Millennium Minerals, Searching for a Greater Fool

Source: Bob Moriarty for The Gold Report   05/08/2017

Precious metals expert Bob Moriarty updates investors on recent moves by Millennium Minerals in Australia and discusses recent moves in the silver COT reports.

After a record fourteen days of decline silver looks as if it’s ready for a dead cat bounce. Back in mid-March I did write about a pending correction. The open interest and speculator longs in silver futures were at record levels. Precious metals did turn about that date.

The COTs released on Friday, May 5, 2017, tell the story about who is moving the metals markets lower.

Silver COT Report

I did an interview about ten days ago where I commented on the number of speculator long positions. I said that I expected to see a decrease of 40,000 to 50,000 speculator long positions before we see a bottom in silver. Last Friday’s COT reports do a wonderful job of demonstrating just who it is that drives markets lower.

If you look at the chart above, you can see that large speculator long positions dropped by 19,480 and small speculator long positions increased by 2,187 contracts for a net decrease of 17,293 for the week ending May 2. And since we want to see just who is driving the market we look at the commercial shorts and see they closed 21,199 positions.

Now we know that all commodities are a zero sum game. That is, for every contract you have one buyer and one seller. Each person trading a contract has to either buy first and close by selling or sells first and closes by buying. There can be no “naked short sellers” since it is a zero sum game with one winner and one loser and all contracts are covered by an equal and opposite position. Anyone using the term “naked short sellers” referring to commodities is only advertising their ignorance of how the markets work.

In the week ending May 2, silver prices dropped a lot. In fact so far they have gone done 15 days in a row and went down every single day of the week the COTs cover. So if the commercial shorts were actually driving the market by closing 21,199 positions in some sort of panic, just how could they have done that?

For the shorts to close a position, they have to buy a contract back. So the commercials bought 21,199 more contracts than they sold. And the speculators sold 17,293 more contracts to close their positions than they bought. You can’t make prices go down by buying so simply and clearly it was the speculators in a panic who drove the market lower as they always do.

Without any doubt this week’s COTs will also reflect the speculators still in a panic and prices will continue to go lower until the weak hands have all sold at the bottom as they always do. The lower the speculator long positions, the safer it is to be a buyer. Speculators always buy at tops and sell at bottoms. I cover this at length in Nobody Knows Anything.

At the end of February I wrote a short piece about an Australian gold company named Millennium Minerals (MOY-ASX). Since that report, the market cap of the company dropped about 30% but lots of resources shares have dropped that much and more. The shares went down even as the price of silver and gold were increasing from the 10th of March.

The article was pretty simple and easy to understand. Through a lot of mismanagement Millennium Minerals seems to have painted themselves into a corner. For the last year they have spent all their free cash drilling out some 28 different deposits. Their largest gold resource is a transitional sulfide ore that can’t be recovered with the mill they have. They really aren’t running a mine, but an employment agency.

The company came out with a press release a week after my piece came out listing more drill results. It did nothing to increase my confidence in the company; in fact it did the opposite. When companies bury you in more or less meaningless data it been my experience that they are trying to conceal more than to reveal. It comes under the “If you can’t dazzle them with brilliance, baffle them with bullshit” rule.

Basically, Millennium has a mill designed for oxide gold. They are drilling a lot of sulfide material that can’t be recovered economically without spending $50 million or more to upgrade their mill.

I suspect large shareholders in the company are pushing management to unload the mine and mill while their shares are still in the stratosphere. The shares traded below $0.04 Aussie in December of 2015 and probably that more reasonably represents their true value than the $0.40 they reached in August of 2016. Having a tenfold increase in the share price I feel certain made major shareholders try to figure out how to unload them under the Greater Fool Theory.

I think Millennium Minerals is trying to sell the company and management has been told to spend all their free cash painting lipstick on the pig. Their latest press release dated May 4, 2017, gives me even more confidence in my belief. I have made the comment many times and in my book that when someone is trying to con you, they tell you things that are both perfectly true and perfectly meaningless at the same time.

The company claims in the release that met studies show they can recover more than 90% and some 850,000 ounces of this “fresh ore” using conventional sulfide floatation and furthermore up to 30 deposits at Nullagine are open at depth.

As to the first claim, nobody get better than 90% recovery of sulfide ores using floatation unless they roast the ore. 90% recovery would be excellent using even the most suitable oxide ore. I’m skeptical when I hear anyone claim more than 90% recovery of any ore, much less sulfide ore. Millennium is off the grid and their power costs are probably in the $0.50 a kWh range. Roasting and floatation are expensive even when power is cheap. It’s not cheap in Northern WA.

As to 30 deposits being open to depth, of course they are. The fact they are drilling 30 deposits should tell even the most ignorant of investors something important. How many other mines, not matter how large, are getting ore from 30 different holes in the ground some up to 40 km from the mill? One of the biggest costs in any open pit mine is stripping costs. And the more holes you dig for ore, the more you have to strip. If they had a low strip ratio, you can safely bet they would be bragging about it.

Millennium Minerals can only extend the life of their mine with a giant infusion of cash in the tens or hundreds of millions of dollars. They are spending all their free cash right now on generating numbers that are as meaningless at the U.S. dropping the MOAB on a hole in the ground in Afghanistan. That’s the only country in the world where bombing the place back to the stone ages improves the standard of living. They can always sell the iron from the bombs.

When you have dug yourself into a deep hole, the very best thing you can do is to stop digging.

I have no financial relationship with Millennium Minerals in any way. I am neither long nor short any shares.

Millennium Minerals
MOY-ASX $0.21 (May 05, 2017)
780.9 million shares
Millennium website

Bob and Barb Moriarty brought 321gold.com to the Internet almost 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Bob Moriarty: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. The following companies mentioned in this article are advertisers on 321 Gold: None. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article.

Chart provided by the author.

( Companies Mentioned: MOY:ASX,
)

from The Gold Report – Streetwise Exclusive Articles Full Text https://www.streetwisereports.com/pub/na/17431

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s