Could be this bit of hype.
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Paradigm Trader: It's Time to Play the KRYing Game Again
Jeff Berwick
Chief Editor, Paradigm Trader
Wednesday, July 11
With the summer of 2001 looking like a crapshoot at best, Paradigm Trader continues to look for opportunities where others do not. And with overall bad economic news continuing to drive down almost the entire market, why not step aside from it all and place a few chips on a gamble in the gold sector?
Yes, its time to play the KRYing game again. Those who have been around StockHouse since '96 will remember the amazing, epic saga that enthralled much of the StockHouse community at that time. Crystallex International Corporation [T.KRY] was in a battle for one of the worlds biggest gold deposits, Las Cristinas and its 12 million ounces of gold, with the 'evil giant', Placer Dome [T.PDG].
The story continued on for more than a year and seemed finished in May of 1998, when it appeared that the Las Cristinas, in Venezuela, had been re-affirmed to Placer. Crystallex's stock, soaring higher and higher on speculation of a win in their favour, nosedived from a high of $8.00 to $1.50 overnight.
Murmurs on BullBoards continued on for many years, however, that this story was not over. And now, in a summer that is keeping investors away in droves, the fight for Las Cristinas appears to be coming to a head yet again.
HOW WE PLAYED THE KRYING GAME LAST TIME
The Paradigm Trader philosophy is to always assess and re-assess situations in new and different ways. In 1997, the Paradigm Trader took a novel approach to the KRYing game that, out of sheer luck, paid off royally.
At the time, Crystallex was trading above $7 and the Venezuelan courts were just about to come out with their 'final' ruling on the dispute over ownership of Las Cristinas. Also, at that time, Placer Dome was trading at a 52 week high of $26+. Paradigm Trader figured the odds were basically 50/50 that the decision would go in Crystallex's favour. As well, we reckoned that if Crystallex were to lose, their stock would drop to below the $2 level.
Given those assumptions, how would you have played it? With Placer up from $15 to $26 in just a matter of 3 months, we figured it was getting close to its peak. Given all the variables, we decided the best approach would be to buy short term put options on Placer in the hopes that if they lost the Las Cristinas, the stock would drop at least $2. As well, we also knew that Placer Dome shareholders were largely unaware of the fight over Las Cristinas or the magnitude of the ruling in Venezuela, so if Placer did win it in court, their stock would not react noticably upward, as most Placer Dome shareholders were unaware that Placer was even in a dispute over the property and thought that Placer owned it outright.
But then lady luck came into play and the price of gold dropped substantially, right at the time of the ruling. This dropped Placer's stock like a rock, from $27 to $18 in a matter of weeks, putting our short term puts well into the money. As we all know now, Crystallex lost that ruling and dropped from $7 to under $2 overnight.
HOW WE ARE PLAYING THE KRYING GAME THIS TIME
So, should we be buying Placer puts again during this round? The answer is a hearty no, as many variables have changed this time. Amongst them:
1. Placer Dome is trading near the bottom of its trading range at $15 and is more likely to go up than down at this moment.
2. The price of gold continues to trade at very low levels and technically looks well ready for a breakout at some point, which would propel Placer's stock higher.
3. The dispute in Venezuela is not so much between Placer Dome and Crystallex anymore as it is about who, other than Placer, will get the deposit. The front runner, in our minds, is Crystallex.
Given that information, Paradigm Trader will be playing the KRYing game much differently this round. First of all, Crystallex isn't trading at a lofty premium like it was last time. In 1997, it traded up from $1 to $8, purely on speculation. This time, it is currently trading at $2.50, up from a base level that it formed over the last six months, of $1.30. This is still a premium, as some players have obviously begun buying in late April on speculation.
As well, Crystallex is a much more solid company now than it was in 1997. One of the reasons we like this gamble is because the company is a leading junior gold player. They've been managed very well and continue to grow their reserves and revenues on a quarter by quarter basis. As well, they have been profitable for nine consecutive quarters. The gold market has been lacklustre, to say the least, for the last five years, but Crystallex diligently plods along, gaining in size and strength.
Given this information, plus the wildcard that the price of gold should start to show some life in the next year or two, we believe that the best approach this time around is to be buying Crystallex.
THE ODDS, PAYOUT & TIMING
Sources to Paradigm Trader say that Las Cristinas could be awarded to Crystallex any time in the next few weeks. One of two things should happen in that time frame:
1. Either Venezuela's state mining and heavy industry holding company Corporacion Venezolana de Guayana (CVG) makes no announcement at all, or the CVG announces that Las Cristinas has been awarded to a company other than Crystallex. In this scenario, there could be a rapid retreat back to the sub $1.50 level as speculators file out of the stock. Whenever you are dealing with a country as bizarre as Venezuela, nothing is for certain.
2. If the CVG awards Las Cristinas to Crystallex in the next few weeks, then the question becomes, what is ownership of Las Cristinas worth to Crystallex's market cap? The answer to that is difficult at best, but at $280/ounce of gold X 12 million ounces of gold, the resource is worth over $3 billion in the ground. The Paradigm Trader is not an expert in mining economics, but our assumption is that the stock should see a healthy gain if it were awarded Las Cristinas. Our gut feeling is that it would likely trade in the $5-7 range if it were awarded Las Cristinas, while brokerage analysts and others crunch the numbers on the true economics and feasability of the site.
The stock showed a healthy breakout today, prompting us to put out this report as soon as possible, as a solid breakout above $2.80 on volume could signal a quick rise to the $4 level as the 5 year chart on T.KRY looks like a carbon copy of its initial run in 1996, prior to its peak above $8. |
