What Is Chen Buying? What Is Chen Selling?

Letter # 601

August 10, 2011

Update:

I just came back from my Prophecy Platinum Corp (NKL.v) visit almost midnight yesterday(Tuesday) what a ride! I am sorry that I missed the excitement. The stock market came back in the last hour on Tuesday. It looks like program buying to me. In the mean time gold was hit, looks like program kicked in to buy stock market and sell gold. Gold stocks started to break out on Tuesday. This is the pattern I saw many times, especially in 2007 and 2008. When the market sold off, gold stocks were sold down with the general market. As soon as the market started to stabilize a little bit, gold stocks lead the general market to break out first. The difference this time is that there was no or little corrections in gold. I guess investors learned their lessons this time. After all the TARP, bailouts and QEs, people are not stupid, won't be fooled for the third time.

I had a very good visit of nkl.v. Not only I was impressed the scale of the project, the spectacular drill results, I was very impressed by the people. I had lengthy discussions with its chairman John Lee, the legendary resource investor. A few years back John was an investor, just like you and me. Out of frustrations that resource companies kept disappointing their own shareholders, he started to run his own resource company. He has Rob McEwen, the Gold Corp founder as he adviser and sincerely focused on shareholder value. We discussed privately how many times companies screwed up, as recently as SWC, that completely trashed shareholder value. His strategy is very simple, sell the company in 12 months to majors to seek quick return. How much? We joked about one billion or more. His vision is try to reach a takeover target as soon as possible with minimum dilution. At that time, every shareholder, including himself, will be richly rewarded. Prophecy Coal Corp (PCY.v) will also benefit since its 45% ownership of NKL, it would receive a lot of funding from the sale.

I was also impressed by the visitors of the trip. I met two well regarded investment bankers representing big Chinese mining companies, a family member of one of the world richest person representing south America mining interest, well known analysts from top firms like Raymond James, Canaccoord, RBC, Haywood and BMO etc. I feel nkl will likely do a PP with a strategic investor first.

On the plane, I sat next to Dr Larry Hulbert, the geologist who researched Wellgreen 20 years ago. He is not associated with NKL but knows the property inside out. He told me that he believes Wellgreen has the potential to become the next Norilsk, the world largest PGM, nickel and copper mine. He told me the age of rock is very similar, the discovery process is similar. Norilsk found low grade material first, then the high grade. He pointed out that higher grade zones most likely to be found to the east, in the Burwash claim. I am glad to see in the first step out to the east towards Burwash, hole 184(results pending), they already intercepted massive sulphide. It seems to verify Dr. Hulbert theory.

In conclusion, I had a very good visit of NKL.v. The company will need to raise some money, will need to strategize to focus on the best way to demonstrate the value of Wellgreen. I heard they are now focus on detailed drilling and scoping study on the high grade area first. That looks like a good approach. I feel it is safer to put my investment with John Lee, who really care about shareholder value vs companies that keep screwing their shareholders.

As for the market, I feel our time has come. As soon as we see some stabilization of the market, which we will eventually, we should see huge rally in gold stocks. Tuesday is the proof, when many of my stocks up double digits. They are giving back some gains today, but only a little. Traders have huge cash on the sideline doing nothing, if not gradually leaking value. Fed is going to keep interest rate low till 2013 I don't think traders want to keep their cash burning till then. I started to compile the list of stocks that could have NKL.v type of moves in the second half of the year. I will gradually introduce them in future letters. You want to position yourself ahead of the trades not behind them. So fasten your seat belt and keep your eyes wild open. This is the time that traders should be very alert for opportunities.

Regards,

Chen