From: zoo york 1/1/2008 1:34:32 PM
of 102052
Summary of his picks:
Note:SEE BELOW FOR HIS COMPLETE EXPLANATIONS:
(1) Silverstone Resources (V.SST) $2.70
The company has issued guidance for more than 2 million ounces of silver sales in 2008, with an average cost of $4/ounce.
(2) Gold Canyon Resources (V.GCU) $.63
The main reason why GCU appears on my list for the second year in a row is because I expect that we will enjoy a parabolic rare earths market sometime in the near future, and this mania
(3) Shoreham Resources (V.SMH) $.31
The Setting Net Lake molybdenum project alone could represent more than 100 million tonnes of ore grading 0.09% molybdenite, the largest undeveloped moly deposit in Eastern Canada. There is also leverage to the rare metal rhenium, which alone could boost the economic parameters to fast track development.
(4) San Anton Resources (T.SNN) $.77
Some analysts have expressed concern that the average grades are low. I reiterate my opinion that the metals prices have far higher yet to climb, and therefore the deposit will likely become more attractive on the basis of projected economics. As an acquisition target,
(5) Aurcana Corporation (V.AUN) $.72
The company is running efficient operations from the flagship La Negra Mine, and reported its first ever net profit in Q3 2007. Efforts are underway to expand production to roughly double the current level, and therefore profits should rise as additional efficiencies are realized from increasing capacity.
My top-5 list for 2008:
This year has been a difficult one for investors in the PM sector, and that makes it difficult to narrow down a list of just 5 companies, from all of the great juniors that are currently priced in what I believe is rock-bottom bargain basement territory. Before I discuss my list, allow me to outline how I select these companies, and the underlying assumptions that form the basis for my outlook.
I have an extremely high risk tolerance and do not feel much in the way of anxiety when the markets go through prolonged corrective episodes. While these top lists are presented on a yearly basis, in most cases the companies that I buy I will hold for many years, and the development cycle may extend well beyond even that. As investors, we can do all the homework to review the information on the public record, but we cannot pretend to know the future.
The mining sector is a tiny one, and the performance of these companies is as much dependant on investor sentiment as it is on the fundamentals for each company. If investors avoid the sector, then it is likely that even the top performing companies will disappoint. The sector is also notorious for violent swings in sentiment, and what is shunned on one day could be the next hot stock a month later. So rather than just track the market price of a stock, one must track the progress of an individual company up the value curve, to determine if that company has been successful. Many times one can find a stock that is an exceptional story yet the stock price is mired in the lows for the year. That is what I look to for when I am researching. Value is ultimately recognized and priced into a stock, but sometimes you have to wait it out.
Just about any junior is capable of delivering gains of several hundred percent over a short time frame. But I am not interested in gambling. I want a company that will have solid projects underway, ample funding at hand, and reliable management to direct development. I focus on late stage development plays and growing producers, even though the market may not be particularly excited with these companies at the current time. The payoff is in security of my investment and the knowledge that they will be the top stories as the cycle matures, and I still can expect a strong performance while I wait.
I am invested in the mining sector because I am bullish on the long term outlook for the metals. There is no reason to own gold or silver stocks if you believe that the metals have peaked. Mining is a miserable business and most companies lose money most of the time. Setbacks and delays are the norm. Investor sentiment is unpredictable and analysts are skittish. So the only reason to be positioned is to catch that time when the fundamentals line up and the metals are on a roll.
In 2007 we enjoyed gains in gold and silver prices, yet most of the juniors with leverage to these metals lost value. As investors positioned to catch the bull market, we were right in our sector assumptions, but wrong on our timing. This same set of circumstances could continue into 2008 but I remain bullish. I believe both gold and silver will set new all-time highs, along with oil, copper, and many other commodities. As the commodities continue to appreciate, at some point the stocks will catch up. I also look for consolidation within the mining sector, and hostile takeovers may ignite more speculative participation from investors. In short, I am not discouraged by the crappy performance from 2007.
A final comment: my choices have been determined on my own selection process to suit my personal outlook and risk tolerance. There are many great companies and I own about 45 stocks in my portfolio. I may have omitted some stocks that others may feel should be included. I may have chosen some companies that do not fit within the parameters for everyone that reads this list. And some of the companies I have chosen are also paid advertisers on Smartinvestment.ca and therefore I cannot be considered unbiased. I do not look to present investment advice and my opinions as expressed here are just that: opinions. It is the responsibility of each investor to do their own due diligence and ensure that the stocks they buy conform to their own particular objectives.
These are my picks:
1) Silverstone Resources (V.SST) $2.70
The same management team from Capstone Mining is running SST, and this group have proven themselves to be able to deliver shareholder value and carry a project from the concept stage to production. SST is my top choice because it is the only company in the sector that is fully leveraged to silver through purchased streams of silver production from other mines AND from a suite of development prospects in controls in 4 past producing silver mines in Mexico. The company has issued guidance for more than 2 million ounces of silver sales in 2008, with an average cost of $4/ounce. They are active to secure additional production streams, and are aggressively exploring at least 2 prospects, so the leverage should continue to grow during the year. The closest peer company is Silver Wheaton, with a market cap approaching $4 billion. SST has a market cap of less than 10% of SLW, so there is plenty of room for the market to bid the share price higher.
2) Gold Canyon Resources (V.GCU) $.63
The most notable fact about GCU is that the company has been active for more than 20 years, surviving the worst bear market in the history of mining, and yet it remains tightly held and has never undergone a share rollback. This is exceptional in an era where management is often more interested in their own options and inflated expense accounts than in delivering value for the shareholders. GCU management are absolutely among the best for an exploration company in their ability to advance projects, achieve success at the end of the drill bit, and control expenses while limiting the issuance of share capital to fund all activity. GCU is leveraged to gold, rare earths and gallium, uranium, nickle, PGMs, and silver. They have published compliant resources at two projects and each is subject to growth in subsequent updates, yet neither is adequately valued in the current market cap for the company. The main reason why GCU appears on my list for the second year in a row is because I expect that we will enjoy a parabolic rare earths market sometime in the near future, and this mania should elevate all of the top juniors in that sub-sector to extreme valuations. So I expect GCU will continue to deliver strong gains through 2008, and there is the added potential for a 10-bagger thrown in that could happen this year.
3) Shoreham Resources (V.SMH) $.31
Shoreham is the most speculative junior on my list, as it has limited NI43-101 compliant data on hand from any of its projects and therefore the company cannot issue resource estimates. However, on three separate properties there are historical results that were completed by reputable former operators which suggest several large deposits are controlled by the company, and relatively low-risk confirmation work could allow for the completion of compliant reports. The Setting Net Lake molybdenum project alone could represent more than 100 million tonnes of ore grading 0.09% molybdenite, the largest undeveloped moly deposit in Eastern Canada. There is also leverage to the rare metal rhenium, which alone could boost the economic parameters to fast track development. The company has planned a drill program to prove up the historic resources so SMH should be on the radar screen for many investors in 2008 and the share price is at the extreme low end with a market cap of just $12 million. Gold and uranium targets on other projects could also yield compliant resources with the completion of low-risk exploration work. Any of the three front-burner prospects could achieve an asset valuation of more than $1 billion, therefore one could expect significant upside in the share price if the company is successful with the drill bit.
4) San Anton Resources (T.SNN) $.77
San Anton gains the distinction of controlling the largest deposit in Mexico that no one cares about. Now there are many large undeveloped deposits in Mexico, but SNN's Cerro de Gallo is distinct becasue despite the impressive 10 million ounces gold equivalent resource already achieved, the company has still only tested a fraction of the defined targets, and it remains open in all directions. So there is plenty of upside yet to come at the end of the drill bit. And the economic parameters are extremely favourable to support a production decision. Some analysts have expressed concern that the average grades are low. I reiterate my opinion that the metals prices have far higher yet to climb, and therefore the deposit will likely become more attractive on the basis of projected economics. As an acquisition target, it will also become more attractive as the total resource grows, since with one swoop a major producer can replace several years of production. I expect SNN to continue to add resources through exploration success in 2008, and also there is the potential for higher grade numbers as epithermal vein targets are drilled. SNN will be acquired through a takeover deal sometime in the future, and the stock is priced in the extreme discount range now so I expect attractive gains in the months ahead.
5) Aurcana Corporation (V.AUN) $.72
AUN represents a lower risk option to participate in the mining sector, because it has already achieved production, has built-in growth planned in 2008, and it is well funded plus is generating recurring cash flow from operations. In many respects it can be considered a 'mini Capstone', which is the highest compliment I can pay to a junior. The company is running efficient operations from the flagship La Negra Mine, and reported its first ever net profit in Q3 2007. Efforts are underway to expand production to roughly double the current level, and therefore profits should rise as additional efficiencies are realized from increasing capacity. Development work is also underway at a second mine, La Rosario, which could commence production in 2009. The share structure is reasonable, and most of the outstanding warrants are priced far above the current share price. AUN is a solid junior producer and represents a great vehicle to ride a surge in metals prices for copper, silver, or zinc, yet the stock is in the bargain basement and could easily double in price during 2008. I have only recently begun buying shares and it represents one of my smallest holdings but I will continue to add to my position through the year.
Postscipt: I remain bullish on most of my past picks, and many are now priced at levels that I consider even more attractive than when I originaly included them in my list. However, I have refrained from including these companies this year, since my original reasons to buy them are still valid, and I wanted to outline new prospects. I have also avoided discussing the more speculative juniors that could provide explosive upside, but since they are entirely dependant on exploration results that are unknown, it is a guessing game on what they may achieve and therefore they are not suited for this exercise. I want to focus on companies that may have an unknown outcome for exploration, but at least there is evidence that success is a reasonable outcome.
cheers!
COACH247
Message 24173716 |
