doing so quite efficiently for the past five years. Unfortunately, this macro financial environment in which we find ourselves is not helping the cause. Nevertheless, the company continues to build value for its shareholders by increasing their production of molybdenum, gearing up for further evaluations at Mineral Ridge, and trying to get the story out as best they can against a backdrop of doom and gloom.
As I just mentioned, they have hired Equity Trend to to assist them in getting the story out. The willingness to promote is a very important mindset for a company to have in this type of financial environment.
I believe they’ve come to the realization that now the company truly have something significant to talk about. I think it’s also a question of the activity surrounding the company is so intense that Rob and David Caldwell cannot handle the tide of calls that is coming into the office. This is all part of building a company and they have now attained a state of requiring a professional outfit to pro-actively promote the company. This is a good thing.
Listen, I have to admit to saying that I thought this company would be further along than it is. Perhaps most of us did. We thought we had more time. But oil prices at $140 a barrel combined with a myriad of other negative financial factors all played into this current situation. Now is not the time to take your eye off the ball.
What is my favorite saying? It is that nothing occurs in a vacuum. Everything is interrelated–in business and in life. The fact is that Golden Phoenix is competing for your investing dollars as are 2000+ other junior mining companies, many of which have excellent projects, and many of which are trying to raise money in this “stinko” environment. Most of these juniors are battling the same demons. The cream will rise to the top.
I know Rob Martin’s philosophy and it is basically “waste not, want not”. Their money, via the shares they are using as capital, is being spent on company improvements, payroll for highly qualified personnel, machinery, and all of the elements both physical and intellectual which make this kind of a company successful. In other words, you won’t find any fluff in their budget. They run a tight ship at Golden Phoenix and they are doing their best to roll with the punches, and to continue building a company of value, even in this environment of one financial crisis after another.
Remember, the United States consumer is in the same boat as are these juniors– long on potential but short on cash. Everyone needs cash and the liquidity crisis is certainly affecting the juniors. I know for a fact that this company doesn’t like to create more shares but when they do those shares are treated as currency and that currency is spent wisely. I would not fret about the outstanding shares because they are balanced out by valuable assets–again, both physical and intellectual.
We must remember that there’s not only a need for liquidity in companies, there is also a need for liquidity in families when adjustable mortgage rates are rising, credit card companies are destroying people with interest rates topping 28% interest per annum (which is absolutely usury and criminal) and one medical emergency can put a family in the streets. This is the country in which we currently find ourselves.
I think we have to understand also, that this is a company twixt and between and there are issues which need to be resolved such as the Win Eldridge arbitration. But I don’t see that as being one of the key elements in depressing the share price. I suppose there are people concerned about this one issue, but I think the two parties are working out the disagreement along the lines of the arbitration contract which was agreed to before the partnership was consummated. They will get through it and at the end of the day both companies will work it out and make the best of the final decision.
The Chart
I was going to insert the GPXM chart with this article but many of us, myself included, are not excellent chartists. Therefore, just because the trend has been downward, I didn’t want to spook people. However, I will tell you that from what I know, and from talking with others who are much more experienced in charting than I, GPXM is looking like its hit a bottom. From here it turns up, especially after the summer doldrums subside at the end of August.
Jim Sinclair states that many of these quality juniors may rise by a factor of 10 (1000%). In my opinion, Golden Phoenix is a prime candidate for this kind of a move over time; again, especially at the end of this summer. I approach these high risk-high reward plays from a fundamental perspective but I do have confidence in charts to tell us directions and trends. However, I find myself constantly challenging the charting perspective when I consider how much manipulation is occurring in the gold and PM markets. Listen, lets not be naive, there is always manipulation in the markets (all markets), but when a country stands on a financial precipice, that manipulation reaches an historical level of tension. That level of manipulation taints all charts, forecasts, and prognostications–especially in the commodity and the PM sectors. (Why? Because those are the sectors that will reach right down into the American pocketbook; right down into your wallet)
In conclusion, a combination of both disciplines, fundamentals and charting, would appear to be the best approach, especially as you evaluate companies like Golden Phoenix.
Conclusion
To my way of thinking, GPXM is at a very attractive entry point. Yes the share price has been punished, but they are not alone as the entire precious metals sector has been punished. We have to remember over and over and over that precious metals and tangibles compete with the dollar and the dollar, the common stock of the United States of America is in deep trouble regardless of what the politicians would have you believe. If you read the charts, if you read Richard Russell, if you read Bill Buckler, Bill Murphy, Enrico Orlandini, Roger Wiegand, J. Taylor, Jim Willie, and many others, you will hear the same thing over and over again. Dollar-stock markets down, gold-precious metals up. It’s that simple. Golden Phoenix has Gold in their name and they are moving back to the center, back to their roots, after establishing a financial cash flow with molybdenum. Anyone, who finds it necessary to sell quality companies in this environment, is not doing themselves any favors. I realize as much as the next guy, that it is very difficult to get out of debt, we all need cash, and our beloved country has not been run very well over the last 10 or 15 years.
But I will tell anyone who will listen that quality junior mining companies will do well in the very near future. Gold will be going over $1000 an ounce within six months and silver should be at $30 an ounce within six months to a year. Timing is always difficult, and I’m not a market timer, but I do see what’s happening out there and I am indebted to the people I just mentioned to you for their insights. I personally believe that Golden Phoenix is going to do just fine but they have to work themselves through this environment and truth be told, they are further ahead than many companies because they do indeed have cash flow.
Remember that when you are a cash producing junior mining company you are held to a higher standard. You get the best and the worst of it. People expect you to be generating tons of cash which can be used for all sorts of things including exploration. But when a company has 80 employees, is purchasing expensive machinery, expanding mining facilities, and generally trying to support a large network of business related endeavors, that cash can get sucked up ever so quickly. It’s all about economies of scale and simultaneously operating several businesses effectively.
So, is Golden Phoenix still an American success Story? Review their projects, study their assets, talk with their representatives, review the chart, and keep it all within the context of this challenging financial environment and you be the judge. This is a company that regardless of its current share price has the ability to leap frog forward in an exponential fashion.
I’m eating my own cooking, as Roger Wiegand has said to me, and just this past week (July 20th-08) I purchased a block of Golden Phoenix shares. This is a vote of confidence, in spite of the fact that I do have options and quite a few other shares acquired over the years from private placements and open market participation.
I would again we urge you to review their website at www.golden-phoenix.com for the answers to your technical questions and their latest press releases.
Until next time,
D. Stewart Armstrong
Consultant to the Junior Mining Sector
consulting@seacoastpub.com
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