Southwestern Resources Corp.
May 8, 2003
SWG.T:CAN$9.10 (US$6.50)
>>>This communication is being issued to clients of Global Resource Investments who own shares in Southwestern Resources. This morning, the company issued results from the drilling of four holes at their Boca project in China. You will recall that tunnel sampling conducted on this property late last year yielded some very high-grade gold occurrences, initiating a run on the stock. Between early December and mid January, the share price of Southwestern appreciated from CAN$2.90 to CAN$19.20. Our internal geologist, Brent Cook, visited the property in January and offered a less optimistic opinion on the geology and potential of the play. In early March, Southwestern released results from the first drill hole. While gold was present over a fairly long interval, in our opinion it didn't suggest a mineable grade. But that was just one hole. The market tolerated this news, hoping that the next round of drilling would be better. This morning, Southwestern issued results on the next four holes and the results were no better (in fact they were a bit worse). When the stock opened for trading, the price collapsed from yesterday's close of CAN$14.00/share to as low as CAN$7.60/share. Internally, we don't believe that Boca will be as easy as the market was hoping for. Nevertheless, it appears to us that this is a large mineralized system and it is likely that mineable deposits will be found at some point in time. The question becomes how many holes must be drilled to find those deposits, how long will it take, how much money will be spent in the process of doing so, and how much patience will the market have for all of this.
From what we understand, the next round of drilling to be reported on will be over a month from now and will cover more widely spaced holes. In our opinion, the only thing that will take the stock substantially higher will be encountering a meaningful intercept of high grade gold in one or more of these holes. We suspect Southwestern drilled the first five holes in a location where they believed they would encounter that kind of grade. Unfortunately, they didn't. Waiting four months for results from those first five holes was excruciating for the market and I don't think it will be as accommodating going forward. Our recommendation would be to sell some or all of your shares above CAN$9.00 and look to buy it back below CAN$7.00. The alternative is to hold what you have and endure what is likely to be a very volatile stock.<<<< |
