CEO.CA Weekly Wrap
A look at some of the week’s best chats and charts on CEO.CA, a community and platform for Canada’s venture stock markets.
It was an ugly week all around in the junior mining and resource sectors. The TSX-Venture fell 2.63% for the week, and the GDXJ (junior gold miners ETF) shed 5%:
TSX-Venture Composite (Daily)
The TSX-V is testing support/resistance dating back to January/February, 590 (~3% below Thursday’s close) is the next significant support level.
The GDXJ has formed what some might call a “5-point” or “complex” head & shoulders top. Last week’s 5% plunge snapped the first support level near $30.50 and now a bigger test awaits next week, about ~1% below Thursday’s close.
This week’s Weekly Wrap is going to shine the light on a couple of bright spots, while also offering some real talk on some of the worst performers of 2019. Want the good news or the bad news first?
Fine, bad news first. The GDXJ went into the red for the year for the first time since January and some of the damage beneath the surface in individual juniors is starting to leave a mark on longs. It’s rather remarkable to note that 10 out of the top 10 most picked stocks in the CEO.ca Stock Picking Contest are in the red year-to-date - here is the performance of the top 10 most picked stocks so far in 2019:
#1. RNX.TO -2.1%
#2. SIC.V -27.6%
#3. GRAT.V -48%
#4. GGI.V -22.7%
#5. NETC.CA -54.5%
#6. WHN.V -40%
#7. APPX.CA -84.8%
#8. CCW.V -29%
#9. CUV.V -14.8%
#10. JUGR.V -44.8%
Remarkable! 100% in the red with half of this list down a whopping 40% or more in the span of the less than four months. We have to go all the way down to #13 (VHI) and #15 (SUNM) on the most picked list to find a couple of stocks that are in the green thus far in 2019.
Why is the performance of these stocks so poor?
I think the answer is two-fold. First of all it’s been a rather weak start to 2019 for the junior resource sector and many stocks have experienced substantial declines since the end of February. Then, I would venture to say the second part of the answer is high expectations. The stocks that were selected by the largest number of CEO.ca users were selected because of optimism and high hopes for bullish news flow throughout 2019. The simple fact is: the higher the expectations, the higher the bar is for a company to jump over in order to generate share price gains.
Newfoundland gold explorer Sokoman Iron (TSX-V:SIC) knows a lot about expectations and the challenge of jumping over a high bar:
The last four times that SIC has reported drill results, the stock has sold off as soon as trading resumed. The November NR being slightly different than the other three occasions, due to the fact that SIC shares opened much higher than they had closed the previous trading session, before selling off and giving back all of the gap higher gains within two weeks.
Last Tuesday, Sokoman delivered results from its phase 3 drilling at its Moosehead Property in Newfoundland and SIC shares were crushed to the tune of -42%. The company managed to intersect some high-grade gold, however, the high-grade intersections were over narrow widths and did not impress the market. We know there is high-grade gold at Moosehead, but it is sporadic, and so far Sokoman has not been able to delineate a cohesive and mineable gold resource.
Another junior explorer that has had a high bar to jump over amid a challenging 2019 is Westhaven Ventures (TSX-V:WHN):
Almost exactly one month ago Westhaven delivered an NR reporting assays for the first hole of its maiden drilling program of 2019. Hole SN19-01 intercepted 39.31 g/t gold and 133.11 g/t silver over 12.66 meters and quickly gave investors something to feel giddy about. However, the 20% rally in WHN shares on March 18th was short lived - as the wait for the next NR with a report on assays for hole SN19-02 has entered its 5th week, it seems that most investors have lost patience and stuck to the old rule “good news travels on a jet plane and bad news travels on a mule train.”
There is a very good chance that we will get news from Westhaven this week and it will be interesting to see how the share price reacts. Expectations have been lowered significantly along with the share price, which means that the probability of investors “buying on the news” is probably the highest it has been since last October.
Speaking of expectations, a stock that hasn’t been discussed much recently is HIVE Blockchain (TSX-V:HIVE). HIVE went from having some of the highest expectations i’ve ever seen in January 2018 to largely being forgotten in January 2019. After a disastrous year for the cryptocurrency sector and HIVE in 2018, which saw Bitcoin drop more than 80% from its high and HIVE shares decline more than 90%, expectations were extremely low heading into 2019:
HIVE.V (Daily - 2018)
HIVE.V (Daily - October 2018 to April 2019)
While the brutal losses of 2018 in the cryptocurrency sector may have permanently soured some investors' appetites, there’s no denying that HIVE’s chart is much improved and its ~180% year-to-date gain makes it one of the largest winners on the Venture, so far in 2019.
The difference between HIVE’s performance in 2018 and 2019 reminded me of the following quote from billionaire investor Howard Marks:
“...high quality assets can be risky, and low quality assets can be safe. It's just a matter of the price paid for them...Elevated popular opinion, then, isn't just the source of low return potential, but also of high risk.”
Cryptocurrencies and HIVE were popular in January 2018, and in turn, the prices of these assets were relatively high, which greatly increased the risk involved with owning them. By December 2018/January 2019, the pendulum had swung to the other side and cryptocurrencies and crypto related investments were highly out of favor, which meant that the prices of these assets were very low and the risks involved with owning them were much lower than it had been a year earlier.
While the HIVE chart is consolidating just below resistance near $.90, Bitcoin has paused near its 200-day moving average:
Cryptocurrencies look to me like they have bottomed and there is probably another leg higher before we see the first substantial correction of what could be a new cyclical bull market. The ~$6,000 area in Bitcoin is the next logical upside target, with previous resistance near $4,250 now turning into a strong long term support level.
Turning back to the junior resource sector, one of the few bright spots last week was a company called Azimut Exploration (TSX-V:AZM). AZM shares rose ~30% on heavy volume during the Easter Holiday shortened week:
AZM shares have more than doubled from their February lows - the proximate cause of last week’s buying interest appears to be Midland Exploration’s Mythril Discovery in Quebec, and BHP’s decision to take a 5% stake in Midland. In his weekly Discovery Watch show on YouTube, John Kaiser immediately started off by saying that he was excited about a new Canadian area play in Quebec, and he proceeded to lay out why Azimut and Midland may have something special on their hands.
Monday morning, Midland Exploration announced a C$5.85 million investment by BHP (the world’s largest copper producer) at C$1.70 per share, which represented a ~35% premium to where Midland shares had been trading. The question becomes, what is BHP doing investing in a junior (at a 35% premium in a crappy sector environment) that is in the middle of a drilling program at its Mythril Discovery in the James Bay Region of Quebec?
Kaiser pointed to 3 potential explanations for BHP’s interest in Midland:
- The distribution of, and higher copper values, in boulders at surface.
- The government support for mining and infrastructure in Quebec, which includes tax credits for exploration.
- BHP cannot catalog Mythril according to known copper deposit styles. In BHP’s view, this is something new and the scale and grade of it are both very high.
BHP also made sure to insert a clause in the investment agreement that gives it “the right to participate in future equity financings by Midland to allow BHP to maintain its then current pro rata non-diluted ownership interest in Midland or to increase its ownership interest in Midland to a maximum of 19.99%, on a fully-diluted basis.”
This clause is unusual and particularly interesting because it shows that BHP thinks there is a good chance that it will want to become a 19.99% owner of Midland.
On the same morning of the Midland announcement, a company called Azimut Exploration announced that it had identified strong electromagnetic conductors on its Pikwa Property in the James Bay Region of Quebec. In a NR dated March 20th Azimut offered the following comment regarding Pikwa and Midland’s adjacent Mythril Property:
“A polymetallic mineralized zone on the adjacent Mythril property discovered by Midland Exploration Inc. (TSXV: MD); this 2-km-long zone has a Cu-Mo-Au-Ag-Bi metal assemblage that correlates well with the linear magnetic high on Pikwa and is directly on strike with the large-scale geochemical footprint extending across the Property.”
Kaiser honed in on the copper anomalies in the northeastern part of the Pikwa Property, just a few kilometers from Midland’s Mythril Discovery:
Azimut also provided a map showing that the copper anomalies at Pikwa track a mag anomaly along strike from Mythril:
“...there is a huge copper anomaly tracking probably 7 kilometers from the Mythril border and we already know there’s a boulder field stretching 4-5 kilometers and there’s a geochem anomaly farther to the northeast on the Mythril ground. We’re talking about a huge 10-20 kilometer trend of elevated copper values in the lake bottom. This press release probably impressed BHP a lot…” ~ John Kaiser (Discovery Watch - 4/16/2019)
By the looks of it, an exciting new area play is underway in the James Bay Region of Quebec and AZM and MD have the front row seats. It was interesting for me to go back and review the AZM and MD channels this weekend. I noticed some familiar user names of CEO.ca ‘ringers’ such as @LucTenHave @martin @Stateside and even a post from the late, great @nobshere from November 2017:
A post from January 30th by @LucTenHave was a couple of months ahead of the trends we are seeing now in AZM, MD and other tiny area plays such as CJC (Quebec Precious Metals Corp) and NTY (92 Resources Corp):
A familiar theme might be playing out in AZM and MD: Find an under the radar story that is receiving very little attention on its CEO.ca channel, accumulate shares, wait for the market to take notice and for the herd to pile into the story.
While I wouldn’t say that AZM and/or MD shares are necessarily “cheap” at current levels, if the Mythril Discovery is the real deal, these stocks have just scratched the surface of the valuations that could be possible. The world’s largest copper producer BHP has just put its stamp of approval on the potential of Mythril, now it’s time for Midland and Azimut to prove it up.
Disclosure: Author is long WHN.V at time of publishing and may buy or sell at any time without notice. Westhaven Ventures is also a sponsor of Energy & Gold.
DISCLAIMER: The work included in this article is based on current events, technical charts, company news releases, and the author’s opinions. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. The views expressed in this publication and on the EnergyandGold website do not necessarily reflect the views of Energy and Gold Publishing LTD, publisher of EnergyandGold.com. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.