Wednesday 17 January 2018

ML Gold following the Garibaldi model, but without the egregious market cap

I was tied up with a financing and not on top of the news, so I missed it last week when ML Gold (TSXV:MGL) announced that drilling at its Stars Property in central BC intersected 311 metres with visible chalcopyrite mineralization (link).  Thanks to reader DH for bringing this to my attention.

So, once again we have a junior mining company announcing a new discovery prior to releasing assay results.  Garibaldi Resources (TSXV:GGI) demonstrated last year how to send your share price skyrocketing this way without any assay results.  In my opinion, GGI over promised and under delivered, although the best example of failing to live up to the hype was New Nadina (TSXV:NNA).  That stock crashed in spectacular fashion at the beginning of 2018.  Somewhere out there is some poor sucker who paid $4.50 for NNA shares, which are now trading at $0.41.  Ouch!

While there are similarities between MLG and GGI, a big difference is that MLG is trading at a market cap of $19M while I was criticizing GGI when it had a market cap north of $300M.  Making money is all about risk-reward and taking on high risk only makes sense when justified by a high reward.  MLG shares are trading at $0.23. If the 311 metres of copper mineralization at the Stars Property doesn't amount to a major discovery, which is the most likely outcome based on geological probabilities, MLG shares could very well go back to $0.10 and you'll lose more than half of your investment.  However, in the rare event that this is a real discovery, then the stock could go up tenfold to $2.  This, in other words, is a classic junior mining lottery ticket - the odds are that you'll lose your money, but you have a chance of winning big if you get lucky.

Even when buying a lottery ticket, I like to get the odds on my side as much as possible and to make sure that I'm not getting hoodwinked.  So, I did a little bit of due diligence on this project.  The Stars Property is in a porphyry belt and is situated 58km north of Imperial Metals' Huckleberry Cu-Au-Ag mine.  That is a good sign, although Huckleberry is currently on care and maintenance waiting for higher copper prices (in other words, grades are low and/or costs are high).  The two main targets at Stars have geophysical anomalies and soil samples confirm the presence of copper and moly at surface, especially in "Zone B".  According to the ML Gold website, there have been historic shallow holes that have ended in copper mineralization, including hole CS-02 which ended in mineralization grading 0.56% Cu at 110m.

Hole CS-02 piqued my interest, so I dug a little more and found a technical report dating back to 2002 by Doublestar Resources (link).  As is often the case in the junior mining sector, MLG has cherry picked the good information from the historical drilling and neglected to mention other material information that is not quite as rosy....
Hole CS-02 was the only good hole.  The others were all sub 0.1% Cu mineralization, which is also known as "waste."

 To be fair, this report was from 2002 when copper was trading at around $0.70/lb.  Plus, there was a glimmer of hope in the 2002 report, as follows:

In the current market environment where investors clearly like to speculate on potential discoveries, my initial sense was that MLG is probably worth a trade.  Liquidity is good and a sniff of some decent grade copper should send the share price higher.  But only stay in as long as results are good.  As seen with Golden Predator, GT Gold, Garibaldi, and Novo, the speculative froth doesn't last too long.

One of the reasons for my hesitancy in jumping on the MLG bandwagon is that I have a decent sized position in AbraPlata Resource (TSXV:ABRA), which has a similar size market cap as MLG (I also work as a consultant for ABRA, so consider me biased!).  In my opinion, ABRA has better looking porphyry targets than MLG.  More importantly, ABRA has more value in the event that the porphyry targets are duds, as it has a silver-gold project with an Indicated resource (pit constrained) containing a hefty 81 million ounces of silver and 755,000 ounces of gold (140 million AgEq ounces or 1.8 million AuEq ounces).  MLG also has a gold-silver project in Nevada, but it only has an Inferred resource (pit constrained) resource containing 310,000 ounces of gold and 2.4 million ounces of silver (341koz AuEq). 

After doing a bit more research, however, I realized that MLG also has a very large iron ore project in northern Quebec.  As it turns out, MLG used to be known as Cap-Ex Iron Ore and the stock traded north of $6 back in 2011 (see 10-year chart below).  I made the connection to Cap-Ex Iron Ore because MLG still shows the research coverage they used to have on their website, which is rather nostalgic. 

All in all, MLG looks interesting for a speculative trade on the Stars property and I plan on taking a position.  The company has some other decent looking assets, so there is some downside protection in the (likely) event that the copper mineralization is either low grade or confined to a small area.  I'll try to get some more insight into the company plans and will also see if I can get some technical insights from geologists on the porphyry potential at Stars.  Happy trading!

Crypto crash

For some morbid reason, it gives me pleasure to see Bitcoin and other cryptocurrencies crashing.  Maybe it is because there is way too much talk about cryptos now or maybe I'm jealous of all those Bitcoin millionaires buying Lambos.  For their sake, I hope some of the fortunate ones did cash in and buy real assets because cryptos appear to be crashing...and I don't think we've seen capitulation yet when things will really crash.

Cryptocurrencies have not had a good year so far and the sell off has now accelerated due to rumors that China and South Korea may implement regulations that could go as far as banning trading in cryptos.

Below is the one month chart for Bitcoin.  Yep, that is almost a 50% drop in a month.  That is what happens when there is no real underlying value and price is set simply by supply and demand.  Bitcoin increased roughly 1500% in 2017 and it will be interesting to see how it fares in 2018.

Friday 5 January 2018

Casey Report to blame for Aurania surge

Further to yesterday's post, which speculated that James Dines caused the sudden surge in the price of Aurania Resources' shares (TSXV:ARU), it turns out that it was the Casey Report.  Author E.B. Tucker raised the "buy-up-to-price" for ARU to $15.  WTF E.B.?!?!  Why would you tell your followers to buy up to that ridiculous level?  Unless you think there is imminent news about a major discovery, why not recommend accumulation of stock at current prices and then to buy on dips?  You even state in your article that ARU shares are tightly held, with insiders controlling 70% of the stock. That does not seem like a good way to make your subscribers money.

Casey Report excerpt

In an interesting twist, Aurania issued a news release on Friday afternoon commenting on the increased market activity and linking it to the Casey Report article.  The "company is not aware of undisclosed material information" news releases are useless.  It is a breath of fresh air to see a company actually comment with useful information.  Well done Aurania!

Thursday 4 January 2018

New year, same stupid investor behavior (Aurania Resources)

Happy New Year to all!  May 2018 bring us mining investors the joy that marijuana and cryptocurrency investors saw in 2017.  Despite no exposure to those sectors, I had a very good year in 2017 and will remember it fondly.

2018 is off to a good start for metal prices and mining stocks, thanks in large part to US dollar weakness.  I think this is going to be a good year, but then I usually start the year off with such wishful thinking.  We are getting into the latter part of this economic cycle, so the time is right for materials stocks to finally do well.  My favorite metals for this year are zinc and silver, but I also like copper.
Fidelity - Sector Performance by Stage of the Economic Cycle

Reflecting on my strengths and weaknesses, I often let fundamentals and my cynicism get in the way of making profits.  I didn't jump on the cobalt or lithium band wagon because I didn't understand those sectors/metals well enough, even though I could tell they were hot.  Duh, you don't need to understand the sectors when anything associated with those metals is likely to go up.  A fool and his money are soon parted, so I may as well be positioned to take some fool's money.  This year, I will try to hold my nose and buy stocks just because they're in a hot sector or because investors are naively drinking promotional Kool-Aid.  What will the hot metal be in 2018?  I'm not sure yet, but I've already seen a few articles predicting it will be vanadium (link).

Even though we are barely into the new year, the fun and games in the junior mining sector have already begun.  Today, we had a mix of companies getting their wrists slapped by regulators (TSXV:LIC), share prices doubling thanks to a newsletter recommendation (TSXV:ARU - more below), and mysterious share price moves just before a stock is halted pending news (TSXV:MYA - up 37.5% before the halt).

Maya Gold 3-month chart - price pop before halt pending news.  Sketchy!

Aurania Resources' (TSXV: ARU) stock started going on a tear at around noon EST.  Volumes jumped and "investors" were tripping over each other to buy stock, causing the price to more than double in a couple of hours and finish the day up 61%.  I noticed the action and thought that Aurania had done it and found the lost city of gold in Ecuador!  Alas, the company issued the mandatory "no material change" new release.  Rumor has it that a newsletter writer recommended the stock.  My guess is James Dines, as his subscribers typically exhibit this type of "must-own-it-right-now" buying behavior.  One of the sheep paid as much as $7.57/share, giving the company a market cap of $172M.  These people need to realize that with a little patience they can buy shares for a lot less, increasing their potential returns.

I don't know Aurania well enough to opine on the odds of them making a discovery.  They have a big land package and a very interesting story, so I wish them luck.  What I do know, however, is that the current market cap of Aurania is $114 million.  There are lots of companies with defined, meaningful gold resources and interesting potential for new gold and copper discoveries that trade for much lower market caps.  New year, same stupid behavior.

Trying to Build a 10-Bagger

Evolve or Die This blog started as an experiment when I was toying with the idea of starting a mining newsletter.  I figured that if I was r...