Potential To Valuation Setups
Brought to you by:
Advance Gold (AAX.V) - Sirios Resources (SOI.V)
Walker River Resources (WRR.V)
Just a few days ago, I was talking to a trader buddy about the insane valuations in weed stocks and how powerfully they trade. I mentioned that you don’t make money from buying insanely priced stocks. Then today, I got a message from someone that I don’t know about some terrific opportunities in weed stocks.
Anybody else hear that bell ringing at the top for weed stocks?
Over the past few years, the crypto currencies, blockchain and weeds stocks have sucked a lot of speculative money out of the the junior exploration space. The bubble in crypto and blockchain stocks has burst, but, it sure hasn’t burst for weed stocks.
These days, there are weed stocks with valuation higher than the major gold mining companies. These weed stocks are being priced way beyond perfection. They are trading at huge multiples that they would need decades worth of revenue to catch up to. Sure you can make money on trading this type of action, when the music stops, make sure you aren’t the last to book profits.
I think there is a much needed correction to shake out the pretenders from the contenders in the weed space. Long term, I have serious doubts about a sector that is based on a commodity that grows as fast as weed. Especially when they are priced so richly.
A lot more money is made finding things that investors are not interested in, but, have cheap valuations and good fundamentals for the industry and the particular companies. Gold, silver, copper and other commodities have powerful supply demand stories. Plus, the stocks in the exploration and developers are being priced with very little bullish optimism.
There is one thing that the crypto, blockchain and weed stocks have done that will bring tons of money into junior mining stocks. They have brought a new generation into speculative stocks. Once bitten with the bug of chasing stocks with potential for 5 to 10X, or more returns, they are bitten for life.
I’m going to sound like an old man, but, when I was their age, and for most of my life, the only game in town was junior mining stocks. That action always comes back when gold and other metals get stronger. The next time metals get into a serious bull market, these new investors getting their stock trading experience on crypto, blockchain and weed stocks, will come to the party as well.
In reality, I’m already seeing the process starting. I’m hearing from a lot more people these days with little experience in junior mining stocks. They are also getting involved in juniors, they can tell the weed stocks are stretched.
I can see it in heavily diluted stocks, these young traders don’t care about the company’s story. The stocks are heavily diluted and they can make money all day trading them at under a dime for half penny gains.
On the tighter stocks that deliver with their drilling, they can see massive spikes in their stocks with unusually high volume. I don’t really think they care much about the stories with these ones either. They just see that they have momentum and are gapping up, so they join in for the ride.
To be honest, sadly, I don’t think most investors are overly concerned about the fundamentals of a company. Their first and foremost focus is on the stocks movements. This creates some remarkable opportunities for those that do focus on the fundamentals and understand how to value those fundamentals.
With junior mining stocks, the most important fundamentals are what the drilling results say and what valuation the market is putting on those results. Figure out when they are mispriced and you can make serious money.
Sometimes, when I see the action in a stock after news, I wonder if the people trading the stock have read the news. Great Bear Resources (GBR.V), a way in the money pick in the report, had news out last week. After I read the news closely and saw the stock was down a bit on the news, I was wondering if anybody read the news.
They are in Red Lake and have an exceptional discovery of high-grade gold. Some of their drilling is just off the charts with grades like 1600 g/t or 1.6 kg/t of gold. It looks like they have the most important Red Lake gold discovery since Goldcorp made the discovery that moved them from being an exploration junior to a major gold producer of high-grade gold that was low cost to mine.
We’ve all heard the comment that grade is king, well it means nothing if you don’t have continuity. With the recent drilling, Great Bear has shown a long strike length of their high-grade Hinge Zone. The real big story in Red Lake is the grades at depth, I don’t think it is a coincidence that one of their deepest holes was where they caught bonanza grades.
Based on the drilling proving a long strike length, and that they have only tested down a few hundred metres, the market still doesn’t get how special their discovery is. Within a year, they could be bought out at a much higher valuation.
Obviously, I think Great Bear is significantly undervalued. To put it into context, Westhaven Ventures (WHN.V), a past pick that I dropped for two key reasons. As they are drilling, they seem to be making it smaller. The strike of the high-grade is confined to a small area. Especially compared to Great Bear. The other reason is they both have around the same valuation.
Both Great Bear and Westhaven have found high-grade gold, with Great Bear having the most impressive. They both have projects well located, Great Bear is in Red Lake and Westhaven is in Spences Bridge area near infrastructure. Every investor in gold knows Red Lake, due to the big gold mines, few know where Spences Bridge is. They both are financed for upcoming work, Great Bear has a much larger treasury.
They have some things in common, one is not that they both should have a valuation around the same price. Great Bear has a much brighter outlook. When they drill, their
discovery is getting bigger, when Westhaven drills, they confine it, not open it.
With Great Bear, I can clearly see that they are looking at a big target in the 5-10 million ounce size or bigger. With Westhaven, I think they will have a small high-grade discovery with lots of risks.
These two companies are a perfect example that investors, don’t focus on reading to understand the news releases, or pay attention to how to value drilling results. In Great Bear, Mr. Market is giving investors a cheap opportunity compared to a peer like Westhaven.
Another one that is an example of the market getting pricing wrong is Minaurum Gold (MGG.V). They have an interesting package of properties in Mexico. Like Great Bear and Westhaven, they all had drill results out recently and they all have around the same valuation.
Minaurum is nowhere near in the same ballpark when it comes to a discovery as Great Bear. But, at the moment, Mr. Market is giving them a similar valuation. There are plenty of examples like this and I point these ones out because I follow all three.
I’ve always said that this market is horrible at valuing junior mining stocks. Above are some examples. In around the $125 million valuation range, Great Bear is a must own. For the potential to move up on good news and when gold moves up, yet, they still have a compelling potential to valuation setup, compared to their peers. On the potential, I think they have a realistic target in the 5-10 million ounce range and will be taken over within a year.
These days I’m finding attractive opportunities in the $50 million and lower valuations. As you can imagine, as you move down the food chain, the valuations are even less accurate.
Recently I’ve been reporting a lot on Amex Exploration (AMX.V) because they keep drilling and returning high-grade to bonanza grade gold. Earlier I said, grade may be king, but, without continuity it doesn’t mean much.
When it comes to continuity, they have drilled a high-grade vein and a couple with lower grades. In the high-grade vein, they have drilled vertically and hit high-grade for over 150 metres. They also did a step out hole of 25 metres and got back the high-grade as well.
This system is similar to the Red Lake area, and in addition to the known veins that could all be coming together at depth, they also have the potential to find more. Their potential for continuity looks impressive, they are well funded for drilling and will have strong news flow.
Like Great Bear, they have high-grade gold discoveries and size potential to go with it. But, at half price on valuation, if you forced me to pick one or the other, I would go with Amex.
It is a hard call because there is the Red Lake Premium to consider, and I think Great Bear is ahead in a race if it was for a takeover. If you asked me, pick Amex or Minaurum or Westhaven, that is much easier. Amex is a running away winner in that contest.
In addition to junior explorers, I also follow a few new producers that I think can become middle tier to major producers in the coming years. They are just as prone to having valuations out of whack with reality.
One of those picks is Ross Beaty’s Equinox Gold (EQX.V), which is a new producer that I think will have a multiple billion valuation in the near term. I picked them at just under a buck, a few months ago, which was cheaper than the price Ross Beaty paid for his position in the stock.
So far, they are up around 40% in a few short months which is excellent for a gold mining stock. I didn’t really pick them for their short term performance potential. They have been buying and building gold mines on time and on budget. When gold gets above $1500, which is in the near term horizon, they will be firing on all cylinders.
Currently, they have around a $700 million valuation. This is a tiny valuation for a gold miner. Their business model is clear, and they are executing. I can easily see them reaching the multiple billion valuation in the coming gold bull market. For those that want exposure to gold stocks with less risk than in explorers, Equinox is one you want to own.
Speaking of exploration, Sokoman Minerals (SIC.V) has just wrapped up their third phase of drilling on their high-grade gold discovery in Newfoundland. In this latest round they drilled a few thousand metres.
The market isn’t giving them much love, and these guys keep a tight ship on news. So it will be hard to get a sense for the drilling until we see the results. The labs in Canada are pretty slow these days. So it will probably be in the 4-6 week timeframe for news on the assay results.
Almost half the holes were from the ice on the lake. These are the ones I’m most interested in, as it is under the lake where they made the high-grade gold discovery. I would guess they also drilled to the north end of that lake with some drill holes.
The holes under the lake will give a serious idea about the continuity. They have the high-grade and mineable widths, now they need to show continuity potential. If they do, I would expect the stock to trade much higher. If they don’t, in the markets eyes it will be priced as if they killed it. Nothing like a binary outcome play.
One of my new sponsors, Sirios Resources (SOI.V) is in the midst of a big drilling and work program. They have just recently opened up a new zone to the west of their main zone by hitting bonanza grade gold. At the same time as drilling, they are working on a resource estimate.
Often I see juniors in too much of a hurry to do resource estimates, that are based on a small amount of drill holes. At the main zone on Sirios’ ground, they have extensively drilled it.
This new zone with bonanza grade gold, looks like it could have substantial continuity to go with it. If that is the case, it could be a big benefit to the resource and economics of the main zone.
I love high-grade gold, these days I’m also becoming a bigger fan of advanced projects with the potential for near term production. There are a bunch of royalty and streaming companies that need more places to put their money. Problem for them is they don’t have enough projects to look at.
This problem for the royalty and streamers could make the timing of the resource and the new bonanza grade discovery a solid one-two punch combination for Sirios. There is a growing need in the industry for what Sirios has, and I like their chances for a much higher valuation.
I just wrote a report on new website sponsor Walker River Resources (WRR.V) a few days ago. They are gearing up for a new campaign of drilling. They are cashed up and have plenty to go after with their next round of drilling on their bonanza grade gold discovery in Nevada.
When it comes to a potential to valuation setup, I think Walker River is at the top of the list. At the moment, I see them as very undervalued and expect that to change once they start drilling again.
I invite readers to check out the new report that I did on Walker River. It will help you get a well rounded look at their prospects. In addition to Walker River being a sponsor, I am also a shareholder with an 11 cent average purchase price.
Another junior that I follow very closely, well I better because I’m the CEO of the company, is drilling in Mexico. Just a few days ago, Advance Gold (AAX.V) started drilling at the Tabasquena project in Mexico.
In the news release, we discussed the two main targets, one is to test the near term production potential in the near surface oxides. The main target, is to drill deeper into the cluster of epithermal veins to drill for the boiling zone. This makes for a compelling drilling story.
Just as compelling is our share structure. Of all the companies in my reports, Advance Gold has the lowest amount of stock out. It is also tightly held with key directors owning over 30% on a fully diluted basis.
In past reports, I’ve talked a lot about the potential to valuation setups of the companies I follow. Have a look at our recent news, and our valuation. I think it will be clear that not only do we have a tight stock, we also have a very compelling story with the quality of our exploration projects.
In Closing These days I have been thinking a lot about drilling. The picture below could have something to do with it. We have been working hard to pick targets and get drilling with Advance Gold and this picture was taken just a few days ago. In it, you can see the drill rig getting set up for drilling and the top of our headframe in red.
Another thing I have been thinking a lot about lately is how the market values juniors. These days I can find several examples of out of whack valuations. Which is a good thing, it means life is coming back into the junior exploration space.
On that note, I encourage folks to check out the past reports on the website, plenty of hidden gems of companies and information in them. Be my guest to share the report to friends that follow mining exploration. Your efforts to promote my work is greatly appreciated. All the best,
Allan Barry Laboucan Founder/Writer/Host Allan Barry Reports www.allanbarryreports.com President/CEO Advance Gold (AAX.V) www.advancegold.ca
Phone: 604-505-4753 Email: email@example.com
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.