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.
Last week was a notable one for the junior mining sector for a number of reasons including the fact that the juniors outperformed gold by a substantial margin. One of the proximate causes of the outperformance by junior gold mining shares was a C$800 million acquisition of Nova Scotia gold producer Atlantic Gold (TSX-V:AGB) by Australian miner St. Barbara (ASX:SBM). The Atlantic Gold takeover is an all-cash transaction at a 41% premium to AGB’s closing price on the day before the announcement:
AGB.V (Daily - Two Year Chart)
An all-cash deal at a large premium to the market price is a major positive and seemed to help spur rumors and speculation of more gold sector M&A later in the week as Iamgold (NYSE:IAG, TSX:IMG) shares jumped ~10% on Thursday, on speculation the company was putting itself up for sale.
Iamgold is one of the worst performing gold miners in the last year which begs the question: Why would anyone want to buy this company?
IMG.TO (Daily - One Year)
There are a few potential answers to that question, however, the core of the answer probably lies in the fact that Iamgold’s assets are being valued relatively cheaply after such a long stretch of poor performance. Moreover, IAG’s asset portfolio might be able to achieve operational synergies in the hands of a larger producer with a more effective management team.
There are a lot of charts like the Iamgold chart across the gold mining sector right now and one has to wonder if many of these poor performers would better serve shareholders by being ‘melted down’ and having their better quality assets moved into a larger company, while the undperforming assets get sold off or closed down completely.
Frankly it makes more sense for M&A to take place near the bottom of the cycle in a sector as opposed to at the peak of euphoria and valuations for a sector. I wonder if the St. Barbara takeover of Atlantic Gold is an omen of things to come as shrewd acquirers take advantage of weak investor sentiment and relatively stagnant metals prices to acquire assets on the cheap.
Last week, in a wide ranging interview with Eric Coffin we discussed M&A in the gold sector and how the majors are increasingly likely to focus on higher margin projects, even if they are smaller in size than what they have typically pursued in the past. With all-in sustaining costs (AISC) of around US$550 per ounce at Atlantic Gold’s Moose River Consolidated Mine (MRC), the Atlantic Gold transaction seems to reaffirm Mr. Coffin’s point that margin is everything. At 2.1 million ounces measured & indicated MRC isn’t massive, but its all-in sustaining costs per ounce is in the bottom cost quartile for the gold sector which makes it an extremely attractive asset. Not to mention MRC is in a great jurisdiction and the potential for exploration to expand the resource and extend the mine life, and it’s not hard to see why St. Barbara was willing to pay a big premium to snap up AGB.
One of the more entertaining and under-the-radar stories of the week was the appointment of Andrew Pollard as the new CEO of tiny Nevada gold explorer Blackrock Gold (TSX-V:BRC). Mr. Pollard has been a regular commenter on BRC’s CEO.ca channel and he is a long time shareholder. Pollard was clearly not pleased with how the previous management team had carried out the company’s business over the last year. A chat comment from March 28th sums up Mr. Pollard’s grievances:
Mr. Pollard was appointed last Tuesday morning and hit the ground running, immediately buying BRC shares on the open market to add to his already significant holdings:
He then proceeded to conduct a concise and impactful interview with Proactive Investors in which he laid out the rationale for why he chose to take on the role as CEO of Blackrock, as well as his vision for the company. Pollard’s most pressing goal is to assemble a strong team worthy of the company’s flagship Silver Cloud project in northern Nevada.
I was able to get Mr. Pollard on the phone last week and I was impressed by his level of confidence and vision for the company. Here is a quote from new Blackrock Gold CEO Andrew Pollard on BRC’s flagship Silver Cloud Project and what he’s up to as CEO:
“Blackrock holds the keys to the Silver Cloud property located on the Northern Nevada Rift, one of the richest gold belts on the planet. It’s a low-sulphidation epithermal prospect with established presence of ultra-high grade veins based on very limited, yet successful drilling by Teck and Placer nearly 20 years ago. The project has been in purgatory since then. Drill results, such as 1.5m of 145 g/t Au, and 22m of 5.65 g/t Au have never been followed up. Until now. We seek to be the first company to follow up on the successful work of Teck and Placer, with drills turning this year. My job is to build a team worthy of the project.”
A couple of Trading Lab members were picking up BRC shares early on Tuesday morning at $.035 but I was still unconvinced after only recently coming across the story. After all why would I want to buy shares in another single project junior that will need to raise money soon?
It took me another day of research into Silver Cloud as well as a few conversations with other investors to begin building a position (at $.05 and $.055). It seems that some other investors may have recently become enrolled in the Blackrock story and the company's new CEO, as evidenced by the strong buying which drove BRC shares as high as $.08 on Friday before ending the week at $.07, closing +100% for the week:
BRC.V (Daily - One Year)
In the following video of CEO Pro Level 2 Market Depth you can see how the relatively thin offers in BRC shares got cleaned up as the week progressed:
Blackrock Gold CEO Pollard has made it clear that he will assemble his team first and then let the market determine how, and at what price level, BRC will raise capital. The $.10 level is a reasonable short term upside objective. However, at $.10 per share BRC still only has a C$5.4 million fully diluted market cap, hardly a hefty valuation considering where Silver Cloud is located (surrounded by some of the largest and highest grade gold mines in the history of Nevada). Meanwhile, long term support/resistance at $.05 should now once again serve as support.
I’d like to conclude this week’s Weekly Wrap by pointing out the strong performance of the TSX-Venture Composite last week:
TSX-V Composite (Daily)
Gold was down on the week, as were most equity indices, but the TSX-V ended 1.61% higher for the week. The “market timer” friend that I mentioned in last week’s Weekly Wrap has confirmed to me that the lows are in for at least the next few months in the TSX-V. He’s not terribly specific in his upside objectives but he does believe we will see new 52-week highs (above 800 in the TSX-V) this summer.
Normally I wouldn’t emphasize this analysis so much (trying to call a bottom), however, the bearish extreme in sentiment I noticed across the junior mining sector two weeks ago combined with last week’s bullish divergence in price action tells me that he may be on to something.
For the Venture to make new 52-week highs over the next few months will likely mean that at least a few of the big summer exploration programs will need to be successful; stocks like AU, IRV, JG, SUNM, and WHN (to name a handful) will need to have success with the drills in order to help stir the animal spirits and propel share prices higher across the sector.
Disclosure: Author is long BRC.V shares and may buy or sell at any time without notice.
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.