The new gold bull market that got underway earlier this year has highlighted a couple nice trends. One is that new money flowing into the sector is looking for quality, they aren’t putting their money into moose pasture promotion plays. It is also highlighting just how weak the supply chain is due to a lack of companies in the middle tier and in exploration with high-quality projects.
The bear market that ended for gold in December 2015 was brutal on gold stocks big and small. Much like other bear markets for gold, it was equally as brutal on other commodities as well. Juniors in copper had been pummeled during this period as well. But the fundamentals that are helping gold, long term trends in supply and demand, will also be bullish for copper. I’ve come across a junior that has a resource of over 2 billion pounds of copper and 2 million ounces of gold to add to my Radar Screen Picks list.
Radar Screen Picks are purely for investors looking for cheap stocks they can get in on the ground floor, well before the elevator starts to make the move up to higher floors. These are dirt cheap picks that are under loved and ready for a change. They just need someone like me to come along and help them find a new audience of sharp and patient investors.
Resource may be iffy now…but they are looking for an elephant below it
Serengeti Resources (SIR.V)
During the last bull market for gold and other metals that lasted from 2001-2011, Serengeti was one of the companies that caught the attention of the junior mining stock investors with their discovery of a copper-gold deposit in British Columbia. It ended up growing to a resource in all categories of over 2 billion pounds of copper and over 2 million ounces of gold.
But that resource is low-grade and was a lot more exciting when gold was over $1500 per ounce and copper was over $4.00 per pound. The resource is not what has me interested in the company, right now. Although it does factor into my longer term bullish outlook for the leader in metals gold that will also bring copper along for the ride.
They did a geophysical survey that is meant to be able to see deeper targets, it picked up the known deposit, and an area that connects it to a very big geophysical anomaly at depth. I don’t usually get too excited about geophysical targets until they put a drill hole into it and see if there is anything there. But to put it in context, the footprint of the geophysical target at depth is significantly larger than the known resource. Actually it makes the resource look small compared to the geophysical target.
The geophysical work they did to test for a deeper target caught the attention of Daewoo Minerals Canada Corp. which is a 100% owned Canadian subsidiary of Posco Daewoo Corp., one of South Korea’s largest corporations. Posco Daewoo can earn a 35% interest in Serengeti’s Kwanika copper-gold project with financing of $8.2-million. This option deal includes cash payments to Serengeti and exploration expenditures on the project. In addition to the 35% they would also receive some off-take rights.
From the looks of the deal, which is very favourable for Serengeti, Posco Daewoo are most interested in securing the concentrates to process. They know how tight the long term supply is and can see ahead that we are going to see higher copper and gold prices which will help the economics of Serengeti’s Kwanika copper-gold project. To get the off-take deal for the concentrates, Serengeti also gets the funds to explore the deep target.
I like this story because let’s say they fail to make a discovery at their deeper target, they still only have around a $10 million valuation. None of the exploration potential is priced in, and they are getting very little for the known resource. I consider the resource an option on higher copper and gold prices that is being valued at next to nothing. In addition to this project they have several others and sharp people running the deal.
If they hit, and find a higher grade feeder type system, then they will get repriced much higher very quickly. It won’t take long and we will see what the truth machine has to say about the deeper target because they are drilling right now.
I’m alright with jumping on board this one now because I like their exploration potential and also believe the valuation is cheap for the known resource, other projects and the people involved running the company.
All the best,
Allan Barry Laboucan
P.S. my reports are for information purposes only, before making any investment decisions it is important to do your homework and speak with your financial advisers.