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)
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:
- 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.
- 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.
- 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.
- Hecla recently tried to buy the company for $0.69 per share, just above where the stock is currently trading.
- Dolly Varden has already announced a new high grade discovery, but it does not currently appear to be priced into the stock.
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.