Weekly Trends: August 3, 2013

Scorpio Mining Corp. is “Stock of the Week” | Headlines Continue to Sway Precious Metals Price Action

Commodity Talk

Precious metals price action continues to be swayed by headlines. Prices are up one day on bad economic data that is interpreted as an indicator to keep QE going, but down the next after positive economic data suggests the economy is improving and signals QE is no longer required.

Silver finished the week and month virtually unchanged as the metal continued to pull back from its recent run to $20.50. Since making a spike low of $18.17 on June 28th, Silver has shown impressive resiliency by making a series of constructive higher highs and higher lows. The $20 area continues to act as a difficult level to overcome on a weekly timeframe and remains slightly oversold based on the RSI reading (28). Silver has channeled lower since the beginning of May, but now has three tradable areas of support and three nearby resistance points. Moving forward, support levels are $19.20, $18.65 and $18.17; resistance areas are $20.25, $20.60 and $21.19.

Silver Yearly Chart 2013

Silver Chartheaders_mrktcommnt

While it was a down week for the Venture, it was not a drastic one like we have become accustomed to over the last several months. After poking into positive territory, the new highs – new lows indicator turned red and looks to close out the week down 15. It will be interesting to see how the Venture fairs over the coming weeks as earnings season continues. Junior miners and investors should pay close attention to the statement in Barrick’s earning results that states, “For the remaining operations with expected 2013 AISC (all in sustaining costs) above $1,000 per ounce, Barrick will either change mine plans, suspend, close or divest these assets to improve cash flow.”

Reading between the lines, Barrick does not believe gold prices will be rocketing to $2000+ anytime soon. If they are changing their strategy to become more streamlined and cost efficient (took them long enough) then they believe that gold prices may remain supressed for some time.

TSX-V Chart

TSX-V Chart


Scorpio Mining Corp.Shares Outstanding: 198.5 million
Share price: $0.37
Market cap: $73.5 million

This week we take a look at Scorpio Mining, a small silver producer in Mexico. Scorpio is profitable even at current silver prices and had net earnings of $1.25 million in Q1. The company is in a strong financial position with $26 million in cash and 11.3 million shares in its sister company Scorpio Gold.

Peter Hawley, founder of Scorpio Mining and CEO of Scorpio Gold, has his interests aligned with shareholders and currently owns 1.8 million common shares. A recently released PEA shows strong economics with an after-tax rate of return of 151%. Scorpio’s share price had a bit of a stumble in early June as permits for the El Cajon project were denied, which will push back development plans by a few months. At these levels the stock provides value, especially if silver prices move higher.

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