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.
Since the end of March, the junior resource sector has had a tough run with most juniors down double-digit percentages and some of the worst performers losing more than half of their value in just a few weeks. The extremely poor performance of junior mining shares is in contrast to a relatively modest decline in precious metals prices - gold is down about 3% since the end of March and silver is essentially flat.
In a blog post titled “You’re Either A Contrarian Or You’re A Victim”, published Friday morning, I attempted to grasp what has contributed to this poor performance in junior mining shares. However, I believe one of the biggest contributors has been a fear of additional declines in precious metals in the historically weak month of May. Many technical analysts have been pointing to a head & shoulders top pattern in the gold chart, with downside price objectives ranging between $1210 and $1230 - this technical pattern definitely offers some cause for concern, however, something interesting happened at the end of last week:
Gold has clawed its way back above the neckline near $1280 and put in place a potential double-bottom (green arrows). Money flow (CMF-20 at bottom of above chart) has also turned positive in recent days, an important bullish divergence while shorts are pressing their positions in an attempt to trigger a decisive breakdown below the neckline of the H&S pattern.
Friday’s action across the precious metals space offered some glimmers of hope after a dreary several weeks. Amid the rubble, I will point out a few positive stories that have begun to emerge. The first of which is Radius Gold (TSX-V:RDU), which exploded from a broad long term basing pattern on the back of extraordinary drill results from its Amalia Project in Mexico:
On May 1st, Radius announced the first results from its diamond drill program at the Amalia Gold-Silver Project in Chihuahua, Mexico. The program is operated by Radius and funded by Pan American Silver under a joint venture agreement in which Pan American can earn up to 75% of the project through a combination of cash payments (US$1.5 million), exploration expenditures (US$2 million), and by advancing the project to a preliminary-feasibility study.
“The first hole of 2019, AMDD19-010, has intersected 44m grading 12.38 g/t Au and 309.3 g/t Ag including an 11m section grading 39.9 g/t Au and 323 g/t Ag. Estimated true width of the mineralized zone is 34m.
Radius’s initial drill program at Amalia (see press release December 4th 2018) tested the San Pedro structural zone with 5 diamond drill holes, intercepting gold and silver mineralization in all 5 holes along a 650m strike length. Hole AMDD18-009, the deepest hole, intersected 26m at 7.08g/t Au and 517 g/t Ag, including 5m at 14.71 g/t Au and 1378 g/t Ag.”
AMDD19-010 is an extremely impressive intercept any way you slice it and the market quickly took notice, driving RDU shares to multi-year highs and displaying a voracious bid that chewed through offer level after offer level before peaking at $.465 on Friday:
CEO Pro Market Depth was invaluable in following the opening order flow when RDU opened Wednesday morning. Starting around the :31 mark in the video, you can see the buyers take control and drive price from $.21 to $.30 in a relatively short period of time.
After such a large rise within a relatively short period of time, I expect RDU shares to take a breather and consolidate for at least a few days. However, it’s worth noting that drilling is ongoing at Amalia with holes in progress stepping out 100 meters along strike and 50 meters below known mineralization. Radius is saying they are budgeting 2000 meters of drilling with mineralization at San Pedro open in all directions.
Another junior mining stock that has managed to buck the sector downtrend since the end of March is Golden Triangle explorer Skeena Resources (TSX-V:SKE):
In one of the first Weekly Wraps (3/9/2019), I devoted a section to several Golden Triangle explorers and wondered if the “smart money” was buying some of these GT explorers such as ABN, GTT, and SKE earlier this year (before the standard May/June “Hey we’re about to start drilling” rally). It turns out I was on to something - Skeena shares were $.37 back then and reached as high as $.54 in April before consolidating in their most recent $.45-$.50 range.
Last week Skeena became a sponsor of CEO.ca (the first corporate sponsor CEO has had in ~2 years):
A short and impactful video starring Skeena’s VP of Communications Kelly Earle clearly laid out the case for why investors might want to be paying attention to the Skeena story over the coming months:
- Skeena has proved up a 4-million ounce gold equivalent resource at 4.5 grams/tonne (indicated and inferred) open pit. The open pit aspect makes this a tantalizing prospect for investors.
- Skeena sees a pathway to making the ultimate total resource larger and bringing the grade closer to 6 grams/ton.
- Work over the next year will determine the viability of re-opening the mine.
- Skeena believes Eskay Creek is the best open pit deposit of any junior miner in the world, and the stock price is yet to reflect this.
The Skeena story is compelling, and after watching the Jonathan Roth narrated video, it’s easy to become quite bullish on a company that arguably has the best open pit gold project in the world held by a junior, yet still only a C$47 million market cap. However, there are a few important questions that will still need to be addressed before Skeena is able to advance its 4 million ounce gold-equivalent resource to production:
I’ve already mentioned some of the green shoots that sprouted across the junior resource sector on Friday, and while it was just one trading session, there were several notable bullish reversals:
The uranium sector has been beaten to a pulp in recent weeks and NexGen Energy shares made a fresh 52-week low at $2.02 on Thursday. What I found to be most interesting about this low is that it came on extremely light volume and received very little attention. This tells me that there has simply been a lack of buying and price drifted lower largely due to a lack of interest in the uranium sector as a whole.
An environmental assessment (EA) has commenced on NXE’s Rook I Project by the Canadian Nuclear Safety Commission. A significant milestone for NexGen and evidence that NXE has done nothing but continue to advance its world class uranium project even as the market has shown little appreciation for this beaten down sector.
I have been buying NXE for the last week or so based on a combination of fundamentals and technicals. I have also noticed an increasing amount of exhaustion among uranium bulls and other market participants who have given up hope after five years of hearing “this is going to be the year that the uranium sector turns.” This exhaustion and resignation among investors is showing up in the dreary price and volume action in uranium keystone stocks such as Cameco (TSX:CCO, NYSE:CCJ) and NexGen (TSX:NXE, NYSE:NXE). It is also this exhaustion and resignation in the uranium sector that has me more interested in the sector than i've been in a couple of years - I have a uranium producer/explorer shopping list and i'm ready to begin accumulating more positions in the next few weeks.
One more junior that I will mention that has bucked the general sector downtrend in recent weeks is Northern Shield Resources (TSX-V:NRN) - NRN shares are up ~55% year-to-date and they appear poised to break-out from a multi-year basing pattern:
NRN has recently discovered a large low sulphidation epithermal gold system in Nova Scotia, the first of its kind in the province. CEO.ca veterans @Dunite and @HRA-Coffin have been regular commentators on the NRN channel and last week they offered some excellent insights:
Eric Coffin of HRA Advisory weighed in stating that while NRN shares might be able to continue inching higher as more exploration news gets released (such as last week’s NR), it will take drill results to move NRN to multiples of its current share price:
I currently own NRN shares for both fundamental and technical reasons. The potential at Shot Rock is huge and Eric Coffin’s analysis through his premium alert service has helped me to become more comfortable with the NRN story. However, the technical setup is at least as strong as the fundamental backdrop, with a breakout above $.10 likely resulting in another 50%-100% of near term upside. Risk-averse investors can use $.06 as a key downside reference point, below which the technical setup would deteriorate significantly.
This week i’d like to end by sharing some of my favorite links for the week:
- Kirkland Lake earnings preview from @Economicalpha - Luis knows KL as well as anybody and he has distilled all the key info/metrics into an easy to read blog post.
- @MiningBookGuy shares a book recommendation in an easy to watch and insightful 3 minute video, check it out!
- This blog post called “Mining Cliches Explained” posted on The Urban Crows Blog was my favorite for the week by a country mile. The clichés and language used in this humorous/sarcastic blog post are so true and absolutely hilarious. Bravo Urban Crows!! His Twitter handle is @ralph_rushton and if he’s not on CEO.ca already I plan to enroll him to start an account this week. Read it and get ready to belly laugh!
- Finally, I’d like to share my latest interview with 321gold founder Bob Moriarty in which we traverse a multitude of topics ranging from why he bought silver last week, to his favorite junior mining stocks right now (ARU, IRV, and LIO), to the Uber driver who explained to me how he’s going to start a hedge fund focused on selling naked put options.
Disclosure: Author owns shares of JG, NRN, and NXE at the time of publishing 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.