Mike Fagan's Precious Portfolio: Introductory Golden Guide Issue
Alert No. 1
September 28, 2020
Introductory Golden Guide Issue
Dear Precious Portfolio subscriber,
Welcome to Mike Fagan’s Precious Portfolio and our special introductory Golden Guide issue.
By joining with us today, you’ve made an important decision — a personal commitment to seeking out additional high-profit opportunities in the resource space during this historic gold bull market.
With Precious Portfolio, we’ll be leveraging the expertise of our distinguished panel of legends to bring you what we believe to be the highest-caliber opportunities in the precious metals sector and related sectors — starting with our first two picks today.
We’ll also be focusing on proper portfolio construction across the full spectrum of the precious metals sector — from rare gold coins and bullion to the juniors, mid-tiers, and major metals producers.
Let’s start with a couple caveats:
Resource stock investing is inherently risky. In fact, we rarely call it investing at all. It is speculating pure and simple. For that reason, we strongly recommend allocating only a small percentage of your overall investment capital to the resource space.
Yet, we understand why people are so attracted to it. The gains in this sector can be truly phenomenal — oftentimes surpassing 1,000% and materializing in a matter of weeks, as opposed to years for most other market segments.
We launched Hard Asset Digest in October of last year, followed by our official launch of Mike Fagan’s Precious Portfolio today, to capitalize on what we recognized early on as the formation of an elongated bull market for gold and silver in the face of unprecedented US government debt creation and out-of-control money printing.
And we’ve been dead-on accurate with that assessment as demonstrated by the 12-month charts for both gold and silver:
All indicators are pointing to a continuance of this “precious metals bull market for the ages” for a minimum of 3 to 5 years as our country grapples with the worst health and financial crisis of our lifetime.
Our experts have successfully created $billions in combined wealth for themselves and for their clients in previous gold bull markets just like the one we’re entering now.
And, they’ve already been handing readers a steady stream of 100%+ winners in short order within the pages of Hard Asset Digest. Now, with Mike Fagan’s Precious Portfolio, our collective aim shifts toward actually creating a model portfolio for you to follow with timely buy alerts.
Now, don’t get me wrong… this is far from easy money. Resource speculation is about as risky as it gets in the stock market. Mark Twain once famously described a gold mine as “a hole in the ground with a liar standing on top!”
Of course, things aren’t quite so treacherous today!
The resource sector has benefited from a number of risk reduction measures over the years such as the adoption of National Instrument 43-101, which formalizes the Standards of Disclosure for mineral projects within Canada — which is where a majority of mining companies are headquartered. Yet, an elevated risk quotient still persists in this sector.
So it is with those caveats in mind that I formally welcome you to Mike Fagan’s Precious Portfolio. Let’s get started!
The Golden Cycle
If you learn just one thing from Hard Asset Digest and Mike Fagan’s Precious Portfolio, let it be this: GOLD MOVES IN CYCLES!
You can see that as clear as day in the S&P Commodity Index chart below:
Every single time this chart hits gold — a massive money-making window opens up in gold and resource stocks. And within those intermittent profit-windows, the market-average returns have been as high as 1,200%.
Today, after a nearly 10-year precious metals bear market, that same money-making window is wide open once again.
The second thing you should know is… GOLD ALWAYS EVENTUALLY OVERSHOOTS signaling the end of the bull and the beginning of the bear.
That’s the true nature of cycles → bear markets are the authors of bull markets and vice versa. So knowing when to get out of natural resource stocks can be just as important as knowing when and how to get in.
And thus our aim is simple: To position our members for consistent gains while our golden window remains open... followed by a graceful exit as the window begins to close.
Perhaps the strongest and most reliable indicator of a healthy gold bull market that can persevere over an elongated timeframe is the presence of intermittent price pullbacks in the commodity itself.
These pullbacks can be thought of as “predictable periods of consolidation marked by intermittent profit-taking” wherein specific resistance levels are tested prior to the resumption of the overall upward trend.
One of our experts, Rick Rule, often says, “The best gold bull markets are the ones that sort of grind higher!”
And that’s precisely what we’re seeing today with gold’s recent impressive run to all-time highs near $2,100 per ounce in early-August followed by a “predictable and healthy pullback” to ~$1,900 an ounce now.
That’s simply what resilient precious metals bull markets do. Gold, silver, and the equities that comprise our sector-of-choice are now consolidating and gathering energy for the next major leg-up in value.
Ideally, the next round of sector highs will be 15%-25% above previous resistance levels — and so on and so on.
Remember always that it’s a fool’s game to be sucked into ANY trend that moves straight up. That’s precisely how bubbles form… and bubbles always end in spectacular fashion marked by a catastrophic loss of investment capital.
Rest assured, our experts see no bubble forming here and instead are capitalizing on what they view as an extraordinary, long-term wealth-building opportunity in precious metals and precious metals stocks.
Editor’s Note: As a Precious Portfolio perk, Rick Rule is offering you a complimentary personal portfolio consultation. This is what Rick had to say: Mike, if your Precious Portfolio members will go to sprottusa.com/rankings and enter their resource stock portfolios (and mention Mike Fagan’s Precious Portfolio in the “How did you hear about us” field), I will personally rank them 1 to 10 – one being best, 10 being worst – and comment on those companies where I think my comments have value.
In addition to that, I will email them two charts: 1.) a 45-year Barron’s gold mining index chart, which shows us in very dramatic fashion where we are in terms of this gold equities rebound, at least in a historical context, and 2.) a one-hundred year commodity chart that we’ll be utilizing in our ongoing discussion of this historic precious metals bull market.
The Precious Portfolio
Our Precious Portfolio forms the basis of our proprietary methodology for constructing and maintaining a properly balanced resource stock portfolio. In it, I’ll be handpicking the best-of-the-best stocks from our panel of distinguished legends into a model portfolio you can personally emulate.
It’s also where we’ll be covering the entire value chain of the resource space from the junior explorers and prospect generators to the major producers and royalty companies… and everything in between.
As you can see from the image (above), we’ve broken down our Precious Portfolio into three distinct tiers: Majors, Mid-Tiers, and Juniors. We’ll be referencing these tiers throughout our bi-weekly alert service as we select and manage our positions.
Editor’s Note: Due to the high volatility and cyclical nature of the resource stock sector, speculating in this space carries with it an elevated level of risk. It is recommended that you confer with your financial planner and/or broker to determine how much trading capital you can comfortably allocate to this sector. Each person or family has a unique financial situation. Take care in determining yours, and never risk more money than you can comfortably afford to lose.
Let’s start with a basic understanding of our 3 Tiers:
Tier-1 – Majors: These are the large-cap precious metals producers, royalty companies, and streaming companies. Most of these stocks pay a quarterly dividend and represent the lowest-risk component of our three tiers. In general, the value of these companies is closely tied to the price of gold (or the primary metal they’re producing). Note: both of today’s picks will be coming from Tier-1.
Tier-2 – Mid-Tiers: These are the mid-cap precious metals producers, prospect generators, and royalty/streaming companies. Most of the companies in Tier-2 do not pay a dividend and typically present a higher risk factor than the majors. We’ll primarily be looking at mid-tier miners that are advantageously positioned for buyouts by larger producers.
Tier-3 – Juniors: These are your small-cap explorers and prospect generators. In general, the juniors hold the highest risk factor of our three tiers. These companies never pay a dividend, and their share prices are oftentimes tied to a single drill result. Junior miners come in all sorts of configurations with the most common being the explorers, developers, and prospect generators.
Naturally, we’ll be taking a closer look at each of our tiers and the resource stocks that comprise them throughout our bi-weekly alert service. In general, our trading methodology calls for an even distribution of trading capital across each tier:
- Tier-1: 33% of total dollar amount invested
- Tier-2: 33% of total dollar amount invested
- Tier-3: 33% of total dollar amount invested
Gold coins and bullion also belong in Tier-1, and we’ll be discussing those separately in upcoming alerts.
Editor’s Note: As another Precious Portfolio perk, Van Simmons — president of David Hall Rare Coins and cofounder of the PCGS (Professional Coin Grading Service) — is offering you a complimentary private consultation to go over your financial goals and rare coin/bullion aspirations. Please keep in mind that Van is on west coast time. His number is 1-800-759-7575 and you may also email him at Van@DavidHall.com.
Precious Portfolio: Alert #1
Today, we are selecting our first two picks:
Tier-1: Barrick Gold Corp. (NYSE: GOLD) → BUY
Tier-1: Wheaton Precious Metals Corp. (NYSE: WPM) → BUY
With these first two picks from Tier-1, we are forming the “lower-risk” base of our Precious Portfolio.
We will typically never have more than 4 to 5 stocks from Tier-1 in our Precious Portfolio. Oftentimes, we’ll be selling one stock to make room for another. Optimally, at any given time, our Precious Portfolio will be composed of 15 to 18 stocks evenly allocated (in terms of $-amount invested) across our three tiers.
Let’s take a look at our first two stock selections from Tier-1:
In Tier-1, our aim is to build a base of lower-risk precious metals stocks that 1.) are largely tied to the price of the primary metal(s) they are producing or streaming, and 2.) pay a solid quarterly dividend.
Barrick Gold Corp. (NYSE: GOLD) → Tier-1 Buy Signal
With its US$50 billion market cap and 70+ million ounces of proven and probable gold reserves, Barrick Gold (NYSE: GOLD) is the world’s second largest gold mining company behind only Newmont [which surpassed Barrick following its acquisition of Goldcorp in 2019].
Barrick, after its major acquisition of Randgold Resources for $6.5 billion in 2018, has gold and copper mining operations and development projects spanning 13 countries across North and South America, Africa, Papua New Guinea, and Saudi Arabia with a focus on high-margin, long-life assets.
Last year, Barrick produced 5.5 million ounces of gold at all-in sustaining costs of $894 per ounce – and 432 million pounds of copper at all-in sustaining costs of $2.52 per pound.
Note: Gold is currently trading around $1,880 per ounce, and copper is currently trading just above $3 per pound.
Despite numerous COVID-related challenges, Barrick has been immensely profitable over the past year-and-a-half capitalizing on a rising market for gold to earn almost $4 billion in 2019 and another $757 million during the first half of 2020.
Barrick also pays a growing dividend. In August, the company’s board declared a dividend for Q2 2020 of US $0.08 per common share representing a 14% increase over the previous quarter’s dividend and the third time in the past four quarters Barrick has hiked its dividend.
Current price: US$27.76 per GOLD share
Barrick’s share value is closely tied to the commodity prices for gold and copper. Establish your Barrick Gold (NYSE: GOLD) position incrementally and look for opportunities to buy on weakness.
Wheaton Precious Metals Corp. (NYSE: WPM) → Tier-1 Buy Signal
With a US$22 billion market cap and streaming agreements for 20 operating mines and 9 development stage projects around the globe, Wheaton Precious Metals is one of the world’s largest precious metals streaming companies.
For those unfamiliar with the streaming model, here’s a quick breakdown:
- Streaming companies provide cash to mining companies at various stages of mine development [providing mining companies with an alternative form of financing beyond relying on banks or capital markets].
- In return, the mining company is contracted to sell to the streaming company a certain portion of its metals production at a preset, below-market price at certain points in the future.
- Streaming companies generally use short-term debt, such as bank loans, to cover the initial expense of a streaming deal and then sell debt or issue stock to permanently finance the deal.
- Once the commodity is delivered to the streaming company [at the previously agreed upon price], the streaming company may then sell the commodity in the open market to generate revenue or keep some of the commodity in reserve.
- The biggest benefit for a gold streaming company [in addition to avoiding the risks associated with operating a mine] is that they get to buy gold at reduced prices, thus, locking in wide margins no matter what’s happening in the commodity market for gold.
- From a speculator’s viewpoint, investing in a gold streaming company provides exposure to gold itself. And, because of the wide margins just described, most of the large cap streaming companies are able to pay a dividend to their shareholders with Wheaton Precious Metals being no exception.
Wheaton’s impressive portfolio of streaming agreements is driven by a focus on low-cost, long-life assets, including a gold stream on Vale’s Salobo Mine (Brazil), and silver streams on Glencore's Antamina Mine (Peru) and Newmont Goldcorp’s Peñasquito Mine (Mexico).
Despite six temporary COVID-related mine shutdowns in 2020, the company’s portfolio still managed to deliver solid results over the first half of the year, generating over $500 million in revenue and nearly $330 million in operating cash flow.
Further, the company’s sales volumes have remained robust, generating a record 322,000 gold equivalent ounces sold in the first half of 2020.
Wheaton’s dividend is variable, which means the math behind it is preset: It pays shareholders 30% of the average cash generated by operating activities over the previous four quarters. And as such, investors don’t have to worry about any surprise dividend moves by the company’s board.
Wheaton’s current quarterly dividend stands at US$0.10 per common share. Further, the company has set a minimum quarterly dividend of $0.10 per common share for the duration of 2020 representing an 11% increase relative to 2019 [and an increase of more than 90% over a five-year period].
Current price: US$48.30 per WPM share
Wheaton’s share value is closely tied to the commodity prices for gold and silver. Establish your Wheaton Precious Metals (NYSE: WPM) position incrementally and look for opportunities to buy on weakness.
With this introductory Golden Guide issue, we’ve established our first two stock selections from Tier-1 – Barrick Gold and Wheaton Precious Metals – and we’ve gone over some of the basics of the service.
As mentioned, resource stocks are highly volatile, so a common term you’ll be hearing throughout is “buy on weakness,” which refers to building a stock position incrementally on intermittent price pullbacks.
This can be an effective approach for lowering your average cost basis on any particular stock position.
Some of our members may prefer to “paper trade” our selections as a means of testing out the service and learning the trading discipline without actually risking any investment capital. And that’s fine too!
Look for our alerts in your inbox every other week and as circumstances dictate. We’re ecstatic to have you onboard!
Yours In Profits,
Editor, Precious Portfolio