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Decline (Justin Skinner/Getty Images/iStockphoto)
Decline (Justin Skinner/Getty Images/iStockphoto)

SCHIZAS’ MAILBAG

Sprott Resource caught in aggressive selloff Add to ...

Hi Lou: I was wondering what your take is on Sprott Resource and if the dividend is sustainable. I appreciate your time. Shirley

Thanks for the assignment. Sprott Resource Corp. owns assets in the natural resource sector including gold bullion. Unfortunately, the company has experienced some selling pressure as commodity prices have fallen. The shares have sold off since mid April as they hit a 52-week high of $4.85. In December, 2012, management announced that a monthly dividend would be paid that was at least 0.833 per cent of book value. The monthly distribution fluctuates with the value of equity attributable to shareholders. The current yield on the dividend is 14.78 per cent, which has to put a warning flag on the track.

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A study of the charts will better inform my take on the stock.

The three-year chart illustrates a stock that got a nice lift as we came into 2013, but lost traction in the spring and has been in a steep decline ever since. A death cross surfaced in June, which was followed by breaks below support at $3.60 and then at $3.40.

The six-month chart has a number of patterns worth examining. The selling that came in off the 52-week high in April gave rise to a breach of the 50-day moving average followed by a break below support along the 200-day moving average in May. The MACD generated a sell signal as we came into August that was followed by a more severe decline as support at $3.40 failed to hold. Currently sellers are in control of the market and until they get washed out it would be best advised to be cautious.

Eric Sprott has recently called for gold hitting $2,400 an ounce within a year. That would help his situation not only with Sprott Resource but also with other parts of his resource empire as well. However, keep in mind that the trend is your friend until it ends and right now the trend is down.

Make it a profitable day and happy capitalism!

 
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