Monday, 11 December 2017

My simple quantitative approach to spec stocks like Garibaldi

I came across an interesting video of Eric Sprott recently.  Eric is a legend in the mining sector and I respect his knowledge and work ethic.  Eric has also been one of the supporters of Garibaldi Resources (TSXV:GGI), a company that has received significant scrutiny on this blog, IKN, and the Angry Geologist.  So, you would think that I disagree with Eric Sprott on Garibaldi.  However, that is not the case.

In the video, Eric indicates that he is looking for 10 and 20 baggers.  We all love those, don't we?  Eric has had a lot of them in his lifetime and is much wealthier than most of the rest of us.  Let's be clear, however, that investing in these types of stocks is probably not a core investment strategy.  I'm sure that Eric has also invested in many such stocks and lost money.  He is in the fortunate position that it won't have much of an impact on his overall wealth or quality of life.  My guess is that some investors in stocks like Garibaldi and Novo Resources (TSXV:NNO) have way more exposure in their portfolio to these stocks than they should.  That is fine if they bought early (high risk, high reward) and dangerous if they bought later (high risk, low reward).

Could Garibaldi have a world class discovery that is ultimately worth billions?  Sure.  The nickel grades are unusually high and large areas are yet to be tested.  Yet, it is a quantum leap to assume that this translates into a high probability of a world class discovery.  As highlighted by the Angry Geologist, the truth machine (aka the drill rig) has so far only uncovered relatively discrete zones of massive sulphide mineralization.

Rather than me getting into a pissing contest with guys like Eric Sprott, which I'd prefer not to, let's have some fun with numbers to analyze Garibaldi.  My suggestion is that you plug in your own assumptions to come up with your own values. 

Assumptions:

  1. Probability of Garibaldi having a world class nickel project = 5%
  2. Value of Garibaldi if successful = $4.5 billion (based on the takeover value of Voisey's Bay; I actually think the value today would be lower)
  3. Probability of Garibaldi having a small project  = 95%
  4. Value of Garibaldi if E&L is not another Voisey's Bay = $50 million 
  5. Garibaldi has 105 million fully diluted shares outstanding and that number will go up to 120 million to fund additional drilling
Probability weighted value per share = (0.05x$4,500,000,000 + 0.95x$50,000,000)/120,000,000 = $2.27


Based on this calculation, GGI shares would theoretically be attractive if trading below $2.27 per share.  Personally, I wouldn't put more than 1% of my portfolio value into such a speculative position.  I'm picking numbers out of the air here, which leads to a wide margin of error, but I think the exercise is an important one to guide investment behaviour.  The odds of GGI going back to $0.42 per share (i.e. $50M/1.2M shares) seem far, far greater than the odds of the share price going to $37.50 (i.e., $4.5B/1.2M).  Like I mentioned in an earlier blog post, this is analogous to a lottery ticket or any game of chance.  The odds are that you will lose.  If you still want to invest, try to get the odds on your side and don't risk too much on these speculative investments.  You shouldn't be losing any sleep at night.

My view on GGI is that shares will drift now that the most significant drill results have been released.  Hole 14 was rushed through the lab, implying that holes 10 to 13 were less impressive, which would also explain why they have not been promoted by Garibaldi.  Winter weather has set in and we probably won't see more drill assays, other than holes 10-13, for another six months.  That is a long time to wait to get the next batch of evidence to see if the E&L deposit might be world class or not.  So, if you think Garibaldi might be onto something potentially world class, then make your assumptions and do this simple probability weighted value calculation to pick your entry point. 

It is also important to change your assumptions based on new data.  Unless you are lucky enough to possess reliable intuitive skills for spotting winners, I believe data is important and your friend when it comes to investing.  That is why this blog and others jumped on Garibaldi initially.  Stating mineralized intervals and posting selective pictures of core samples was misleading and clearly fooled some investors.  It also set a disclosure precedent that other companies like New Nadina (TSXV:NNA) started following.  Assays don't lie or exaggerate.  People do.

Do your own due diligence, make your own assumptions, and good luck!


Would you rather...

Receive one of the following:

  • $16,000 US dollars
  • 1,000 ounces of silver
  • 13 ounces of gold
  • 500 pounds of cobalt
  • 5,400 pounds of copper
or:
  • 1 Bitcoin?
Whatever your fancy, the valuations are all currently about the same.

The pullback in Bitcoin I noted a week ago, which looked substantial at that time, now looks like a minor blip on the chart.  Exponential action!


Was Thursday's high on Bitcoin the top?  Probably not.  People don't seem to learn, so history repeats itself again and again with bubbles (lots of bubbles documented here).  Below is a chart for one of the first documented bubbles, tulip mania.  One thing I've learned from bubbles and market crashes is that the decline in price when a bubble pops is typically several times faster than the exponential rise up.  So, when the Bitcoin/cryptocurrency bubble pops, it is likely going to be mind blowing!  If 20% daily gains and losses are normal for Bitcoin, a sharp selloff is going to look like 40 or 50% in a day.  You see, many of the speculators buying Bitcoin now probably acknowledge that this is a bubble and they are betting that they can get out quickly with minimal losses.  Usually that is not the case.  Something will trigger a gap down, servers will crash, and losses will be staggering for those who jump in too late.

Bitcoin seems to have gained some legitimacy with futures now trading on the CBOE.  My view remains that Bitcoin is a bubble that will crash.  The only question is when.  Tulip bulb prices could not be justified at 10 guilders, yet they went to 60.  Bitcoin could well go to $50,000 or even $100,000.  All I know is that something unexpected will trigger a sudden and sharp collapse.  We will know the top is in when we see a 50% drop.  History repeats itself.
While Bitcoin had a stellar week, precious metal and base metal prices took a beating.  Who wants tangible assets when you can now get cyber assets?  Metals have to be mined and then stored in warehouses.  Cryptocurrencies can be "mined" using computers and stored using Blockchain.  So what if they are constantly being hacked, waste massive amounts of electricity, and if most of the computing power resides in China and Mongolia?


In classic fashion reminiscent of the dot com craze and marijuana mania, failed mining companies and even a failed biotech are rushing to become Blockchain or cryptocurrency companies.  In many cases, all it takes is just the announcement that you intend to get into the sector that can move your stock.  And, in some cases like Routemaster Capital (TSXV:RM) and Vogogo (TSXV:VGO), you don't have to mention anything publicly and you claim no material changes while your stock shoots up on volume right after you raise money at low prices.  A classic case of "investors" chasing returns, which usually does not pan out.

Call me old school, but I still like metals and mining (and fundamentals).  Bitcoin will likely be gone in a decade, but all of our electric, autonomous vehicles will still be using lots of copper, zinc, cobalt, lithium and nickel.  I especially like zinc in the short-term, as inventories are hitting critically low levels.  I think zinc prices will soon start another run up and if I had any Bitcoins I'd be selling them and buying zinc mining stocks.
Source: Scotiabank

Friday, 1 December 2017

Garabaldi doesn't add up

Thanks to the BC Securities Commission, Garabaldi Resources (TSXV:GGI) has disclosed the drill hole coordinate and composite grade intervals that should have been in the drill results release.  Let's do a quick recap.  The company started making a lot of noise about a massive nickel discovery on September 1.  Assays were finally released on November 20 (more than 11 weeks after Sep. 1) in a news release that looked like it was hastily written and incomplete.  It then took another 9 days for the company to issue the full disclosure required by the BCSC.

Why would Garibaldi not want to be forthcoming with this information?  Perhaps, because the facts don't live up to the hype.  The Angry Geologist analyzes the data here and highlights that the massive sulphide intercepts are really quite small and appear to be confined to a small zone.  Stuff like this makes the Angry Geologist angry and you won't like him when he's angry!

I'd also like to point out some simple math.  In the Sep. 1 GGI news release, the company publicly stated that the first drill hole intersected two long intervals totaling 176 meters.
$16 million was raised on the back of this and other statements.  Who needs assays when you have core logging and XRF readers, right?  Well, let's see what the assay data, released almost three months later, came up with:

Add the intervals and you get 60.5+5.23+9.68+4.5=79.91 meters.  What happened to the two large intervals totaling 176 meters?  There seems to be about 96 meters of mineralization missing!  That is about the height of a 32 story building, which I would argue is not insignificant.

People lie.  Assays don't.  In this case, I doubt Garibaldi intentionally meant to mislead investors, but they should have known better than to make these statements in the first place.  Those pesky class action lawyers might start contacting the gullible investors who purchased shares at $4 or $5 per share and then the $16 million you raised might have to go to lawyers and settlements rather than into the ground.


Wednesday, 29 November 2017

Vogogo says no material undisclosed information - seems legit

I usually keep an eye on streaming news headlines when at my desk.  One of the releases that caught my eye today was from Vogogo (TSXV:VGO) confirming no material undisclosed information.  Does the company really not have an explanation for the 20% move up in the stock today and fourfold increase in the past five weeks?  I call BS and decided to dig a little.

The company website suggests a dormant company with the contact person listed as accounting@vogogo.com (link).  News releases provide the following description of the company: "Vogogo has provided payment processing and related transaction risk services and continues to own certain rights and software with respect to such services."  Looking back, it appears that Vogogo had set up a Canadian bitcoin exchange that failed in mid-2016 (link), roughly a year after raising $12.5M through a brokered financing.

As of Sep. 30, the company still had $6.9M in cash and the MD&A indicates that: "In the latter half of 2016 and into 2017, the Board has been focused on identifying a vend-in opportunity for Vogogo with the over-arching goal of leveraging the Corporation’s cash in an operating business to create shareholder value."  Somehow, Vogogo raised $6M on Nov. 1 by issuing 60 million units priced at $0.10/unit, of which the insiders took down 7.1M units.  The stock was already trading at $0.38/share by that time, having suddenly started a sharp move up on increasing volume starting on Oct. 23.  VGO closed today at $0.61 with 1.3M shares traded and the company has the balls to claim that there is no material undisclosed information?  The stock chart tells me that some investors have been given more information than has been provided publicly, especially since this company has given the public absolutely zero information.  IIROC may want to dig a little deeper on this one rather than taking the company's response at face value.



Beginning of the end of the Bitcoin bubble?

Us mining professionals have been getting sick of cryptocurrencies because they have been sucking investment dollars out of the junior mining space.  We are also sick of watching others make money while junior mining stocks are, at best, lackluster.

But, wait, what is this...is the Bitcoin bubble about to pop?  Bitcoin and its cryptocurrency brethren have been going exponential recently, which is typically the last and most violent move up when something is in a bubble.  Go check out the nice graphic by Visual Capitalist earlier this week on Bitcoin's rise to $10,000 (link).  As per their table below, Bitcoin moved from $9,000 to $10,000 in a mere two days.
Today, Bitcoin's rapid rise came to a screeching halt at around 9am.  It hit $11,300, then fell 20% to $9,000 by 2:30pm before rebounding to $10,000.  Something that can move this much this quickly does not have fundamental underpinnings.  It is a bubble and it will pop.  Why do I care?  Cryptocurrencies are going to make junior mining investment look tame and I'm hoping dollars flow out of cryptocurrencies and back into boring old silver and gold.  The gold chart looks good and sooner or later I think gold prices will pop.  Bitcoin will also pop, but in a different way.



Monday, 27 November 2017

Cryptocurrencies - creating value out of thin air (and electricity)

In junior mining, we often see companies seeded with cheap capital, followed by a pre-IPO round at a higher valuation and then an IPO at a higher valuation.  That is very similar to something I saw this morning relating to cryptocurrencies.  NetCents (CSE:NC) is creating a new cryptocurrency called NetCents coins. They are pre-selling the first batch of 5 million for $2/coin and plan to release a second batch of 5 million at $4/coin.  The coin exchange will then go live next month and coins will be valued based on demand.  Very similar to junior mining, right?  Well, there is that one difference, which is that a mining company needs to have a real asset.  With cryptocurrencies, there is no underlying asset and money can only be made based on the greater fool theory.  Bubblelicious!

Cryptocurrency talk is going mainstream, so the top probably isn't that far off but things are likely to get even crazier before the bubble implodes, as it always does.  Sadly, electricity consumption related to Bitcoin now exceeds the power consumption of 159 countries (link).  That should be good for thermal coal consumption, since most of the electricity usage for Bitcoin is in China.

The thing that will ultimately kill Bitcoin and other cryptocurrencies is that barriers to entry are very low, as evidenced by NetCents.  Apparently there are now over 1,100 cryptocurrencies, so the whole argument about finite supply is completely moot.  Paper money can be printed by central banks, leading to hyperinflation.  Cryptocurrencies can be created by anybody, which will also lead to hyperinflation.  Ultimately, the trading price will revert to the fundamental underlying value.  Zero.

Follow up on prior posts (WHY, GGI, GQM, LA, IBAT, MXL)

How time flies.  This blog has now been up and running for almost two months, so I thought I'd take a look back at the posts and see how some of the stocks mentioned have been doing.

West High Yield (TSXV:WHY) - Let's start with everyone's favourite train wreck.  WHY is trading again and the stock continues to highlight how gullible and dumb some retail investors are.  The US$750M takeover deal was clearly a scam, yet there seem to be no repercussions on the perpetrators.  The situation could have been a lot worse if the ASC had not halted trading shortly after the "deal" announcement was made, although it should have never opened for trading in the first place.  My guess is that somebody somewhere, whether inside the company or outside, was getting ready to sell shares to the suckers who believed WHY was worth US$750M.  Interestingly, a number of insider transactions dating back to 2006 have suddenly been filed on SEDI by Frank Marasco and his holding companies.  Who are the idiots that would back this guy in light of the circumstances?  This stock should be trading an order of magnitude lower and the guys involved in the bogus deal should be fined and banned.  Drain the swamp!

Garibaldi Resources (TSXV:GGI) - It was a wild week for GGI last week.  It briefly traded at $5.05 on Monday morning, when the company finally released the assays for the hole it has been talking about for seven weeks.  Despite the lengthy wait for assays, the news release came across like a rushed hatchet job with terrible disclosure.  Brent Cook from Exploration Insights, one of the few newsletters I have a lot of respect for (which is why subscribers pay for it), even chimed in on CEO.ca.  (Note that in my previous GGI post that I attributed the life cycle of a junior miner chart to Brent Cook, but it was actually created by Pierre Lassonde and popularized by Brent)
Despite some arm waving in the news release - hey, don't worry about the assays released here, we've drilled an even better hole - investors lost interest and the stock sold off sharply.  It touched a low of $1.71 before catching some bids and moving back up above $3.00.  In other words, these investors are happy to value the company as high as $500M on rampant speculation, then dump the shares when the news wasn't extraordinary.  There is a saying that "bulls win, bears win, pigs get slaughtered."  I guess by pigs they mean the idiots willing to value Garibaldi at hundreds of millions.

Frankly, I was ecstatic to see GGI (and its neighbour Metallis Resources - TSXV:MTS) sell off because the success of this promotion was setting a dangerous precedent in the junior mining market.  The IKN blog described the market approach GGI had taken, in its typically colorful and entertaining language, and highlighted how New Nadina Explorations (TSXV:NNA) was following this recipe for how to suck in naive investors who invest based on greed rather than fundamentals (link).  Investors are clearly hungry for new discoveries, but they are likely to get burned if they invest based on hype and speculation rather than actual information and some comprehension of the probabilities of success in the junior mining space.  A few drill holes should not be extrapolated to suggest that this is a world class discovery.  It is a discovery, but only time and drilling will tell how big it really is...which sounds a lot like the Novo Resources (TSXV:NVO) situation, doesn't it?


Golden Queen Mining (TSX:GQM) - I used to work as an analyst/trader on a proprietary trading desk.  We'd call the GQM situation "catching a falling knife."  GQM's share price dropped 28% in early October without any news.  Apparently a newsletter writer put a sell on the stock.  Sometimes, an unexplained drop can be tempting as a buying opportunity.  More often than not, however, market action can be more informative than company information.  Since the newsletter sell recommendation, the stock has been halved again, the company has announced that it is planning a US$25M rights offering (backstopped by the Clay family), and the interest rate on the US$31M loan agreement (with the Clay family) is going from 8% to 10%.  Catching a falling knife is dangerous!

Los Andes Copper (TSXV:LA) - I mentioned this stock when it was $0.40 and it has been bouncing around in the 30s since.  I think the company is more hype than substance and they rely on paid newsletter writers to promote the stock.  Paid promotion tends to have a short-term impact or it puts lipstick on a pig.  Investors should be reticent to follow newsletter writers that are paid by their company clients.  They are biased and their disclaimers often spell that out, but few investors read those.  The Angry Geologist, who is much more technically proficient than me and posts his insightful work for free, also does not like LA.  Check out his post here.

International Battery (CSE:IBAT) - this stock demonstrated the influence that paid promotion can have.  The paid fluff piece by oilprice.com took the stock from about $0.32 to as high as $1.38.  It has since pulled back to $0.64, which is still double where it was prior to the promote.  The company did manage to raise $1.14M at $0.65/unit.  Hopefully that money isn't just spent on more promotion.  You see, promotion can be addictive.  Once you do it and see what it can do, you want to do it again or your shareholder base pressures you to do it.  But, you need to find a new batch of suckers newsletter subscribers every time.

MX Gold (TSXV:MXL) - Last, but not least, we have a mining company that jumped on the cryptocurrency bandwagon to "mine" bitcoin.  The company cancelled a proposed acquisition, but has ordered Bitcoin "mining" equipment.  The stock is down 40%, so these guys can't even make money in a sector that makes junior mining look tame.

Monday, 20 November 2017

After 7 weeks, reality bites and Garibaldi investors sell the news

First, my apologies for how quiet this blog has been for the past two weeks.  Most things in mining land have seemed very tame lately when compared to the rubber-necking we did on the horrific car crash that was West High Yield (TSXV:WHY).  My travel schedule has also been jam packed lately thanks to the stellar mineral resource estimate issued by Tinka Resources (TSXV:TK) and starting work for AbraPlata Resource (TSXV:ABRA), which has a ridiculously low valuation in the silver-gold sector because few people have ever hear of it (Disclaimer: I work for TK and ABRA plus I am long those stocks, so consider me biased on these companies and do your own due diligence).

Let's turn our attention today to Garibaldi Resources (TSXV:GGI), which finally released some assay results (link) from its E&L project at Nickel Mountain.  This company is likely giving us a real life demonstration of the life cycle of a mining stock, which as I'm sure you all know suggests that mining company stocks often hit their zenith during the exploration phase.  Pierre Lassonde came up with the conceptual life cycle of a mining company many years ago and Brent Cook has done a great job using it to explain stock behavior, but investors don't seem to learn.  The thrill of the lottery keeps them coming back, as evidenced right now by GGI (not to mention Novo Resources), and things usually don't pan out in the long run.  Based on my personal experience, I would say that most junior exploration companies fail to transition from exploration to mining.  As a result, the second hump in the Lassonde curve fails to ever materialize for most junior explorers.  
Credit - Created by Pierre Lassonde, graphic from Brent Cook and Exploration Insights

After waiting a mere seven weeks from the date the new discovery was announced (link), Garibaldi provided a piss poor news release that I would have thought would raise some questions from IIROC.  There are no assay tables and no drill hole collar info.  Instead, there is some good old fashioned grade smearing on hole EL17-04 and summing of intervals on hole EL17-01.  Best of all, there is a whole lot of arm waving about a drill hole EL17-14.  More on that later.

The highlight of the actual assay results in the GGI release was hole EL17-04, which hit 4.8m grading 7.2% Ni, 3.4% Cu, 0.82g/t Pt and 0.78g/t Pd.  These are excellent grades associated with a massive sulphide zone where minerals have concentrated.  Most companies would be very pleased with this intercept, but GGI has led investors to believe that this is the second coming of Voisey's Bay and it will take a lot more than an intercept 4.8m thick to define a world class nickel deposit (>100Mt of 1% Ni).  So, GGI did what any good, promotional mining company would do and highlighted a broader interval of 48.2m grading 1.1% Ni, 0.69% Cu, 0.38g/t Pt and 0.23g/t Pd.  That looks like a respectable interval, but the very helpful Drill Hole Interval Calculator at corebox.net reveals that the 43.2m interval above the massive sulphide lens only grades 0.425% Ni, 0.39% Cu, 0.33g/t Pt and 0.17g/t Pd (link).  That is low grade disseminated sulphide material worth less than US$100/t that is only likely to be economic if the project has sufficient scale and if metallurgical recoveries are high enough.

I suspect GGI management figured that the 4.8m massive sulphide interval in EL17-04 wasn't going to live up to the hype, so the news release highlighted hole EL17-14 because it intersected 16.7m of massive sulphides.  Yup, it took seven weeks go get assay results for the first four holes and yet the company is already trying to put the focus on a drill hole 10 holes ahead, the assays for which are likely two months away.  Good disclosure practices mean nothing to this company and shareholders are culpable for fueling this behaviour.  GGI shares have sold off hard this morning, dropping as much as 30%, as investors sell the news.  When you over promote or over promise, this is what tends to happen.  The company tried to keep the excitement going by talking about hole EL17-14, but clearly investors aren't falling for that based on today's selling.

While I don't like the games associated with over promotion, GGI demonstrates why this is so prevalent in the junior mining space.  The company certainly has attracted a lot of attention, early investors/speculators have made great returns even with today's share price pullback, and GGI has raised $16M without releasing a single drill hole.  In the long run, however, these plays tend to fizzle out; the reason they call discoveries like Voisey's Bay world class discoveries is that there are so few of them.  Nonetheless, GGI has shown us that it a very profitable trade can be to buy on initial discovery news, even in the absence of assays, and then to sell before or on the news.  Hit me up if you spot the next discovery...I'll buy stock and then criticize as I'm making money.

Friday, 3 November 2017

OMG, LOL, WHY!

TGIF!  West High Yield (TSXV:WHY) issued a news release today after the close.  In a nutshell, here is what it said:

  • The buyer, Gryphon Enertprises, LLC was formed for the purpose of acquiring assets.  They have no assets and it isn't worth suing them if they screw us over.  The buyer has hired an "arranger" to raise the USD $750 million, but there are no firm commitments or arrangements to fund the transaction.
  • Listing Baker Mackenzie as the buyer's law firm was an error.  What kind of clown show is this?  Lawyers play a pretty key role in any real deal, so how does a law firm get listed in error?
  • WHY has not yet received the USD $500,000 deposit.  Don't bother checking the bank account over the weekend Frank, as you've already told us that Gryphon doesn't have any assets.
  • They have no clue how a take or pay commitment would work.  Guys, that should be the least of your concerns.  This deal is similar to me selling my house to a homeless guy for $500 million.  The money is not there and your not going to get it.
  • WHY hopes to have its shares trading again soon.  Maybe some suckers will still think the deal is real.
This whole thing has been very entertaining!  In the process, we have likely identified the worst negotiator in the world: Mr. Stephen D. Cumming, managing partner of Gryphon Enterprises, LLC.  Dude, you have no cash and yet you offered USD$750M for a company trading for $21M.  Did you mean thousand instead of million???  Maybe it was just an error, like the Baker Mackenzie thing.
 

Washington Post picks up the West High Yield story as the deposit deadline looms

It has almost been a month since West High Yield (TSXV:WHY) announced its ridiculous deal to sell its mining assets for $750 million USD (link).  The first and most obvious thing that didn't add up on this deal was the astronomical valuation, USD$750M for a CAD$21M market cap company by a Maryland corporation with no apparent business or history.  Digging a little deeper, the purchase and sale agreement made no sense and was impossible to execute and the purchaser's law firm, Baker Mackenzie, has no knowledge of the deal.  While the WHY news release refers to the sale of the Record Ridge South and O.K. Mineral Assets, the purchase and sale agreement requires WHY to deliver 100% of the corporation's shares, which is impossible for a publicly traded company.  The purchase and sale agreement also requires take or pay agreements to be put in place before the closing date, although it doesn't specify what or how much.  Minor detail, I guess!

The size of the deal and the dubious aspects of it have drawn attention from Bloomberg and now the Washington Post has run a new story with Bloomberg that also questions the likelihood of a deal this size in the magnesium space (link).  This whole thing is like a bad movie plot unfolding.  It's so bad that you should stop watching, but then its SOOO bad that you have to watch it to see what happens next and how it ends.  The other enlightening sideshow is how there continue to be gullible posters on stock boards who believe this deal is real despite all the evidence to the contrary.

The thing I'm still trying to figure out is what the hell were these guys thinking when they announced such a preposterous deal.  Was WHY's CEO, Frank Marasco, naive enough to believe he had a legitimate transaction or is he in on it?  Profit is always the motive in scams, so the only motivation that I can think of is that somebody was hoping to unload a lot of shares into the market on the back of this deal announcement.  The stock was halted by the ASC shortly after the transaction was announced with no news from the company, so that plan, if it was the case, was foiled by the regulators.  Maybe if they had claimed that the deal was for $75M and not $750M they would have got away with it.

According to the purchase and sale agreement, a USD$500,000 non-refundable deposit is due 30 days after the date of the purchase agreement, which is dated October 5, 2017.  Will WHY receive the deposit this weekend?  I'd say the odds are about as good as me winning the lottery...and I didn't buy a ticket!

Wednesday, 25 October 2017

Dolly Varden looks interesting on a pullback

Garibaldi (TSXV:GGI) is the darling of British Columbia's Golden Triangle at the moment and we might even see some assays in the next week.  It seems like an uber speculative investment with a market cap approaching $500 millionđŸ˜¨, but the fact that Eric Sprott continues to aggressively invest in Garibaldi suggests it may actually have a significant nickel discovery. Mr. Sprott recently invested another $5 million as part of a private placement and now controls 11.7% of GGI.  Drill results better be good or GGI (and related pump-job MTS) are going to go down faster than a peregrine falcon (random fact: peregrines can achieve speeds of 320km/h in its hunting dives).

GT Gold (TSXV:GTT) illustrates what can happen to hot exploration stocks when results start to disappoint.  That stock is now 60% off its highs, even though the company's latest news release included the statement "Possibly the best is yet to come." (link)
I don't feel sorry for whoever the sucker was that paid $2.75/share for GTT.  Serves you right for being dumb enough to think that the company was worth $200 million based on a few drill holes.  These are the lottery tickets that I referred to in an earlier blog post.  You might get lucky and hit the jackpot with a stock like GTT (or GGI...or NVO), but the odds are against it when the valuation gets out of whack with reality.  When stocks like these shoot up, they become a high risk, low reward situation and that is not a smart investment strategy.  More often than not, they turn out like GT Gold, Cordoba Minerals, etc. etc.

Another company in the Golden Triangle that I recently took a look at is Dolly Varden Silver Corporation (TSXV:DV).  I'd classify DV as a low to medium risk, high reward situation.  Here are the reasons why:
  1. Dolly Varden only has a market cap of $28 million.  The odds of Dolly Varden being a 10-bagger with a new discovery appear far greater than the odds of Garibaldi, GT Gold, or Novo Resources going up 10-fold from where they are currently trading.  Garibaldi and Novo are already 10-baggers and 100-baggers are almost as rare as unicorns, even in junior mining.
  2. The company actually has a mineral resource estimate.  An August 2015 report estimates 31.8 million ounces of silver in the Indicated category and 10.8 million ounces of Silver in the Inferred category.  There is actually a lot more silver in the area, but the majority of it is below the 150 g/t silver cut-off used to calculate the resource.  The average resource grade is 321.6 g/t Ag for Indicated and 373.3 g/t Ag for Inferred.
  3. The odds of finding mineralization are generally better when the occurrence of mineralization has already been found in an area.  Over 20 million ounces of high grade silver have been extracted from the Dolly Varden property.  The Dolly Varden deposit was a briefly mined from 1919 to 1921 with an average production grade of 1,109 g/t silver and Torbrit was mined from 1949 to 1959 with an average production grade of 466 g/t silver.
  4. Hecla recently tried to buy the company for $0.69 per share, just above where the stock is currently trading. 
  5. Dolly Varden has already announced a new high grade discovery, but it does not currently appear to be priced into the stock.
Let me elaborate on that last point.  On August 14, 2017, Dolly Varden announced a new discovery with hole DV17-058 intersecting 16.1 metres grading 293 g/t silver equivalent in an area 200 metres north of the Torbrit deposit. The stock popped on the news, but then gave back all of the gains.  This might have been because the headlines focused on a broader intercept that included some grade smearing.  The true width of the better portion of the intercept was only 6.27 metres grading 481.1 g/t Ag .  So, hole 58 did make a new discovery with a decent intercept, but the company lost credibility in my eyes by highlighting the core length in the news release headline and smearing grade.  The company redeemed itself in the August 29, 2017, news release (link), by highlighting 6.72 metres of true width grading 1,272 g/t silver equivalent in hole DV17-63 in the new zone identified by hole 58.  The best intercept in that hole was actually 10.05 metres grading 852.2 g/t silver (929.4 g/t AgEq) in VMS style mineralization 427.85 metres down hole.  That is a very nice grade intercept, both in terms of grade and width.  If there is continuity of this mineralization, it could have a significant impact on Dolly Varden's total silver resource.  I would expect the company to drill follow up holes this year, as the drill program was expanded in late September to 12,000 metres from 5,000 metres.

Dolly Varden's stock went up by almost 20% on the back of hole 63.  But once again, it has given back all of the gains and is now trading back in the low $0.60s.  Any further share price weakness will make DV quite attractive as a value Golden Triangle play.  Downside risk is reasonably low due to the existence of an actual resource, as well as interest expressed by Hecla.  If planned drilling in the area north of Torbrit hits more mineralization like hole 63, then this stock has the potential to trade up substantially from its current valuation to reflect the size of the discovery.  Safe and boring, but I'm OK with that.


Disclosure: I do not own shares of any of the companies mentioned and have no relationships with any of the companies.  I may buy shares of Dolly Varden in the near future.

Wednesday, 18 October 2017

5 Questions to ask before you invest plus one more from me

The Investing News published an article earlier this week titled "5 Questions to Ask Before You Invest in a Gold Junior Mining Stock."  It is a decent piece with some good advice from a variety of people in the mining industry.  The questions the article suggests you ask are:

1. Who is on the management team? 
2. Where is the property?
3. What is the geology like?
4. How far along is the project?
5. Is the business viable?

Let me add one more:
6. Does your mining company plan on "diversifying" into the marijuana or cryptocurrency/blockchain space?
If the answer to this is "yes" or "maybe", then run the other way because that would signal to me that the mining projects probably are not viable and the company is jumping on a bubble bandwagon.  Just because it is called cryptocurrency mining doesn't mean that it has anything to do with mining!  But that is exactly what MX Gold (TSXV:MXL) is doing (link) and in a news release issued today the CEO stated that "I truly believe that the sector can provide our shareholders with a unique angle to differentiate ourselves from other mining companies."  You can't make this stuff up! 

MX Gold spent $471,506 on Professional, management and consulting fees, $179,836 on Salaries and benefits, and $250,516 on Investor relations and public company costs in the first half of 2017.  Rather than looking for investments that have nothing to do with mining, perhaps management should have focused on its mining business and things like NI43-101 disclosure standards in order to avoid the BC Securities Commission having it retract a whack of bad disclosure relating to its mining projects (link).

In my opinion, wasteful spending and a lack of focus is far too rampant in the junior mining space.  Capital is scarce and should be allocated to quality projects and teams.  MX Gold recently raised $4 million (at $0.10 per unit with a full 5-year warrant at $0.20), very little of which is likely to be spent of real mining work since the company had a working capital deficiency of $1.6 million at June 30 and a burn rate of $2.3 million per year based on the most recent financials.  My guess is that the $4 million is going to disappear very quickly, with very little going into the ground.  More than likely, money will be spent on things like this pump piece by Future Money Trends (link), for which the company paid $85,000 last year.  The only thing getting "mined" here seems to be investors' pockets.


Friday, 13 October 2017

Garibaldi answers some questions and jumps another 33%

Garibaldi Resources (TSXV:GGI) issued a news release this morning that answered some of my questions in yesterday's post.  They've now drilled an additional 11 holes since EL-17-01 (3,000m in total) and all of those holes have intersected "broad sections of disseminated to blebby net textures sulphides (pyrrhotite-pentlandite-chalcopyrite), hosted in olivine gabbro".

To the company's credit, they have also posted more than 20 pictures of core samples from the E&L drill program and pictures showing the rugged terrain on their website (link).  I commend that kind of disclosure and transparency.  The core highlights various intercepts with massive sulphides, which should carry good nickel and copper grades.  But, the question remains how broad are the massive sulphide zones versus the disseminated sulphide zones, which may not contain enough mineralization to be economic.  So, while I appreciate the additional information from the company, on the assay results will start to provide a true sense of what Garibaldi has discovered.  Today's news release indicated that assay results will be released as they become available in the second half of this month.  In other words, we could see actual results as early as next week.

Today's release fueled excitement in GGI, with the share price closing up 33% at $3.57 with over 6 million shares traded in Canada.  The high of the day was $4.20, at which point those who bought on Wednesday would have doubled their money.  For those lucky enough to have bought a few months ago, you now have a 20-bagger without a single batch of assays results.

I've been on the sidelines watching Novo Resources, GT Gold, and Garibaldi because I prefer certainty over speculation.  However, grassroots exploration is clearly where the massive action is in the junior mining market right now.  Therefore, the next time I see a good drill result with the potential for a new discovery you can bet that I will be jumping into the action posthaste and suggest others consider doing the same!

Thursday, 12 October 2017

Can WHY's Frank Marasco turn $10 into $326 million?

While we are waiting to see what the Alberta Securities Commission does on West High Yield (TSXV:WHY), I perused the bullboards to see if some investors still think this is a credible deal.  The number one thing that confirmed was that there are a lot of gullible people posting on the bullboards.  But one post prompted my interest, as it stated that WHY CEO Frank Marasco and his family control almost half of WHY shares.  As it turns out, Frank and family really do control about 43% of WHY shares.

I had to do some digging to find out how much Frank paid for these shares.  Going all the way back to the June 2006 WHY prospectus, I learned that the 20 million shares held by West High Yield Holdings Ltd. were acquired for less than the cost of a pizza.  Ten dollars!  If the deal is real, which of course I do not believe given the evidence to the contrary, then those 20 million shares alone could be worth C$326 million.


A 15-bagger without a single drill result - Garibaldi Resources (TSXV:GGI)

Sometimes you get the feeling that other people may have a lot more information than is publicly available when it comes to mining stocks.  A good example of that at the moment is Garibaldi Resources (TSXV:GGI).  The trading in GGI has been pretty wild the past two days, with the stock dropping 20% at the open yesterday and tripping a circuit breaker.  I thought that perhaps somebody got wind of results before they came out, but then the share price recovered the losses today and jumped 15% in the last 30 minutes of trading today. 

Looking back a little farther, trading volumes in GGI suddenly exploded in late July 2017 and the stock has traded an average of 1.5 million shares per day in Canada over the past three months.  What changed three months ago?  On July 27, 2017, the company announced that "Widespread pyrrhotite-chalcopyrite mineralization has been identified on surface in gabbroic rocks that outcrop over a broad area at previously unexplored "Anomaly A", approximately 6 km north-northeast of the historic E&L nickel-copper-rich mineralized zones where drilling commences shortly."  Fair enough.  A potential new discovery in the hot Golden Triangle area of British Columbia should get some attention in this market.  But the run up in the share price and the market cap, which now sits at $232 million, has been nothing short of remarkable given the lack of details on the discovery to date and leave me wondering who knows what and if any people have taken a peak at the core.
On Sep. 1, 2017, the company issued a news release indicating that the first drill hole " intersected two long intervals of nickel-copper sulphide mineralization totaling 176 meters and consisting of pyrrhotite-pentlandite-chalcopyrite in the first drill hole..." and "Additional highlights of the first drill hole:
  • EL-17-01 entered mineralized gabbro beginning at a depth of 51 meters with disseminated sulphides continuing to 169.5 meters.  A second section of disseminated sulphides started at a depth of 274.5            meters and continued to 332 meters.   Meter-scale intervals of up to 30% sulphides at the base of the intercept occur as heavy disseminations, net-textures and gash veins;
  • EL-17-01 remained in the E&L Intrusive Complex (ELIC) from the collar to the end of the hole at a depth of 441 meters;
  • Core is being processed and assays will be reported as soon as possible."
GGI stock popped from $0.70 to $0.94 on the news, which is reasonable.  But that is where things get strange.  In the same release that teased about good results from the first drill hole, the company announced that it had arranged a $6 million non-brokered private placement consisting of $0.65 units, which include a full 2-year warrant exercisable at $0.90, and flow-through shares at $0.75/share.  First of all, why rush to raise money if you think you have a great discovery?  To little old cynical me, this seemed like a "friends and family" style private placement with cheap stock.  The regulators also took issue with the timing of the PP and made the company revise the pricing to $0.82/unit and $0.92/FT share, which was still a great deal because the market price was $1.81 when the financing revision was announced.

The financing closed in two tranches on October 2 and 4.  Lo and behold, Eric Sprott had stepped up for $2.5 million of the placement.  Eric is a very smart and hard working man, so I'm not surprised to see him in the deal and view that as a positive sign.  On the flip side, the CFO sold 40,000 shares on Sep. 28 and a Director sold 50,000 shares on Sep. 6; I guess they couldn't wait for the assays.  But then, an insider bought 173,600 GGI shares yesterday, based on trades marked with the insider tag.  Now, I can only assume that the buyer must have been Eric Sprott, as surely all management and directors would be blacked out pending assays.

Speaking of assays, where are they???  I know labs in British Columbia are backed up right now, but I don't see how the assay results from a priority hole like EL-17-01 haven't been announced by now.  It has almost been six weeks.

Frankly, GGI has me confused.  The hot share price action and Eric Sprott's involvement suggest good things, yet the insider selling, delays in assay reporting, sudden surge in trading volumes and wild price swings raise doubts.  On top of that, the nickel market still sucks because inventories are too high and I don't like the mention of "disseminated sulphides" in the core of hole EL-17-01.  Disseminated sulphides usually mean low grades, which are not good in this part of the world because the terrain looks something like the image below.  Grade is definitely king in this part of the world.
Investors are betting that GGI has something big at its E&L Project.  The stock is up 15-fold since July without a single drill result.  I'm the kind of investor who waits for assays...and I remain on the sidelines, very jealous of those who got in early!


Tuesday, 10 October 2017

One for the value watchlist: Chakana Copper

A double thank you to IKN.  The first is for helping to bring viewers to this site, which is greatly appreciated and an honour.  Insight from IKN and the Angry Geologist have been extremely valuable to me in the past and their unbiased and helpful work was part of the inspiration for this blog.

The second thank you to IKN is for highlighting the pending RTO of Remo Resources (TSXV:RER - halted) by Chakana Copper Corp.  I've taken a peek and I really like what I see, both in terms of the team and the project.

The Team
David Kelley will be President & CEO of Chakana.  The last time I met David he was working at MMG as the Exploration Manager for the Americas, which means he looked at a lot of projects and obviously found this one to be one of the more interesting available.  David has an extensive technical background, including direct experience in Peru at MMG's giant Las Bambas copper project.  Joining David on the board of directors will be John Black, another strong technical expert with extensive experience in Peru, whom I have a lot of respect for.  I have never met Douglas Kirwin, Chairman and Director, but he also looks very strong on paper with 45 years of international exploration experience.

The Project
Chakana is working towards acquiring 100% of the Soledad Project, located in the western ranges of the Andes Mountains in Peru.  The Project hosts a cluster of near-vertical magmatic-hydrothermal quartz-tourmaline breccia pipes that contain copper-gold mineralization, associated with silver, zinc, lead and moly.  The thesis is that the breccia pipes may be related to a deeper porphyry deposit.  The company has commenced a 16,660m drill program to determine the geometry of several pipes previously drilled and the first two holes look very promising.  Hole SDH17-017 intercepted 146.6 metres grading 2.51g/t Au, 48.6 g/t Ag, and 0.77% Cu from surface and hole SDH16-018 intercepted 209.0 metres grading 2.22 g/t Au, 69.6 g/t Ag, and 0.96% Cu from surface.  Some historical drill results are highlighted on the website of Condor Resources (TSXV:CN), which optioned the Soledad Project to Chakana.

The Soledad Project mineral exploration concessions only cover 11.4 square kilometres, which is  a bit smaller than I would like at a company hoping to find a large porphyry, and there will be future cash payments totaling US$5.375M and a 2% NSR (50% of which can be bought back fro US$2M).  However, these are exceptional gold and copper grades, especially since the best grades are near surface.

Valuation
Chakana currently has 41.3M shares outstanding and will issue 1.2M shares to RER shareholders as part of the RTO, plus 0.2M shares to finders.  It also plans a minimum $6M equity raise at $0.50 per share prior to completing the RTO.  So, coming out of the gate, Chakana should have 54.7M shares issued (more if the equity raise is over $6M), a valuation of roughly $28M at $0.50 per share, and around $8M in cash.

I need to take a closer look at the Soledad Project, but at first glance $28M for a project with these grades and this team suggests a lot of upside potential.  Thanks IKN, this is definitely one to watch!



Waiting for an update on West High Yield

Trading in West High Yield (TSXV:WHY) was halted before the open on Friday.  It appears that IIROC is seeking "clarification of company affairs."
Bloomberg is doing some good work on this, with an update on WHY on Friday afternoon.  In a nutshell, the Alberta Securities Commission is looking into the purported transaction, the purchaser has a checkered past, and the purchaser's counsel (Baker McKenzie) is not aware that they are acting for them or any connection to the deal.

I'm waiting with bated breath to see what happens next with WHY and how quickly the deal unravels.  I've seen a lot of scams and frauds in my career, but this seems like the most obvious of the bunch.


Thursday, 5 October 2017

WHY oh WHY?

As a follow-up to the last post, 2.36 million shares of West High Yield (TSXV:WHY) traded today and the stock closed at $2.00.  Clearly some investors think there is a chance that this may be a legitimate deal and the boards were buzzing.  Even Bloomberg picked up the story.  I like the part where Baker McKenzie, the reported law firm for the buyer, told Bloomberg that they have no knowledge of the deal!

WHY even filed a Purchase and Sale Agreement on SEDAR today.  Take a look at Sections 2.2 and 2.3, which basically state that the purchaser will wire USD$750M to WHY in exchange for share certificates representing one hundred percent of the then issued and outstanding securities of the Corporation.  Huh????  That is a takeover bid, not an asset sale.  How is management of WHY going to deliver 100% of the shares of the corporation, most of which are held by shareholders, and how do the shareholders get paid?  This is not even a viable transaction!  Never mind section 5.1.1.6 of the agreement, which requires WHY to enter into take or pay agreements on or before the closing date.  Take or pay for what and how?

Not that anybody should need any more clues that this agreement is suspect, but the Purchaser's Counsel is listed as "Baker & McKenzie LLP".  That firm dropped the "&" from their name last year and is now known as "Baker McKenzie LLP".  Also, the Purchaser's address is a home built in 1992 and the email address is @AOL.  All of this information is readily available on the web.

This blog is supposed to be about finding value investments in the mining sector.  Doing that is a lot harder than finding scams and promotes.

If is smells like a scam....West High Yield

This morning a little magnesium company named West High Yield (TSXV:WHY) announced an agreement to sell its mining assets for USD$750 million.  Is anybody dumb enough to believe that a company with access to USD$750M is going to pay this amount for a company with a market cap of $21 millon and a working capital deficit of over $2 million at June 30/17?  Shockingly, the answer is YES!

After WHY re-opened for trading at noon EDT today, the stock shot up from $0.36 to as high as $3.75 per share.  It has since pulled back to $1.40 per share with almost 200,000 shares traded.

A bit of digging suggests no evidence that the buyer, Gryphon Enterprises, LLC, is a business sufficiently large enough to come up with USD$750M (or probably even 1% of that).  Also, I noticed that WHY issued 1,893,333 units only about a week ago for $0.30 per unit.  I doubt a company in the midst of negotiating an asset sale would do a financing, and a deal this size doesn't happen overnight.

If it walks like a duck and quacks like a duck, it probably is a duck.  This one walks like a scam and smells like a scam.  In my opinion, the regulators should have asked for more information from the issuer before allowing this stock to re-open for trading.

Wednesday, 4 October 2017

WTF? (Why The Fall) - Golden Queen Mining

The junior mining sector can be enigmatic.  Shares of Golden Queen Mining (TSX:GQM / OTC:GQMNF) closed yesterday at $0.57 and the stock trades an average of 57,000 shares a day on the TSX.  Without any news, or at least anything formally disclosed, the stock opened this morning at $0.33, down 42%!  At 1:01pm EDT, the company issued a release indicating that there is no undisclosed information.  The stock finished the day at $0.41, down 28%, with over six million shares trading hands in Canada and 6.9 million shares in the US, roughly 80 times the average daily volume.  WTF?
One rumor I heard is that a newsletter writer was responsible with a sell recommendation.  The chart below shows the GQM share price for the past two years.  If the massive sell-off today was due to a newsletter writer's recommendation and you are a subscriber, ask yourself if you really should follow his or her advice on small cap stocks with limited liquidity.  You'll overpay to establish the position and you'll get crushed when the herd heads for the exit, which may explain the action today.  This type of market action also shakes the confidence of other investors who are left wondering if there is something they are missing.  The Golden Queen is looking rather tarnished!

Let this also be a lesson for the investors who repeatedly tell me that my clients should get more newsletter writers involved.  Sure, the extra buying is great, but newsletter followers don't tend to be long-term investors and seeing them sell is not so much fun or, as GQM saw today, can be very destructive.


Tuesday, 3 October 2017

Nice drill results from Canada Zinc...stock happened to rise 14% before the news

Canada Zinc (TSXV:CZX) just announced some nice drill results after the close:
Drill Hole A-17-137 hit 57.79 metres Grading 11.79% Zn+Pb and 19.1 g/t Ag - including High-Grade Core of 22.61% Zn+Pb and 36.2 g/t Ag over 15.44 metres

Earlier today, I was wondering why CZX was up 14%.  It was a good day in the zinc space, but it was almost like somebody knew the news was coming.  Higher volume today, before the news, then on any other recent trading day in the past month.  764,502 shares traded today before the news, which was even more than the 409,400 shares traded on Sep. 15 after the last drill results were released.

Hmm, call me cynical but it almost seems like some brokers or investors at Leede Jones Gable and PI Financial knew these results were coming out based on their aggressive buying today.  They were 55% of the buy volume.  The stock also happened to rise substantially in the first half of September leading up to the last drill results news release.  I'm not saying this isn't all coincidence, but it does smell a little fishy.

Always read the disclaimers!

Before you believe anything you read from third parties in the junior mining space, always, always read the disclaimers!  Here is an example I received today in the way of a very promotional email linking to an article on International Battery Metals (CSE:IBAT).  Below are excerpts from the disclaimers in that article.  Kudos to the authors for full disclosure, but pity to the investors in IBAT who believed the glowing promo article and didn't bother reading the disclaimers and failed to realize that the article was for entertainment purposes only.  Ouch!

In this case the Company has been paid by International Battery Metals. In this case the Company has been paid by International Battery Metals one hundred and twelve thousand five hundred US dollars for this article and certain banner ads. This compensation is a major conflict with our ability to be unbiased, more specifically:
This communication is for entertainment purposes only. Never invest purely based on our communication...Oilprice.com receives financial compensation to promote public companies. This compensation is a major conflict of interest in our ability to be unbiased.  

Buying junior mining stocks can be like buying lottery tickets, but it shouldn't be

I've received a few emails in the past week aggressively pumping Los Andes Copper (TSXV:LA), so I thought I'd check it out even though these shamelessly promotional articles are almost always a huge red flag.  My message to mining investors is that they should run the other way when they see articles or emails written in single sentence paragraphs and using over the top, bullish language.  Here is why - if a Canadian lottery was paying these promoters, here is what they might say:

The Canadian government is giving away huge sums of money and every citizen is entitled to participate for as much as they want!

Not only can you make huge returns on your money, but the proceeds are absolutely tax free.  Where else could $10 get you millions of dollars...tax free!

Yet, not everybody has picked up on this lucrative opportunity yet, so investors should jump in as fast as they can before the masses get involved.

Of course, what they would fail to mention is that the odds of actually winning are millions to one and that the odds of winning are in the government's favor.  Lottery tickets are not good investments and should not be a part of anybody's retirement strategy!

The sad thing is that I see enough of these promotional emails and articles that some investors out there must fall for them.  Some junior mining investors don't realize that buying shares is very similar to buying lottery tickets.  The odds of investing in a property that turns into a mine are against you.  To make matters worse, there are characteristics of the junior mining sector that make it an ideal environment for scammers and cheats.

The purpose of this blog is to help non-technical investors understand the junior mining sector a little bit better.  My plan is to provide posts to help investors navigate the minefield that is junior mining, or to scare them enough that they don't lose their hard-earned money.  In the near future, I'll provide a checklist I use when evaluating junior mining companies to hopefully shift the odds of success in my favor.

The blog will also provide an outlet for me to vent about the aspects of the junior mining sector that really tick me off.  From an insider's perspective, it is disgusting to see how much money is wasted by mediocre companies with projects they know are substandard just because it provides them with employment.  The junior mining sector is the least efficient sector I have seen in my 25+ year career because capital certainly does not go into the highest quality companies and way too much money goes towards stock promotion.  The reason that this aggravates me is that I now work as an investor relations consultant to junior mining companies (full disclosure: my clients are Tinka Resources (TSXV: TK) and West Kirkland Mining (TSXV: WKM).  I will only work for a company if my research indicates that it is a worthy investment with an attractive risk-reward profile and I refuse to be overly promotional when pitching companies.  My mantra is that I want my clients to under-promise and over-deliver in order to make investors money over time.  The challenge is that we are competing for a limited pool of investment dollars against other companies that have no problem over-promising and under-delivering.  Investors falling for the promotions need to realize that they are effectively buying lottery tickets and the only way they'll "win" is if the company gets lucky and actually has a major discovery.  Like the lottery, the odds of that are high.

I told you there would be some ranting!  Anyways, back to the example of Los Andes Copper.  I spent less than five minutes looking at it and here are my observations:
  1. The recent drill results hit some major copper-moly intercepts with nice grades like  506.0 m @ 0.57 % Cu, 357 ppm Mo and 1.1 g/t Ag (0.67 % CuEq) in hole V2017-10.  Sounds great, right?  The newsletter writers certainly made it seem so.  Unfortunately, this intercept started 486 meters down the hole and this was a pretty steeply drilled hole (75 degrees).  Why is that a problem? These are only good grades for a large open pit operation and anything this deep is too deep for a pit.  Just think about how much would it cost and how long it would take to pre-strip the 400 meters of waste rock on top of the mineralization in this area; also, as the pit goes deeper, the sides will get pushed out into unmineralized rocks, further adding to the amount of waste and cranking up mining costs by hundreds of millions of dollars.  Using my lottery analogy, this intercept is like getting all of last week's winning numbers on this week's ticket.  You're not getting a prize, sorry.
  2. A PEA on the Vizcachitas project was completed in 2014 and it confirmed my suspicions.  The initial capital was $2.9 billion dollars.  At $2.75/lb copper and $13.64/lb moly, the after-tax NPV was a meager $274 million with an IRR of 9.5% and a 6 year payback.  Those are not good rates of return for such a massive investment, so this project is not likely to go anywhere until metal prices are much, much higher.
So, after five minutes of looking at Los Andes I decided it was not a good investment for me despite the company's large mineral resource and my positive outlook for copper.  Could the share price go higher?  Sure, if copper prices go up, but then every other copper stock out there is also going to go up.  I would rather invest my money into something that has a lower valuation and more potential to become a mine with at least a 20% IRR at today's metal prices (and at least 30% on a PEA).  I'm looking for value and this isn't it.

Even though I quickly ruled Los Andes out as an investment, I did a bit of extra digging for the sake of this blog post.  I noticed that Bahamas-based Turnbrook Mining Limited owns over 58% of the outstanding shares of Los Andes Copper and has been its biggest backer.  I've never heard of Turnbrook Mining, so I dug a little deeper and discovered a link between Turnbrook and the Panama papers.  As per this Reuters article and this translated CIPER article, Gonzalo Delaveau, a director of Los Andes Copper, was a key Chilean figure who got tangled up in the Panama Papers.  Mr. Delaveau resigned as the president of the Chilean branch of Transparency International (a German-based organization that seeks to monitor and root out corporate and political corruption worldwide) when they Panama Papers revealed that he was an intermediary to a number of the offshore companies identified in the Panama Papers, including Turnbrook Mining.  I have no clue whether there has been any wrongdoing or not, but I have no idea who is behind Turnbrook Mining and where their money and assets have come from.  My investment strategy is to try to find high reward potential with relatively low risk. Los Andes seems like low reward and high risk.

If anybody from Los Andes Copper reads this, I'm sorry to pick on you in my first blog post.  My view is that you wasted money paying biased newsletter writers to hype your story to make it sound better than it really is.  That is not serving your shareholders well and it takes capital away from other projects with better economics that should be advanced.  Oh, and you should remove the paid research report from your website because the regulators take the view that it has to be NI43-101 compliant if you disseminate it and that report is not compliant!


2019 - Be a pig, but don't get slaughtered

It's cliche, but what a difference a year makes.  We started 2018 with a very bullish market for metals and mining stocks.  The euphoria...