Saturday, March 22, 1997 'Mr. Conservative' boasts impressive record
By DAVID THOMAS
The Financial Post
Late last month, Vancouver-based Francisco Gold Corp. issued some excellent drill results from its El Sauzal gold property in Mexico.
Mining analysts applauded the gold grades of the holes, some of which reached an extraordinary 25 to 30 grams of gold per tonne.
And in a statement accompanying the results, the company was quick to conclude the confirmed "existence of a world-class, mineable, oxide orebody."
As analysts and the company waxed enthusiastically over El Sauzal's potential, investors jumped on the stock (FGX/VSE), driving the share price up 68% in a single day and swelling Francisco's market capitalization to almost $500 million.
But one Vancouver analyst was not about to become caught up in all the hype.
"Francisco has made a significant discovery," Doug Leishman told his clients in a fax. "However, based on the current share price, this stock is more than fully valued."
It was a typical comment for the Yorkton Securities Inc. analyst, who finds he has to spend a significant chunk of his time cooling investor enthusiasm, rather than stoking it.
"The way the market is today, I feel a big part of my job is to preserve capital and protect investors from promotions,"
says the 48-year-old geologist and six-year veteran of Yorkton's Vancouver office.
"The beauty about him is there is no b.s.," says Chet Idziszek, chief executive of Adrian Resources Ltd. (ADL/TSE), veteran prospector and Canada's Mining Man of the Year in 1990 for his role in the discovery and development of the Eskay Creek and Snip gold mines in northern B.C. "If he sees something that doesn't make sense, he says so," says Idziszek. "Sometimes, people don't like that. But he's got a great record on his calls so it's tough to argue."
Each December, Leishman compiles a list of picks that covers emerging stories and "bottom-fishing" stocks that are priced below $3 each.
His 1996 "A team" portfolio of eight stocks averaged a return of 414%, as measured by the difference between their recommended price and their highs for the year.
The top performer was Stratabound Minerals Corp. (SB/ASE), which peaked at 859% above its recommended price.
The "dog" of the bunch was Pacific Bay Minerals Ltd. (PBM/VSE), which managed to climb only 85%.
Leishman's "B team" of 12 stocks trailed the "A team", but still averaged an impressive 188% return.
The worst performer was Rea Gold Corp. (REO/TSE), which peaked at 41% above the price at which it was recommended.
Brampton, Ont.-born Leishman did his initial training at London's Royal School of Mines before returning to Canada to work as a geologist in northern Quebec and B.C.
Leishman says the most important part of his work as a mining analyst is poring over rocks and drill results, not balance sheets. "I'm not a financial analyst," he concedes. "I'm not there to do cash-flow analysis. The best background for someone in this business is as a working geologist.
"The first thing you have to judge is if the company is in the right geology. Then you have to decide if they are capable of tackling their program on a technical level."
Nell Dragovan, chairman of Madison Enterprises Corp. and a client of Leishman, says she has done well by the analyst's stock picks, including Bema Gold Corp. (BGO/TSE).
Leishman recommended the stock last April at $4.80. It reached a high of $12.25 in August and closed recently at $11.50.
Other Leishman picks include Arizona Star Resource Corp. (AZS/VSE), which he recommended at the same time as Bema at $1.50. It hit a high of $15.55 in August and closed recently at $11.90.
Arequipa Resources Ltd. was recommended in December 1994 at 75«. The company was taken over by Barrick Gold Corp. last August at $30 a share.
Conservative by nature, Leishman learned to be even more restrained after being embarrassed when he took an ill-advised jump on the Rio Amarillo Mining Ltd. (REO/VSE) bandwagon in 1993.
"That was my biggest disaster ... and a good lesson," he says.
Initial drill results from Rio's Candillaria copper property in Peru. were excellent, but Leishman says he neglected to find out more about the drilling program.
Several other drill holes were later held back because they were poorer than expected.
Rio's shares climbed as high as $4.15 but, as it became clearer that the rest of the holes did not match the promise of the initial drill results, the stock slipped back below $1 and closed the year at 72«.
"I just didn't ask enough questions," Leishman says. Rio is still exploring several properties in South America.
The astute analyst intends to remain conservative, saying "it may take me a little longer to believe in some things [such as diamond stocks, which he initially shunned as too risky] but I won't be ruining too many portfolios either."
Working on the retail side, rather than in underwriting, Leishman says he feels less pressure to push escalating target prices on his calls.
"There seems to be a competition among analysts to come up with the highest resource estimates or target prices," he says.
"A lot of analysts do not have the freedom that I have."
Photo by Jeff Wasserman, The Financial Post. |
