NG is engaged in development and exploration of gold and silver in Alaska and British Columbia. 52 week high for the stock is $14.02. Yesterday we recommended a 10% tranche at $7.12.
In our view, NG is a take over candidate. It has long been on our list to buy, but never hit our buy zone. Our buy zone has been at $6.25 to $6.56. Yesterday, we raised the upper band of the buy zone to $7.30. There were three reasons for this change. First, there were persistent rumors of interest by ABX to buyout NG. Second, Electrum a New York based firm stated in a filing that it intended to exercise all of the warrants it held to acquire 33.74 million shares. Electrum already holds 53.23 million shares.
The third reason is that the plan to spin-off the copper operations is gaining steam.
We were mindful of recommending only a small tranche because our macro view on gold is negative. We have repeatedly stated that if it was for the gold momo crowd, gold would have drifted down to the range of $1250 to $1400.
The gold momo crowd has been making a strong stand in the range of $1640 to $1665. $1640 has become a major support. The presumption in recommending NG as that as long as support in gold at $1640 held, NG was a good buy.
This morning gold broke the support at $1640. This makes NG a lot riskier today than it was yesterday.
Because of the high probability of gold potentially breaking the support at $1640, in our yesterday post we wrote,
“There is high risk to this trade,”
Markets are dynamic. In other words they change. We are often reminded of the famous quote, ‘When the facts change I change my mind. What do you do sir?’
What to do now?
Those holding the stock and are willing to trade in and out may continue to hold and put a stop at $6.73. We are raising the stop because the risk has increased in the stock. Those who follow this line of reasoning should be aware of the possibility that there stop may hit and the next day there may be news of NG being bought at $10. Alas, such is the nature of the stock market.
Those holding the stock and willing to hold through some losses may also consider a second line of reasoning. Keep on holding the 10% tranche with the stop zone at $5. to $5.73 and a plan to add another 10% to 30% near $6.25. The advantage of this approach is reducing the probability of whipsaw and increasing the probability of participating in a potential buyout. The disadvantage is that if stops hit, losses will be much larger.
In any case, the recommendation to add a 10% tranche at $6.80 is cancelled.
Those not in the stock may wait until around $6.25 to initiate a position.
