The following recommendation comes from David Pescod, a broker with
Levesque Securities in Edmonton. He puts out a regular newsletter under
the banner STOCKTALK
SPECIAL SITUATION REPORT MARCH 6, 1998
Well isn't this fun? Here we see gold prices at the lowest level in
eighteen years, copper and nickel prices the lowest in half a decade, and
lead prices have tumbled dramatically in just the last few months.
It goes back 25 years to when the Club of Rome got together and moaned
about how the world was running out of resources and things had to be done
to remedy that situation. Here we are decades later with prices of most
commodities at just a fraction of what they were then, a seemingly endless
supply of copper having been discovered in the last few years, and suddenly
a glut in oil - go figure.
The effect on the stock markets for the commodity sector has been simply
brutal. As you can see, stocks like Falconbridge and Inco are trading at
50 cents on the dollar, and you are not surprised that many of the
Vancouver explorers', at 10, 20, or 30 cents on the dollar, futures being
put in jeopardy as brokers are going to be awfully discerning in who they
finance these days.
In this kind of post-Bre-X / low commodities scenario, it has been a brutal
eight months for those who play the adventurous junior mining/oil and gas
game. If it hadn't been for the fellow we call the Mystery Mining Man who
virtually forced us to feature Western Copper (T-WTC) at two of our big
Stocktalk "Get-Togethers" in Edmonton, and ultimately placed us in the
position where he was one of Western Copper's biggest shareholders, and we
as a broker held the biggest chunk of Western Copper stock, this past year
would have been an unmitigated disaster. With the unbelievably ugly
markets we face today, it is time to go back to our Mystery Mining Man to
see what he is looking at now, if anything.
We should mention that he is pretty terrified at what he has seen in the
last few months as well. But the game goes on, and as he says a new bus
comes every couple of days, or every couple of months and you have to be
looking for that new bus. At this time, there are three stocks he figures
a person should be looking at, and two of which are buys.
He finds awfully appealing Pacific Cascade, a company who shares common
Management with Western Copper, and is involved in a sapphire play in of
all places Montana. The stock trades about once a week over-the-counter
Nasdaq with a spread of 50 cents to $1. That isn't a market, and the deal
is yet to be put together. But remember it is the Western Copper
Management team that is working to get it together.
Another favorite at this time is Redhawk Resources (V-RDK) for two reasons.
First of all, is management. Kristian Ross is the person behind the
company, and he has dedicated himself for the last 4-5 years of getting
this land play together. The Redhawk play - Remac Zinc Project - is in
that well-known third-world country, British Columbia, a land whereby those
who demand high taxes seem to rule, and more of mining folks seem to be
leaving the province than entering it. The good news is that this project
is a mere 15 miles away from the Cominco Smelter and just west of the old
Reeves MacDonald Mine outside of Salmo which between 1949 and 1975 yielded
7¬ million tonnes of ore, gave up 550 million pounds of zinc, just shy of
200 million pounds of lead, 3.7 million pounds of cadmium, and 1_ million
ounces of silver. The Westervelt Engineering report suggests a target of
some 5 million tonnes averaging 8% zinc, 3% lead, 2 ounces per tonne
silver, and 0.05% cadmium. Then current prices (the report was done in
February 1998) generated an operating profit of about $228 million,
assuming 51 cent zinc. The report also suggests for their sulfide target
areas have been defined for exploration, there could have a reserve
potential of an additional 9 million tonnes.
Secondly, for those who crave adventure behind their Redhawk story is
leverage. Once again, first the bad news. This is the only play of any
note currently in their portfolio. If this particular play misses, Redhawk
shares will suffer big-time (you get the idea - no widows and orphans).
Let's suppose they get what they think they have which is in the order of
5-10 million tonnes of similar grading ore.
There are only 4 million shares outstanding in Redhawk, when every junior
mining company or oil and gas company seems to have 15, 20 or 30 million
shares outstanding even in a time of low commodity prices.
This would represent tremendous leverage for any significant discovery. It
would also make it an appealing take-over target should the folks nearby
decide they want the ore to process themselves. Needless to say, a lot of
the stock is closely held, which does create another problem. There is
absolutely no liquidity in this stock. It reminds us of watching Pacific
Cascade. Currently, Redhawk trades once a week, if that, and trying to get
a position big or small, is difficult. On small orders you can
single-handedly move it dramatically.
The company has received several positive articles ranging from Norman
Duncan's article of C.M. Oliver & Co., to Robert McAllister's suggestions
from Investors First, to even the widely followed Kaiser Bottom-Fishing
Report. Anyone wanting more technical information would be well-advised to
contact Kristian Ross (250)494-7620 for a copy of the technical information
contained in the Summary Review Report on the Remac Project done by
Westervelt Engineering.
This report is very well done and should answer most technical questions.
Bottomline to our Mystery Mining Man is they have the location, a mere
15-20 miles from one of the world's bigger smelters, they have the
infrastucture i.e. powerlines go right by the property, there are several
communities in the area, and they have the location immediately beside a
well-known former producer.
What will the drills discover when they go down sometime in mid to late
April?
So this story is now timely, and those attending the Prospector's and
Developer's Association Convention this coming week in Toronto (still the
world's biggest mining exhibition) should go out of their way to question
Kristian Ross and partners.
With drilling imminent, punters should now put Redhawk at least on their
watch list. For those who did well on our Mystery Mining Man's Western
Copper suggestion, it's probably time to pick up token positions in
Redhawk. If those first drill holes hit, this could be very significant.
DISCLAIMER: While every effort is made to verify the information contained
herein, anyone making use of it does so entirely at their own risk and no
liability is assumed by David Pescod thereof, even if loss or damage is
caused. Stocks featured have a high degree of risk. The editor hay have
holdings in stocks that are featured here. While David Pescod is an
employee of Levesque Securities Inc., opinions expressed are not
necessarily those of Levesque Securities Inc.
The Stocktalk hotline: 403-420-0733
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