Wish you were on the radio in Edmonton. I would like your opinion of Jaguar Mining. I bought some last year, sold it on the takeover rumour, did well but went back into it after the rumour fell through. Now it is way lower, what happened?
Thanks for the assignment. I thought that I should mention that you can hear me on the radio through the Internet. The AM640 website archives all of my reports or you can listen live to the John Oakley Show and the Arlene Bynon Show.
Jaguar Mining Inc. (JAG-T) has been trying to dig its way out of a series of operational issues that go back to 2009. By the third quarter of 2011 the board of directors was not satisfied with the progress being made at their various mining sites in Brazil.
On Nov. 16, 2011 the company reported that they had received unsolicited takeover proposals, confirming rumours that had been circulating in the investment community. In December 2011 Paul Titcomb, the president and CEO, left the company and JP Morgan was retained to review strategic alternatives.
In May 2012 JAG announced their restructuring and turnaround plan that included putting one of their operations into maintenance and cutting overhead and administration costs by 40 per cent. Production forecast for 2012 was scaled back to between 120,000 and 130,000 ounces of gold with a cash cost per ounce of between $900 and $1,000. The board expects production to reach between 170,000 and 190,000 ounces in 2013.
Finally none of the takeover proposals were concluded and the company is now in the process of moving through its restructuring plan. A review of the charts will provide guidance as to how to best manage the opportunities and risks associated with JAG.
The three-year chart offers a number of lessons worth extracting. You made some cash on the takeover rumours but thought you could catch a bounce when it was announced that there was no deal to be had.
The critical metric from a technical perspective was the breach of support at $4.00. As you can see no support showed up until the shares hit the $1.30 range. This is a classic case of anticipating a bottom instead of confirming that the bottom is in. In addition there is the death cross that formed in April 2012 that put another nail in the coffin.
To answer your question about what went wrong: the simple answer is that when other mining companies go into the data room and decide that they don't want to make a deal, it's a signal to investors that a word to the wise is sufficient.
The six-month chart depicts the sell signals generated in January 2012 when the RSI and the MACD both turned lower. The resistance that formed along the 50-day moving average in February and then along the 200-day moving average in March also indicated that it was time to get out of Dodge with your profits.
At this point the only things that will turn JAG around are time and an increase in the price of gold. There are some voices that are calling for gold to reach $2,750 by 2015 and my personal call is $2,000 an ounce by 2015. In either case higher prices will wash away a multitude of sins.
Make it a profitable day and happy capitalism!
Have your own question for Lou? Send it in to firstname.lastname@example.org.
Visit his website