Monday 27 November 2017

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  (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 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.

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