Mining: what companies are actually saying

#1- Our gold production is going to go up over the next few years

Translation:  We are going to waste money on dumb projects and we still won’t be able to increase production.

The conventional wisdom is that miners have to re-invest their capital to maintain or increase production.  This is idiotic.  If you will get poor returns on new mines, then don’t build them.  There is no rule in capitalism that says that you have to throw away money.

What happened in the gold industry is that the seniors chased dumb projects and didn’t make as much money as they should have in a bull market.  And because the economics of the new mines were bad, they didn’t even manage to increase ounces produced per share.  In hindsight, gold miners should have returned capital to shareholders and let production drop instead of chasing dumb projects.

#2- We have initiatives underway that will decrease production costs

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Mines leveraged to commodity prices

Some people make the argument that mining stocks are leveraged to commodity prices.  (I would agree with this.)  One might think that low-margin deposits would be more leveraged to commodity prices than high-margin prices.  I’m not so sure that this will work out the way most people will think it will work out.

Altisource (ASPS) – Part 2 – Insider behaviour

This post discusses:

• Home Loan Servicing Solution / HLSS (which I overlooked)
• William C Erbey – Chairman
• Robert D. Stiles – former CFO

Altisource (ASPS) – Part 1 – A spinoff / growth situation

A discussion of spinoffs and a shallow first pass at valuing Altisource.

Enterprise storage stocks (EMC, NTAP, FIO, STEC, etc.)

I’ve been researching this industry.  On my first pass at it, I’m not very excited about these stocks at the moment.  I think it would be prudent to patiently wait for Mr. Market to have one of his mood swings.  Valuations are not compelling at the moment.

There is a lot of hype surrounding flash technology.  Many companies making flash-based products have very high short interest (e.g. FIO, STEC).  While these stocks will likely go down, they may not be compelling shorts due to expensive put options and high short interest affecting the borrow on the common stock.  Basically… nothing in this sector is really compelling to me at the moment.

Using options

A previous post covered the valuation of options.  Now let’s look at investment/speculation opportunities in the options markets.

Reading financial statements: options

When reading financial statements, it is worth checking to see if stock-based compensation is being expensed properly.  Here’s how.

Usually they will use the Black-Scholes model to value options and they will state the expected volatility figure.  Compare that number with the historical volatility of the stock.  One easy way to get historical volatility information is to look at the Morningstar Options website (here is the page for Berkshire Hathaway).