Hi.
I have a report here, slightly dated now but still relevant. It's from the resource indicator & is fairly long. I hope the length isn't offensive to anyone, if so please accept my apologies in advance & let me know & I won't post anything this long again. Anyways here it is.
The RESOURCE INDICATOR
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Vol. 3, No. 14 staking VALUE early
May 25, 1999 (before market open)
___ Summary _______________________________________
Winspear Resources Inc. - WSP.v - Be Right and Sit Tight
Resource Indicator Index - $121,430 +21.4%
Open Positions
____________________________________________________
___ Performance Watch ________________________________
August 1, 1998 (initiation date) to May 24, 1999
Resource Indicator Index +21%
TSE 300 0%
VSE Index -4%
VSE Mining Index -7%
DJIA (Dow) +21%
NASDAQ +33%
____________________________________________________
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The flow of critical data is about to begin for Winspear.
Time is here to manage between fear and greed.
Good company upon the road is the shortest cut.
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
WINSPEAR RESOURCES LTD.
DECLARATION: I isolated profits (+200%) near $2 in mid 1998 as
recommended and protected another portion with a 20% trailing stop
loss, also as recommended. A small position was then established by
accumulating on dips below the $1.16 level as outlined in the
September 14, 1998 write-up and near $1 level as outlined in the
September 1, 1998 summary. This position was sold for
approximately 200% profits near $3.50. I have once again established
a small position under $3. My original capital was not re-invested.
BE RIGHT AND SIT TIGHT (WSP.v/$3.85)
Last Full Write-up: March 29/99 ($3.54) - Be Right and Sit Tight
Recent High/Low: $4.85/$1.00
Trailing Mental Stop Loss on no more than 50% of Position: 20%
MANAGING THE PROVERBIAL WALL
The Boston Marathon is divided into three parts: 14 miles of fun, 8
miles of sweat and 4 miles of hell. It is a unique course for the elite
with a hill to conquer just when your glycogen stores are depleted.
Like the marathon, diamond exploration and thus speculating in
diamond stocks, is similarly structured. Snap Lake, like the Boston
Marathon, is unique and like the elite runners who respect the course,
speculators have to respect and be aware of what awaits. With
Winspear, the easy money has been made and the profits have been
suggested and isolated along the way. It is now time for Mother
Nature to speak about the value of the diamonds. It is at this stage that
many will be faced with the proverbial wall of fear. Should one sell
Winspear prior to the flow of critical data over the next few weeks?
The short answer, in my opinion, which is backed with my own shares
in Winspear, is to continue to hold your position. This decision is
based not only on the data yielded by Snap Lake to date, but on the
action of the market and an understanding of the larger picture.
The market is currently valuing Snap Lake at approximately $220
million. Based on a projected 3,000 tonnes per day production rate
and an ore value of $200 per tonne, the project would have a Net
Present Value (at a 10% discount rate) of approximately $220 million.
The value of Snap Lake will double at an ore value of $300 per tonne.
$400 per tonne value yields a NPV of approximately $800 million.
The mini-bulk sample yielded an ore value of $500 per tonne.
Although these calculations are very preliminary and only one method
of approximating future stock value, it is used here as an illustration to
show that WSP has room to move forward based on results. The
institutions are ready to enter the numbers into their spreadsheets once
the valuation results are released. Anything over $300 per tonne will
give them good reason to speculate with WSP. (These figures are in
Canadian dollars and were estimated by MRDI Canada, a division of
H.A. Simons Ltd., the lead engineering firm for the recently
commissioned Ekati diamond mine.)
At a time when raising financing for mining ventures is tremendously
challenging, Winspear raised $10.6 million, one of the largest
financings in the junior resource sector. In fact, the financing was
oversubscribed within hours. At a time when insiders are looking for
liquidity to raise some funds from the sale of their share holdings,
WSP insiders increased their holdings. At a time when expenditure
commitments are looked at as a liability, Aber is fighting in court to
maintain its share in Snap Lake. The larger picture clearly indicates
confidence from the individuals closest to the project. The President
of Winspear has successfully run marathons in the past. His actions
indicate his confidence in successfully completing his seven year
marathon like search for an economical diamondiferous body.
THE PACING CHART
The steady price of Winspear indicates that the program is progressing
as expected with no surprises, either on the upside or the downside.
Mineralization continues to be encountered at expected depth with the
dyke thickening towards the north. Two drills continue to explore the
dyke, on land, in a northerly direction where the mineralization
appears to thicken. This gives speculators additional reason for
continuing to participate in Winspear as it leaves open the possibility
of locating a more valuable starter pit on the north shore if results
warrant.
Information regarding uniformity, grade, tonnage, stone size, and stone
value will begin to flow over the next few weeks. What results can we
expect and will anyone take notice? My thoughts on these are
summarized below.
* Aber's Diavik is close to full environmental approval. A strong
performance from Aber will help to focus attention on diamonds
and Winspear.
* Ekati and Diavik will rank among the top ten producers in the
world when they both come into production. Institutions have
participated in both and will be watching the information flow
from Winspear closely in hopes of participating in the next
potential Canadian diamond mine.
* If the 6,000 tonne bulk sample yields results similar to the 200
tonne mini-bulk sample, Snap Lake will compare very favourably
with other world class diamondiferous deposits. The market and
the diamond industry will not be able to ignore such value.
* Volume, or lack of it, indicates that the private placement
participants, to a large degree, are holding their position in
anticipation of larger gains. They are making their decisions based
on collected data and its interpretation by leading industry
authorities. Follow the insiders and hold for new highs.
* Winspear continues to be well received in Europe. Europe is
knowledgeable about diamonds and has participated in WSP from
an early stage. Institutions, including European institutions, are
still reluctant to speculate aggressively in resource related stocks.
It is this fear of resource stocks that is keeping them from taking a
more aggressive position at this time. This is good for existing
shareholders as it helps is to identify a group that will be providing
liquidity for out next round of profit taking.
* Caustic fusion results from previous work, over a significant area,
has indicated a relatively uniform distribution of diamonds within
the NW Dyke. These results are supported by kimberlite
chemistry (low volatiles, little contamination) and the
hypothesized emplacement process (non-violent). There has been
no indication of layering or phasing within the mineralized
structure. With this evidence in mind, as a speculator, we can
continue to expect similar results from the current drilling.
Caustic fusion results are expected to be available over the next
two to three weeks.
* As previously discussed, the initial estimate of grade based on the
200 tonne mini-bulk sample, may have been understated due to
contamination during the extraction process. With this problem
eliminated from the larger bulk sampling, I would not be surprised
to see the grade adjusted upwards by 10 to 20 percent. This
speculation is supported by the results from the non-contaminated
pit and its apparent uniformity to normalized diamond counts from
the drill intercepts.
* Drilling to date has already indicated that Snap Lake can
potentially supply a 3,000 tonnes per day processing facility for at
least 10 years. With a potential payback period of less than one
year, no structural discontinuities identified to date, and the dyke
open to the north and east, the existence of tonnage should not be a
concern. What is in the tonnage is of more importance.
* Size class distribution modelling continues to extrapolate towards
the existence of large stones within the dyke. Large stones have
already been found in past drill intercepts and the mini-bulk pits.
Based on this data, I am confident that large stones, able to get the
market's attention, will exist in the 6,000 tonne bulk sample. If it
does create some market movement, this will give speculators
another opportunity to isolate some profits and adjust their risk
level prior to valuations.
* Not much can be said about the quality of the diamonds based on
the small amount of tonnage explored to date. I would like to see
a minimum value of $250 per carat. This will imply a $450
million NPV for the project, double current valuation and enough
to attract new long term buyers. The mini bulk sample yielded
approximately $450 per carat.
* Approximately 10% of the recent exploration budget was allocated
towards environmental studies and assessment. This is a large sum
and shows that Winspear is serious and confident that the project
will progress to the feasibility stage. The principals of Winspear
have also spent considerable time to develop and maintain a close
relationship with the native population. As I have indicated in the
past, management has taken a long term view towards this
discovery, we should do the same to maximize profits.
There is good reason to believe that results will be able to exceed the
current market valuations of the project. Caustic fusion results should
be available by the second week of June. Diamond counts from Pit 3
(approximately 3,000 tonnes) are expected to be available by the third
week of June. An updated tonnage calculation from MRDI is
expected by the end of June. Initial valuations from Pit 3 diamonds
should be available by mid July. With the news flow about to begin, it
is important to watch the price and protect your position with a trailing
stop loss.
MAY THE SOURCE BE WITH YOU.I THINK
I have always been cautious in discussing the source as we cannot be
certain of its size, shape or tonnage implications. Also, I consider it of
secondary importance to the Snap Lake project. It is a case where one
should be afraid of what one asks for as one just may get it. The
source could be anywhere from a few meters wide to several hundred
meters wide. One can easily miss a typical NWT pipe with 200 m
spaced drilling, let alone a source of uncertain size and shape.
Recent drilling indicates that the NW dyke may be gently warped
around a NE trending axis. With this in mind, Winspear will have to
collect further information before refining their guess regarding the
location of the source. My guess is that the source may actually be
under land and thus can be drilled in the summer. As speculators,
however, we should assign no value to the source until it is found.
EVIL COMMUNICTIONS CORRUPT GOOD
MANNERS
The price action in Aber and Winspear indicates that the market,
rightly, has not placed much importance to the court action initiated by
Aber to maintain its interest in Snap Lake. Both sides have taken
some punches towards each other but until discovery, whatever has
been said to date can be withdrawn as it is not given under oath and
has no legal standing. Not much detail has been made available to the
public and until it is, I continue to assume that Winspear owns
approximately 68%. All the above calculations are based on this
conservative approach.
PARENTS ARE PATTERNS
Approval for Diamondex should be received by the end of the week
and it should commence trading by the first week of June. I expect it
to begin trading in the $0.40 to $0.50 range. It is expected to trade
freely for about 10 to 15 days in order to let market forces determine
its value, prior to a rights offering to raise some funds. The rights are
expected to trade for approximately 21 days. This financing method is
fair to all existing shareholders as it gives long term supporters an
opportunity to maintain their position in the new exploration vehicle.
Diamondex will contain several properties with blue sky potential,
including Hilltop and Carat, and should be able to attract speculators.
The combination of cash, an experienced management, a strong
insider position, a share structure conducive to good news, and several
advanced exploration properties with identified drill targets, makes
Diamondex an attractive dividend to existing shareholders.
APPROACH HEARTBREAK HILL WITH DISCIPLINE, NOT
FEAR OR GREED
There have been very few success stories in the resource sector over
the last three years. Recent disappointments in the sector, such as Lac
Rocher and the English gold sale, continue to deplete the available
capital pool. Experience has thought speculators that failures will
always outnumber successes and that each opportunity should be
considered speculative until cash flow has been demonstrated.
However, very few learn that the primary risk of a product is not in the
product itself, but in the way in with the product is managed. The
largest risk in a speculation is represented by YOU!
It is not important for you to participate in every success story or
participate in it till the end. Like a long distance run, however, it is
important to be tactical in your participation. Participate early and
leave with a larger pool of capital for the next race.
A marathon runner, no matter what kind of day it is, has to hit the
water stations at every available opportunity and take the time to drink
it, not just toss it on themselves. Drink plenty of water and you will
have a better chance of bypassing others at the end of the race. With
speculative plays, taking profits along the way is equivalent to, and
just as important as, drinking water during a marathon. With
Winspear, we are well prepared to finish the race. Profit should be
and has been isolated at every opportunity. By now, most of you
should be participating with profits only. This allows us to sit tight
and manage our position between fear and greed as critical exploration
data makes its way to the public.
The RESOURCE INDICATOR INDEX - $121,430
In addition to the open positions, each issue now monitors a
hypothetical $100,000 trading portfolio with a start date of August 1,
1998. This will give all subscribers an avenue to judge the
performance of the publication, timing for individual companies and
the percentage of a portfolio any one company should occupy. The
portfolio will follow the disciplined approach outlined in the
publication and will be subject to stop losses and trailing stop losses as
outlined in the write-ups, without exception.
The portfolio is unchanged and summarized below.
ESX.t 60,000 $0.23 $13,800 +5%
IUC.t 60,000 $0.44 $26,400 -15%
GHN.v 100,000 $0.05 $ 5,000 -29%
NCS.v 20,000 $0.26 $ 5,200 -59%
VIN.v 100,000 $0.22 $22,000 +43%
WSP.v 10,000 $3.85 $38,500 +32%
LTU.v 15,000 $0.38 $ 5,700 -16%
Cash $ 4,830
Profits above 60% will be subject to a 20% trailing mental stop loss in
each case above unless otherwise stated in writing. New stop loss and
trailing stop loss levels will be indicated for every change (buy) to the
portfolio. All transactions will be outlined by E-mail or in the issues.
Sincerely,
Sudhir Khanna, P.Eng.,
Editor, The RESOURCE INDICATOR
staking VALUE early |
