The Thinking Behind My Helca Mining & Silver Wheaton Trades

I was back on Stock Twits TV again last night talking my book.  This time discussing  Helca Mining and Silver Wheaton.  I make my pitch around the 9:00 mark.

Notes:

I had to cram alot of stuff in three minutes.  It looks like I made a mistake and would also I like to clarify a couple of points.  To calculate EPS you need operating margins not gross margins.  So, leverage  may not be as large (example used: 10% increase in gold price generates 20% increase in profits).  However, the concept is correct.

I also made an assumption that expenses were mostly fixed once a mine is built.  For the most part they are.   However, if oil gets out of control variable costs become more of a factor.  That’s exactly what happened in 2008 – when oil shot up to $140/barrel. If oil prices go up significantly faster than gold prices the leverage doesn’t materialize.

Finally, to clarify the GDX:GLD ratio; if GLD declines or out performs the miners the indicator goes lower.  If GDX out performs GLD the indicator goes higher.  If the big boyz think gold is going higher they pile into the miners for the leverage.  That’s exactly what is happening right now.

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