After Four Years of Hibernation, Drill Plays Are Back
Eric Coffin, Editor of HRA Advisories
This special report from Hard Rock Analyst introduces you to five companies that either are or soon will be drilling exciting targets on their projects.
"Drill Speculations" are not low risk but they can be some of the most rewarding trades in the resource space if you are in early and trade smart.
- As HRA predicted, the tenor of the Junior Resource market has made a 180 degree turn in the past couple of months. This is a new bull market.
- "Outside Money" - generalist funds with massive buying power - are setting their sights on the resource sector again, looking to get positioned as the new bull market evolves.
- Five years of pain for the mining sector meant a dearth of discovery. Large mining companies looking to grow are struggling to find new deposits.
- The new bull market means traders are looking for, and bidding on, companies that could report exciting results, especially high grade results.
- I've selected five companies that are either drilling now or soon will be. All have the potential to deliver results that can completely revalue the company.
- These five companies are at different levels of development and offer you different timing until results are expected and different levels of risk. Note that the companies are listed alphabetically not in the order of importance or interest.
- ALL five companies are great speculations that deserve your attention.
- Read on...
Click on company name to go directly to its section in the report:
Remember when exploration plays generated excitement and gains for resource traders?
Since 2011, the idea of making money on early stage exploration stocks seemed quaint. The market only cared about producers and didn't care much about them. It was extremely difficult to raise money for exploration. Even if a company succeeded and made a discovery the market ignored it or used it as a "liquidity event".
After four years of pain the resource stock sector has finally put in a bottom. This followed a bottom in the gold price, not surprising since gold market sentiment is the most important driver for the junior mining sector. I told HRA subscribers late last year that the US Dollar was about to top when virtually no one else believed it.
I'm no "all fiat currencies are going to zero" perma-bear doomsayer. This wasn't a "broken clock" call finally proved right. My reasons were based on my predictions about real interest rates, economic growth and central bank policy differentials across the major currency blocks. Those predictions proved to be correct...
HRA positioned readers for the closing bear market, with one eye on the horizon looking for companies that would shine again when the market turned. More advanced companies were focused on in the past year or two. Three of those (SilverCrest Mines (SVL-V), True Gold (TGM-V), and Sunridge Gold (SGC-V)) announced mergers or major asset sales in the past six months that generated triple digit gains for subscribers.
As the general market started to accept we are at the start of a new gold bull market the development level names that HRA has kept subscriber attention on also started to outperform. Developers on the HRA list have racked up gains of 100-200% in the past few months and are trading 350% (Kaminak Gold: KAM-V) to 800% (Reservoir Minerals: RMC-V) above the prices where HRA initiated coverage. (Editors note: On May 12, Kaminak received a take-over offer from Goldcorp (G-T; GG-NY) of $2.60 per share - 550% above the price HRA initiated coverage at. Chalk up another one for HRA!)
As I have told subscribers since early in the year, we are seeing the resource sector come back into favor with market generalists ("outside money"). This changes the landscape since this group can draw on and direct far more money at the sector than resource sector insiders that have endured four or five years of market pain.
The move to negative interest rates (real and nominal) across so many major economies is the fundamental underpinning for this change in investment view. This is not a short term issue. The world's central banks have flooded markets with liquidity and moving rates back up will have to be done very slowly and very carefully. Negative rates will be with us for some time.
There are more gains to come as this new bull market unfolds but I want to talk about a different sort of trade today; the drill speculation. Before going into a little detail and before discussing specific companies I'll lay out a number of rules of thumb you should keep in mind as you review new drill results:
1) Drill speculations work best in a bull market (duh!). Trade these situations if you accept the thesis that a new resource bull market is underway.
2) The earlier the stage of drilling, the higher the potential return. But higher risk goes right along with that higher potential. Don't lose sight of that.
3) If you see a hot drill result get published, you should immediately try to determine a few things before you trade it:
a) Is the drill result "in-fill" or "step-out"? Step-out holes expand the potential resource size or indicate potential new zones. In-fill holes can confirm continuity and grade - which is important - but won't generate as much excitement.
b) Look at sub-intervals. If a company reports "100 metres at 2 g/t including 6 metres at 30 g/t" it's telling you (or maybe not telling you) the rest of the 100 metre intercept is less than marginal (100*2-30*6=20 grams across the remaining 94 metres or about 0.21 g/t). The high grade interval in this example is quite good (if it's gold) while the 100 metre interval touted is basically meaningless.
c) Look at the depth of the intercept. A long interval of oxide gold (look for that word too) grading 1 g/t or more might be quite interesting. If it starts at 500 metres down hole, not so much.
d) Is the intercept "true width"? Drilling a steep vein or structure at an acute angle (the angle of the drill hole is close to the angle of the mineralized structure) can yield long impressive intercepts from a structure that is actually much narrower. In fairness to management, understand that they often won't know the geometry of a new discovery and hence the true width of intercepts until many holes are drilled. This is especially true of "blind" discoveries that don't outcrop at surface.
4) Drill holes from a new target or discovery will have a bigger impact, other things equal, than one in an area that is heavily explored and doesn't seem to have much "virgin" target or room to grow.
5) Drill holes encountering a commodity that is hot or in play will have a bigger impact than a new intercept reporting concentrations of a metal people don't understand or care about. Gold intercepts tend to be well received. Traders are comfortable with and think they understand gold so I tend to favor gold targets myself when looking at speculations in the HRA newsletters.
6) Try to understand the nature of the target being explored and what a "good" hole should look like. A long intercept of 0.5% copper in a new porphyry discovery could set off a frenzy while a similar grade over tens of metres from something that could only be mined from underground could elicit a yawn, or worse, from the market. Some understanding of the deposit type being sought and what economic deposits in the region (if any) look like helps with this.
7) You can look at plenty of drill speculations without ever trading them. Doing some of the homework before the results arrive puts you in a better position to make a quick decision. ( Subscribe to HRA and save yourself time! "Hail Mary" list stocks commented on the HRA Special Delivery Alert service are those I haven't bought but thing are worth monitoring.)
8) In a bull market, anticipatory buying ahead of drill results is common. This is especially true if the company has strong looking targets being explored by respected management. You can use this to your advantage if you're willing to get in early. If you do get a run of several tens of percent before drill results arrive you can take some profits, lowering your average costs and improving the potential risk/reward.
Resource stock traders call the drill "the truth machine" with good reason. The first couple of major drill programs can make or break an exploration project. For that reason, resource traders take early stage drill programs and the results they generate very seriously.
The market is a voting machine and a beauty contest. Traders constantly re-evaluate company values based on the market backdrop and new information released by the company. When a new project is getting drilled the market's opinion of the potential for the project will fluctuate wildly based on hope, rumor, management credibility and, finally, drill results. In the early stages (hopefully) the potential for target areas will be wide open and optimists will be betting on high value outcomes if the first few holes are good.
The odds of any early stage project actually becoming a mine is very small. But the potential implied valuation can be high, especially if the zone(s) have not yet been constrained by missed drill holes. As early results arrive and speculators trade based on how large they think a discovery might be, company valuations can move tens or even hundreds of percent through the reporting period for a drill program. That is one reason new target drilling can have an impact even with companies that have an established resource.
HRA covers many developers and a few producers but it's no secret that I have a special fondness for early stage drill plays. My training is in finance but I come from a mining family and have had a hand in starting exploration companies and owned an exploration consultancy with my late brother before we started the Hard Rock Analyst newsletters. I love the process of discovery and watching new exploration plays unfold. I also know that when you are lucky enough to be early in a new discovery play, you're exposed to the potential for truly massive gains.
On the following pages you'll be introduced to five companies that are or will be drilling important targets in coming months. All of these companies are covered much more extensively and are updated regularly in the Hard Rock Analyst Journal newsletter and/or Special Delivery Alert services. They were chosen intentionally to give you a number of risk levels. Two of them have existing resources that are or should be minable. Success with the drill will be additive to underlying value. Two others have resources that likely are not economic yet, but could be, and are drilling new target areas or projects. The risk is higher with these but so is the leverage. The fifth has a series of JV deals with other companies' spending money on its projects. That lowers the risk to this company's treasury but it's a pre-discovery story that will need one of its partners to hit in order to see large gains.
After four years of hibernation,
I'm happy to say that drill plays are back...
HRA Subscribers ALWAYS Read About the Best Ideas First!
As you can see from this 'Drill Plays' report, HRA profiles and updates only select companies that check all the boxes. After intense and thorough analysis by myself, Eric Coffin, only then will a company be "added" to the HRA Journal for subscribers.
HRA positioned readers for the closing bear market, with one eye on the horizon looking for companies that would shine again as the market turned. More advanced companies were focused on in the past year or two. Three of those: SilverCrest Mines (SVL-V), True Gold (TGM-V), and Sunridge Gold (SGC-V), announced mergers or major asset sales in the past six months that generated triple digit gains for subscribers. HRA immediately jumped on the SVL spin-out exploration deal SilverCrest Metals (SIL-V) which has already risen 500%.
As the general market started to accept we are at the start of a new gold bull market, the development level names that HRA has kept subscriber attention on also started to outperform.
Developers on the HRA list have racked up gains of 100-200% in the past few months and are trading 350% (Kaminak Gold: KAM.V) to 600% (Reservoir Minerals: RMC.V) above the prices where HRA initiated coverage.
I think there are more gains to come in these and many other names as this new bull market unfolds...
HRA Special Delivery Alert and the HRA Journal are independent publications produced and distributed by Stockwork Consulting Ltd., which is committed to providing timely and factual analysis of junior mining and other venture capital companies. Companies are chosen on the basis of a speculative potential for significant upside gains resulting from asset-based expansion. These are high-risk securities, and opinions contained herein are time and market sensitive. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. While we believe all sources of information to be factual and reliable we in no way represent or guarantee the accuracy thereof, nor of the statements made herein. We do not receive or request compensation in any form in order to feature companies in HRA publications. We may, or may not, own securities or warrants to acquire securities of the companies mentioned herein. I do "eat my own cooking" and tell shareholders if I have taken part in placements of companies I follow in the newsletter, which I often do. You should never invest in a speculative - or any other - stock without doing your own rigorous due diligence and consulting with an independent third party investment professional. This document is protected by the copyright laws of Canada and the U.S. and may not be reproduced in any form for other than personal use without the prior written consent of the publisher. This document may be quoted, in context, provided proper credit is given.