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Remember Ivanhoe and be wary of Turquoise Hill’s Mongolian mine

An employee looks at the Oyu Tolgoi mine in Mongolia's South Gobi region on June 23, 2012.

David Stanway/Reuters

Hi Lou,

Turquoise Hill Resources Ltd. has a major gold /copper mine in Mongolia that is just starting to produce. Owned 51 per cent by Rio Tinto, with a chunk belonging to the Mongolian government. Good location to the main industrial centre of China, and hard working non union workers. What are your thoughts? – Phil

Hey Phil, Thanks for the assignment. When you described the location and project I had to go back into the memory bank to revisit what was up until last year the Robert Friedland deal called Ivanhoe Mines. Clearly there has been a lot of change over the years including the current tussle between Rio Tinto and the government of Mongolia over ownership issues. The tangled tale of the deposit would make a great movie but with all the moving parts and unknowns it would be best to rely on the price of the stock as a tool that will quickly distills all the data into a useful information.

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An investigation of the charts will inform my thoughts on the opportunities and the risks associated with TRQ.

The three-year chart ain't no oil painting! The stock topped out near $28 in the winter of 2011 and has been punishing investors for the last two years. Those who didn't recognize the trend reversal or couldn't act on the information have paid a heavy price. The takeaway from this chart is that capital preservation must be part of every investors financial plan. Your first loss is usually your best loss.

An additional takeaway is that bottom-fishing can see you sending your capital to the bottom. Confirm the bottom – don't anticipate it! I am sure many have tried to catch this falling knife with miserable results. Patterns worth noting include the breach of support at various level, resistance along the 50 and 200-day moving averages on every attempt to move higher and a death cross that surfaced in June of 2011.

The six-month chart isn't generating much in the way of enthusiasm for the stock. The attempt to move higher in late December of 2012 and into January was met with another wave of selling. The MACD and the RSI seem to be indicating a trade setting up but you would have to approach it with extreme caution given that TRQ has been the ruin of many a poor boy. If you like the story follow the stock and wait for a reversal of the downtrend.

Make it a profitable day and happy capitalism!

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