A former small cap research analyst looks for value in the Canadian junior mining sector and shares his experiences, thoughts, and rants. The blog is free and for information purposes only, so should not be construed in any way as investment advice.
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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
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.
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.
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 winni…
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!