The Real Deal - Gregory G. Hutchinson
"Not everything that can be counted counts and not everything that
counts can be counted".
ÐAttributed to Albert Einstein
Although this quote is often credited to Albert Einstein, ironically
he did not necessarily originate it. He was so fond of it, that it is
said, that he regularly regaled the marvelous statement, and a plaque
in his office at Princeton, supported it being universally attributed
to him. That he reportedly denied taking credit, does not mean that
it is any less succinct or pithy. In fact, that such a great mind
enshrined it, can only add to its shine. Its ecumenical profundity
stands on its own.
On the other hand, the Junior Mining business almost demands the need
to drop a name. Sketchy plans and results are more frequently the
norm. Often their fortunes are linked to the great mother lode by
association of owning land in the same township as a major producer.
Simile is their most favorite form of press. These junior mining
claims remind me of Lloyd BentsenÕs retort to Dan Quayle on October
5, 1988, in Omaha, Nebraska. Dan Quayle, the Republican candidate for
the vice presidency, met Lloyd Bentsen, the Democratic candidate, in
a nationally televised debate.
Quayle: "I have as much experience in the Congress as Jack Kennedy
did when he sought the presidency."
Bentsen: "Senator, I served with Jack Kennedy. I knew Jack Kennedy.
Jack Kennedy was a friend of mine. Senator, you're no Jack Kennedy."
Superficial claims (no pun intended), can set an investor up for
similar humiliation. Use a magnifying glass to evaluate a Junior
CompanyÕs depth in detail before committing your money. Details are
the hallmark of the real deal!
I believe that Holmer Gold Mines Limited. (HGM (TSX) Canada) HOGOF
(Pink Sheets ÐUSA) should be put under your loop. Here are some
facts that I have uncovered:
The CEO of Holmer Gold Mines Limited, (Dr. K. Sethu Raman) is 100%
involved in Holmer Gold Mines www.holmergold.com on a 24/7 365
basis. No conflictÕs of interest. His airline tickets are economy
class. In my humble opinion, Dr. Raman merits five stars on expense
control. Nothing raises my ire more than profligate spending.
JuniorÕs benefit innumerably by having a Geologist at the helm and
Dr. K. Sethu Raman has the accreditation (Ph.D.-Geology) and over 30
years experience in the field. The company has depth of management.
Senior legal advisors and a Senior Accountant on the board of
directors means that all the professional management that a Junior
needs is in place in HolmerÕs directorship: Legal, Finance, and
Technical. For example, there is nothing worse than owning shares in
a company that does not get itÕs reporting into the Securities
Commission on time. IÕve owned companies that have been halted on
the exchange for just this reason.
Take a look at the other players on the directorship of Holmer. One
thing that originally gave me a warm and fuzzy about Holmer was who
was on its Board of Directors. Look for people like Jack Kirkland
Q.C. (QueenÕs Council), Director and Senior Partner of Kirkland,
Murphy and Ain, Barristers and Solicitors (Toronto), a bar member
since 1962, and Ed Svoboda B.Comm., MBA Secretary and CFO (Toronto).
You can read about the rest of the directors on the web site. Ask
Sethu about his key Geological Specialist-Advisors; Babu and Dave.
Holmer GoldÕs team has a keen eye for geological anomalies. SethuÕs
long-term team of contract experts has the Geological mettle to turn
a single Carbonatite rock anomaly into millions of dollars of Gold.
The business sense is there too. The deal fashioned with Lake Shore
required no cash. This is a mine that has above-average drill
results. Look:
Hole No. Section From
(metres) To
(metres) Length
(metres) Gold grade (cut to 50 grams)
(grams per tonne) Zone
TG03-35 4650E 703.00 706.35 3.35 6.10 Footwall
744.00 758.00 14.00 6.10 Ultramafic
TG03-35a 4650E 687.30 708.80 21.50 6.90 Footwall
733.50 755.30 21.80 7.00 Ultramafic
TG03-35b 4650E 696.00 711.50 15.50 11.80 Footwall
734.50 744.00 9.50 15.10 Ultramafic
TG03-03 4700E 689.50 703.60 14.10 9.80 Footwall
710.90 719.70 8.80 10.70 Ultramafic
TG03-04 4700E 566.27 269.20 2.93 22.40 Footwall
576.50 583.20/td> 6.70 10.00 Ultramafic
TG97-50a 4700E 745.30 747.90 2.60 7.90 Footwall
760.40 764.20 3.80 12.60 Ultramafic
937.70 939.20 1.50 9.80 Lower Ultramafic
TG97-50b 4700E 746.30 751.60 5.30 7.40 Footwall
891.85 900.50 8.65 6.50 Ultramafic
TG03-04a 4700E 420.30 421.80 1.50 38.50 Main
TG03-04b 4700E 420.90 422.30 1.40 22.80 Main
TG03-11 4825E 404.68 406.75 2.07 7.40 No. 2 Vein
TG03-01 4875E 546.10 547.93 1.83 6.20 Footwall
551.71 559.86 8.15 6.30 Footwall
561.64 563.62 1.98 6.30 Footwall
TG03-02 4925E 365.25 369.20 3.95 9.70 No. 2 Vein
TG03-39 4900E 498.50 500.15 1.65 13.60 Footwall
521.00 524.60 3.60 7.20 Footwall
TG03-42 4900E 488.00 491.00 3.00 9.93 No. 3 Vein
TG03-41 4925E 524.50 538.50 14.00 6.10 Footwall
TG03-37 4875E 521.50 529.50 8.00 13.40 Footwall
holmergold.com
These are outstanding results! These results compare more than
favorably to any of the most significant finds that any junior
explorer that I have come across. If you know of other mining
companies that have better results, and have as conservative and
cost-conscious and profound a management team, please email me the
details at goldbug@bellsouth.net .
Credibility and effective communication should not be underestimated.
Effective financing and joint-venture management of an exploration
entity is dependant on honesty, personality, and perceived
capability. Many mining/exploration companies cannot impart
confidence in their findings. Pay attention to your instincts when
you talk to a CEO. CEOÕs that give you the impression that they are
more important than you, or donÕt appear to know what they are
talking about, deserve being shut out. Run as fast as you can! Even
duds (in this market), will get financed, so donÕt depend on the
brokers to do your vetting for you. Call the CEOÕs yourself. Call
Dr. Raman. He is a team player with a penchant for enthusiasm and
communicating. Also noteworthy is that the most recent financing for
Holmer Gold was for $1.2MM, and not for $6MM (which it could have
easily been for based on the companyÕs assets). Reportedly, the
brokers all pushed and shoved to sell more financing but in SethuÕs
eyes it was bad management. God bless the man. He is right, why pay
the broker 7-10%!!!
Liberal options granting to insiders or outsiders that allow
re-pricing to lower levels when share prices decline are
unacceptable. Make sure that you cast a disparaging eye if you feel
options are out-of-line. Options will drain the company of value, no
matter what the income potential or income stream. Call Sethu
yourself, and consider if the options granted are "Good Business".
In the case of Holmer Mines, compensation to Dr. Raman has not
exceeded $100,000 (at prevailing exchange over the past four years,
approx. $70K USD), for the years ended December 31, 2000, 2001, 2002,
2003* December (pro-forma based on discussion with Management).
During 2002, Dr. Raman provided Management and consulting services in
respect of exploration properties on a per diem basis. On the
recommendation of the compensation committee, Dr. Raman is entitled
to bill the company on a per diem basis for his management and
consulting services. During the current fiscal year, all fees
totaling $36,000 (Can $ unless otherwise mentioned) have been accrued
and remain payable at year end (Dec. 31 2002). In addition, Dr.
Raman advanced to the company over $50,000 without interest during
the fiscal year (2002), of which $30,000 remains payable at year-end.
Compensation to Dr. Raman over the past four fiscal years is as
follows: 2000 -$85,000, 2001 -$ 30,000, 2002 -$35,000, 2003*-$48,000.
My opinion is that these represent fair value. To read the current
un-audited Form 51-901F, that details granted options, go to:
sedar.com
CMAILDRCS%5CHol-Info.pdf
As mentioned earlier, Holmer has a deal with Lake Shore Gold, an
affiliate of Southwestern Resources by its 59% ownership by Aurora
Platinum. The two companies are well into a $2,500,000 option/JV
investment in one of Holmer GoldÕs properties. Based on published
results, Lake Shore Gold Limited has high expectations to double the
proven reserves at this site in Timmins. That will mean a cash
payment of $250,000 and 150,000 Lake Shore Gold common shares
($210,000 at todayÕs value of $1.40) are due at the time that they
exercise their option which could be in the very near future. This
amounts to roughly another $1/2 Million to be added to the treasury
as cash and liquidable securities!
Holmer does not act as an operator of mines. It does both percentage
joint venture "JV" and royalty deals. On its Joint-Venture deal with
Lakeshore Gold, Holmer does not expend much, if anything from an
operations point of view. Therefore aspects of Holmer are like a Gold
Royalty Company;-Limited expenses on the debit column, cash-in-kind
for the gold mined on the credit column. It appears to be a
glistening future for Holmer Gold.
Companies that rely on just one mine often have a melt-down in share
value if there is an accident, or other disruption in production
(i.e. Rockfall, or "High Grading" ore depletion), no matter how high
the price of gold may be, or how extensive the ore-body. Holmer does
not intend to operate any properties, rather just sell them to the
highest bidder or take royalties, so it is less affected by expenses.
Furthermore, Holmer is in fantastic financial shape (more below), and
has more than one iron in the fire.
Recently, Holmer Gold Mines Limited has purchased another property;
-The Murphy Mine near Wawa Ontario, Canada. In 1987, Ore Quest
Consultants on behalf of Prime Exploration Ltd. calculated mineral
resources which are 185,000 tons at 0.357 oz/ton gold in the Main
Vein, and 65,000 tons at 0.156 oz/ton gold in the North Vein. Based
on systematic drilling, sampling and fire assaying for gold, these
estimates are considered reliable to classify them as inferred
mineral resources according to CIM. Standards, and as of February
2004, 15 drill holes are complete, as part of a $300,000 drilling
program that should be completed by the end of the month. Results
are pending. holmergold.com
Further depth of value in Holmer Gold Mines Limited is added by the
Devlin Mine which is a four claim property in SE Obalski Township
near Chibougamau, Quebec, Canada. This Copper Mine is within 20 km
(12 mi.) of Campbell Resources (Sethu used to work for them) 5000 TPD
Copper Rand mill that they recently announced to be reopening. Devlin
mined ore can be processed at this mill. Proven and probable diluted
tonnage is @ 161,000 tons at 3.4% copper. Production can coincide
with the peak mineral prices during this yearÕs current cycle. At
current market price for copper @$1.25/lb {USD}($1.30 {USD} COMEX
2/20/04) with a capital cost of $600,000, contract mining, contract
trucking and custom milling, this project could generate a net cash
flow of over $2M with an IRR of 60% over a four year period, starting
this year.
Furthermore, Holmer has made significant inroads on an international
Silver Project, and because it could be so significant to the
companyÕs bottom line, I am leaving that to another story as news
arrives.
Rule number one in my investment book is: Beware of excessive debt.
Based on conversations with the management of Holmer Gold Mines
during February of 2004, the company has outstanding liabilities of
$.00 and Cash and Short-term investments of approximately $2MM with
approximately 100K in accounts receivable. Effectively Holmer has no
debt. Options values do not yet severely impact shareholder value.
A Junior should have 2 years of funding in the treasury when you
purchase the stock. Ideally the company will not continue to bleed
the treasury dry, and have another form of income to augment. In the
case of Holmer Gold, there is effectively no income, until the first
property comes on stream, so Holmer is reliant on the cash on hand
which currently is more than enough to last several years (The Holmer
Treasury currently holds approximately $2 MM Cash, (with potentially
$500,000 to be added in the near term should Lake Shore Gold exercise
its option) and expenses are only $80K per year!). Otherwise, they
would be dependant on the market to attract further funds to pay for
corporate expenses. Regardless, the market will likely continue to
have a great desire to finance Holmer, based on its most recent
offering being over-subscribed, and the conservative spending pattern
/asset value growth model thatÕs been proved.
Junior miners, to deserve attention, should show bullish signs on
daily, weekly, monthly and yearly charts. Pay particular attention to
the daily and weekly charts. Make sure that you are paying the price
that the charts are saying to pay. Have a goal set, of where you want
to sell. It can be reviewed and changed later if the charts confirm
it. In the case of Holmer Gold review the following chart. It will
help you evaluate the opportunity as of Feb 18th 2004. This chart
reflects that Holmer has already fully retraced Fibonacci resistance
to .33 cents on January 27th and started a new uptrend channel.
Because this stock is in a chop, vs. a trend we use Williams %R and
Slow Stochastic for analysis. This gives us a current projection of
when the price is headed upwards, (at least from technical view, all
things being equal i.e. POG). In the Slow Stochastic (Bottom of the
Chart) the 45 day line stopped declining on Jan 27th when the stock
bottomed at .33 cents (The Bottom of the Fibonacci resistance) and
commenced an uptrend and has almost reached its 90 day line (which
had also commenced a downward trend at the end of December). This is
also bullish. In the Williams %R chart we see that it was a very
bullish time to purchase Holmer Gold when it hit 33 cents on January
27th. Price movement upward since then has confirmed this. The 45 day
line had hit -100 and the 90 day had hit below -60. This technically
speaking is also a bullish position. A new uptrend has commenced in
price as it has broken through the 38.2% Fibonacci support level to
the upside. If you were to model this chart over a longer period,
say 10 years, it appears to be a teacup and handle formation with the
stock resting before making a move to a new high. This is usually a
bullish trend as well. If you are so inclined, and need advice on
how to draw uptrend or downtrend lines, and/or analyze charts, refer
to www.jsmineset.com or do a Google search on purchasing the texts
Technical Analysis from A-Z (Stephen B. Achelis, ISBN 0-07-136348-3,
McGraw-Hill Publishing) and Technical Analysis of Stock Trends
(Edwards/Magee ISBN 1-880408-00-7 (International Technical Analyses
Publishers).
Holmer Gold Mines Limited is a part of my Gold Stock portfolio, and
perhaps after your own due-diligence, you may agree that it should be
a part of yours too. Invest for the long-term. It appears that the
Gold market is in a long-term Bull Phase, but due to any number of
reasons, on any given day, Gold will be as volatile as ever, as it
chops upward. Believing that the companies that you buy shares in
will move to the upside of the volatile chop, is where your wealth
will be created, not in fear during the periods of downward pressure.
If you must, sell 1/3 of your holdings into strength, and then sit on
your hands for opportunities to reinvest on weakness. Never, the
other way around!
Holmer Gold is traded both on the Canadian Exchange under the symbol
HGM, and in the USA on the Bulletin Board as HOGOF. |
