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Gold bars are displayed at bullion house in Mumbai. (ARKO DATTA/REUTERS)
Gold bars are displayed at bullion house in Mumbai. (ARKO DATTA/REUTERS)

Schizas' Mailbag

Can Rubicon Minerals climb back up? Add to ...

Hi Lou. Just wondering if you have any thoughts on the future of Rubicon Minerals Corp. This stock has dropped from over $6 as we get closer to actual mining. Rob McEwen bailed, Agnico Eagle Mines Ltd. put in millions of dollars and then quickly bailed out a while back, without explanation. Do you think they will have a successful mine opening in 2014 and if buying more at these current low levels to support stock bought over $5, is a good idea? Thanks, Jim

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Thanks for the assignment. Rubicon has suffered with the precious metals sector as the price of gold has retreated from its 2011 high near $1,900 per ounce. You mentioned Rob McEwen bailing, which puts a negative spin on the facts. McEwan invested $11-million in the company in 2007 and sold his position in October, 2010, for $190-million – a tidy profit. If that’s bailing it reminds me of D.B. Cooper bailing with a big of dough! As far as Agnico getting in and out quickly they probably could see the writing on the wall and decided that their first loss would be their best loss as they shed non-core assets at a time of stress in the industry.

Rubicon has devoted the capital of its investors and the energy of its management and staff to the development of their Phoenix Gold Project in the Red Lake gold district of Ontario. The estimated cash cost per ounce at Phoenix is $629, with a mine life forecast to last 13 years and annual production of 165,300 ounces of gold per year.

With regards to averaging down on your position, I don’t generally recommend it for buy and hold investors. However, if you trade for profits, then this stock has offered a number of opportunities along the retreat. In my view you already have a stake in Rubicon that you have held onto, which tells me you are a buy and hold investor. Use your free capital to diversify your holdings and potentially find a winner that will make up for your paper loss on this investment.

A study of the charts will highlight some of the factors in play concerning your investment.

The three-year chart provides a textbook example of a sustained downtrend. Rubicon has been selling off since late 2010, providing lots of opportunities to get off the ride and preserve capital. Taking a loss is never easy but it’s a discipline that has to be adhered to in managing investments. The aggressive selling that hit the stock when it breached support at $3 in November, 2012, was followed by a death cross in December indicating that selling pressure would continue.

The six-month chart indicates that even in a downtrend you can make money trading a stock for profit. In this case, the MACD and the RSI have generated a number of buy and sell signals that proved beneficial for the informed investor. Currently, the momentum indicators are suggesting that a trade is setting up. Look for resistance at $1.60. Keep in mind that gold is entering a period of strength from a seasonality perspective.

Make it a profitable day and happy capitalism!

 
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