JUNIOR MINERS GROW UP IN A DAY
Thom Calandra
Stockhouse
8/17/2009 4:28:49 PM
North America’s grizzled metals pros and seen-it-all financiers are
astonished at price gains for miners packing drill results and other
verifiable events.
"This is an atypical summer for junior valuations," says Paul Zweng,
a former mining CEO and Honolulu asset manager who searches for gold,
silver and copper prospects using rigorous valuation criteria.
Zweng follows and invests in East Asia Minerals (TSX: V.EAS), a
"junior" that caught fire this summer after CEO Michael Hawkins
reported off-the-scale gold grades (4.25 grams per tonne) for rocks
strewn across 27 meters of the company’s Northern Sumatra project
in Indonesia.
"If the results are verifiable and properly footnoted," says Mr. Zweng,
who holds advanced degrees in geology and minerals economics,
"investors are much more comfortable supporting the shares."
East Asia Minerals’ shares more than doubled in late July when
it revealed assays for its first two drill-holes at the Miwah Gold
Project. Mr. Zweng, speaking to me from Honolulu at the time, guessed
the Canada-traded shares of Mr. Hawkins’ Asian exploration entity
almost surely would rise another 50% in short order.
The EAS shares did just that, reaching $3 Canadian or so a share. The
company now sports a market worth (capitalization) of $160 million
or so fully diluted.
Those who invest in metals explorers are seeing almost daily "melt-UPS"
in market value. Market-moving events include drill-hole results that
indicate marked increases in possible, probable, indicated and/or
inferred resources.
Armenia’s Lydian International (TSX: T.LYD), after revealing a potent
set of gold assays, and select other junior explorers are benefiting
from tremendous reversals of investor sentiment.
Lydian is a relevant example. Shares of the tiny company, after scoring
a 100% gain in a single day last week, continue to rise. Even Monday,
as most speculation-miners dropped into ditches, Lydian was rising
another 5% to a fresh high.
Sometimes, the speculation is deserved. Lydian and East Asia Minerals
have been working their respective flagship projects for years.
Yet other times, in the case of specialty metals, the intense price
gains are perched on secular events such as brokerage-engineered
reports of commodities shortages. Most tantalizing of all has been
speculation taking place in the areas of technology-related metals
such as lithium, chromium, rhenium, tantalum, molybdenum and so on.
Among the so-called "lithiums," talk of Japan and China ramping up
production of lithium-powered battery vehicles has goosed shares
of Canada Lithium (TSX: V.CLQ), Western Lithium (TSX: V.WLC) and
many others.
New CEO Kerry J. Knoll of Canada Lithium has no explanation for
his Toronto company’s 12-fold increase in share price this year
… except that investors are warming to specialty metals companies
with mine-capable resources going out three years or fewer. (See our
continued coverage of Canada Lithium in Ticker Trax for subscribers
and in Thom Calandra’s occasional Stockhouse articles.) Not that
everyone in mining is thrilled this summer. Financiers, brokers,
merchant bankers and other financial professionals say raising fresh
money for large clients in natural resources – market caps of $500
million or more — is still iffy, at best.
"It is very quiet (equity and debt private placements) and the market
is still unsure of desire for risk," CEO Gordon Keep of merchant bank
Endeavour Financial (TSX: T.EDV) tells me from Vancouver. Mr. Keep and
his Endeavour Financial, with the aid of independent Fiore Capital,
look to launch a private partnership that wields several hundred
million dollars in pursuit of combining neglected yet producing
gold miners.
Targets for such combos include mines and tracts in Colombia, in
parts of Africa, across all of silver-friendly Mexico and swaths of
Canada. Prospects for mergers and transactions also include friendly
American mining states Nevada, Wyoming, Alaska, Idaho and Montana.
Few can argue that the summer story thus far is all about the tiniest
exploration companies – the ones that can quadruple investors’ money
with the realities of mineral-rights wins and extended resource
estimates.
Such companies – market caps below $50 million – are locating
individuals and small asset managers willing to spread their millions
across a crop of private equity placements. The willing equity
investors must like what they are seeing on their Stockstreams: bright
burst of flashing green, junior stocks evolving 50% higher in a day.
"I was really busy this summer," says banker David Kearnes of Canaccord
Capital in Vancouver. "I think it was an unusually busy summer for
juniors. More PPs than usual and some great action in a few stocks
I follow, like EGV, CUM, UW." Mr. Kearnes specializes in raising
$3 million and more for the likes of Copper Mountain (TSX: T.CUM)
and other explorers with market values of less than $80 million.
"I think knowing which countries are ripe to look at, and when to
appeal for funding, is critical," boutique banker and Oremex Resources
(TSX: V.ORM) principal Grant Hall tells me from Colombia. "Things
here in (the city of) Medellin are hopping right now." Mr. Hall and
Oremex are searching for fresh silver and gold prospects in Mexico
and in Colombia.
For investors, sizing up the next triple-decker or quad-buster, as
always, requires diligence, bravery and a little luck. Aside from
Colombia and Mexico, hot spots now in the dicey world of gold and
silver drilling include Ghana, Tanzania, Botswana and the DRC (Congo)
– all in Africa. Other land grabs appear to be taking place in Armenia,
Alaska, Indonesia and Nicaragua.
"In a commodities-hungry world, it is somewhat less stressful seeking
to prove out a resource," says James Longshore, CEO of Ghana-active
Xtra Gold Resources (XTGR).
Mr. Longshore hopes to unveil assays from 40 drill-holes he and
Xtra Gold are plotting this summer along the Kibi Gold Trend in
Ghana. Several assays already are in the bag.
I hope to look at several companies with events that might produce
dramatic one-day, one-week and one-month valuation increases. The
Melt-UP propositions are all high-risk and high-reward. One of them
might be Mr. Longshore’s project, which the 44-year-old CEO says
could produce a 10-million-ounce gold resource one day.
Mr. Zweng, managing several million dollars from his Honolulu office,
says not so fast. One way to reduce risk is to dig deep. Into the
numbers, that is.
"Is there an understanding of the economics of the project, for
instance – net present value, internal rates of return," says Zweng,
a geologist and earth sciences Ph.D who ran and then sold Mongolia’s
QGX Ltd.
"How do you value this if it isn’t there? Or said another way," says
Stanford University-trained Mr. Zweng, who appears to be on a roll
with several blooming candidates this summer, "why do you think the
stock still has a lot of share-price appreciation left in it?"
Sentiment: See Bernie Schaeffer’s second issue of Sentiment magazine,
just out. My article on gold sentiment is on Page Zero.
Active Trading: David Banister’s Active Trading Partners is now live
at We at Stockhouse’s Ticker Trax are
discussing collaborating with the New Englander’s trading service.
New Orleans: When October rolls around, my calendar slots in
New Orleans as one of North America’s most diversified investment
conferences. The New Orleans Investment Conference in previous years
has given me great satisfaction meeting colleagues, subscribers and
real miners, scientists and alternative economists/technicians –
and making money.
I’ll be presenting a down-and-dirty workshop at this year’s gathering;
I hope some of you can join me. Brien Lundin of The Gold Newsletter
produces the conference, which runs Oct. 8-11. Many of my trusted
colleagues and investment sources attend the show. This year will
bring an excellent crop of counter-clockwise and contrary thinkers in
the areas of mining, emerging markets, commodities and life sciences.
The tradition of the New Orleans conference goes back to the mid-1970s,
when gold was just catching wind at its back from ordinary investors,
people in garage lofts who had little idea they could buy gold
and silver.
Just as good are the select companies that decide to stake out Brien
Lundin’s show with their executives. Several dozen companies in all,
nearly all natural resources and about half of them worth reviewing.
If you are interested in a discounted rate, please visit this link
for registration. The last New Orleans show I went to, and spoke at,
gave me at least two leads that changed my portfolio life.
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HOLDINGS: Thom’s holdings are listed for all Stockhouse members on
under the "portfolio setting" for user TCALANDRA. It
is public and free to view. He and his family own recently minted
gold and silver coins. He owns all eight Planetary Prospects. He owns
neither Canada Lithium nor Xtra Gold Resources but is researching them
on behalf of Ticker Trax. Mr. Calandra and his family, however, do own
Endeavour Financial, one of Ticker Trax’s eight Planetary Prospects.
THOM CALANDRA of Ticker Trax helps his audience find value in a
quagmire of investment choices. Thom co-founded CBS MarketWatch and
MarketWatch.com. As the voice of Thom Calandra’s StockWatch and The
Calandra Report, Thom pegged $300-ounce gold as a long-term hold.
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