Thoughts from Myron—Junior Miners in Europe

by takeprofits | August 2, 2013 1:32 am

PATIENCE AND CONVICTION

Ed. note: Here is another installment from longtime reader Myron Martin. Myron has agreed to our trading restrictions (he won’t trade the stocks he mentions for three days), but we have not reviewed, approved or screened his stocks or ideas, and the opinions he expresses are solely his own.  Myron’s past commentaries can be seen here.[1]

Hello again fellow Gumshoers and thank you for your strong support. Now that the three-month trial period has been successfully navigated I am looking forward to refining my column month by month in accord with your valued feedback, so let me explain a few crucial issues you should be aware of that influence my decisions on market coverage.

Of course it would be impossible to please such a diverse readership 100% of the time, in all aspects of what I choose to cover, but I am confident followers will not only make good money, but most importantly become better investors over time, even as I continue to learn myself through all kinds of market ups and downs. My original premise, based on my own considerable success in junior miners in particular, was to share my insights and stock picks to shorten the learning curve for novice retail investors, and like the original Gumshoe premise, not get roped into buying expensive newsletters based on a lot of hype. Having already been through that phase, my next premise was letting fellow small retail investors in effect “look over my shoulder” by sharing stocks in which I am putting my own money, so I have “skin in the game” personally. Alas, I must confess, with the depressed markets of the past 18 months to two years, there are far more bargains out there than I have time to evaluate thoroughly, or capital available to take advantage of those I am most positive on. Being forced to be selective myself is why I offer you a selection of stocks in different sectors to put on a “watch list” as well as a few profiled immediate buys. Most months I have two dozen “potential buys” on my watch list and only manage to buy an average of two or three, and you might well find yourself in the same situation. By taking small stakes in promising companies you can add to your best picks as developments and market sentiment dictate.

While my primary focus of research is still precious-metals based, believing that ultimately gold and silver are the only real money and are a reflection of economic realities affecting other commodities as well, in actuality I currently have an average of a dozen stocks in each of 15 portfolios focussed on individual and specific market sectors. Each month then I have to decide within a few days of publication what sector, based on market timing and other factors, offers the best prospects for quick, and/or long term gains, and then what individual stock or stocks within the chosen sector (or sectors) is the most compelling buy. Whether that is from stocks in my existing portfolios, or newly discovered stocks my daily research has unearthed since my last column, the choices are never easy, there are always close “runner ups” worthy of consideration. I must be comfortable that management has a good track record, the company is well-financed (financially sound), and has a product or service in high and rising demand, and, in the case of miners, near term catalysts for potentially moving the stock forward based on each company’s position in the discovery/development cycle. My objective is to identify good entry points and good exit points to maximize trading profits. When I have high confidence in a pick I tend to give it a rather wide latitude. In fact, I have had stocks drop 50% from my buy point that had nothing to do with the fundamentals of the company, just temporary “market sentiment”, and hung on to experience a double or better in a reasonable hold time. The relevance: you need to know the why of stocks rising or falling, not just react by “panic selling” or chasing a hot stock higher.

Multiple choices may tend to confuse novice investors and lead to requests to just “pick the best single stock each month” but that is impossible for numerous reasons. There is no “one size fits all” stock pick for a large group with differing personal perspectives. Unknown and un-knowable future events may temporarily distort market sectors and or individual stocks. The key point is simply to identify solid company fundamentals, and then have the courage of your convictions. You must stick with them long enough to allow the company to execute on its stated objectives and not get shaken out prematurely by the daily or weekly gyrations of the market. I tend to give any pick at least six months to prove itself, unless it drops like a stone, which is fortunately very rare, but juniors do tend to be more volatile as a sector. They are not generally well suited to Wall Street’s typical “buy and hold” mentality, which they promote to give them opportunities to manipulate the market. The big boys regularly put out “news” designed to shake retail investors out of their positions with scare tactics of a market decline. This is so they can buy low as stocks are dumped and then hope to sell high by periodically hyping up stocks they want to cash in on. Lesson: trust your fundamental instincts over any Wall Street-based establishment news.

What I can not do is give personalized investment advice; the SEC rules on this make sense. For example, your investment choices ultimately have to be your own, that you take personal responsibility for, simply because they need to be based on your personal sectors of interest, your degree of knowledge about them, your personal risk tolerance, the size of your portfolio and its diversification, your age (which could affect your personal time frame for the investment), and many other reasons too complex to get into here. Consequently I do not expect every subscriber to buy every stock I mention.  Instead, consider me a “bird dog”, flushing out good possibilities for your personal research that will meet your personal objectives and portfolio. These many variables make it impossible for any analyst to personally tailor a portfolio pick for individual investors, as what works for me may not fit your investing style in all instances. What I do try to do is monitor world events, from political situations to currency markets, read profusely, consider the views of dozens of other analysts, the latest press releases from the hundreds of stocks I follow, and distill it all down to actionable stock picks.

Each month I share only the highlights of what I consider to be the most important information that affects the markets. Be assured these have been filtered through numerous sources that provide such services that I read daily. Again, if I provide too many links for your available time, just remember that it is not even one-tenth of what I read personally on a daily basis to arrive at the conclusions on which I base my personal stock picks for my own portfolio. Having been an avid reader since childhood, (read over a hundred books in my grade school years), my thirst for knowledge has not abated. Being retired gives me the luxury of indulging my passion for reading and research to your ultimate benefit, provided you avail yourself of the extensive information from a wide range of interests and sources. The better informed you are by reading widely, the more successful an investor you can become.

In preparation for the next column:

Gold Market to See Largest Short Squeeze In Modern History[2]

Retired Congressman Ron Paul on Detroit Bankruptcy Implications[3]

I suspect many of you are still wary of speculating on junior stocks, and indeed I hesitate to mention some of the severely beaten down stocks for that very reason, even though long term there are many that will probably become ten baggers in a matter of a few short years. Would you have considered a $0.12 stock that had fallen progressively from a one-time high around $0.60? Let me give you a “case lesson” from my critical and specialty metals portfolio:

I first bought Energizer Resources (EGZ.TO, ENZR) when they announced their humungous vanadium discovery in Madagascar several years ago. I took some profits as it oscillated in the market, and sold out completely when it did not seem to be developing its Green Giant project as fast as I would have liked. Then came the announcement during the “graphite craze” that they had discovered high grade graphite in their huge Madagascar holdings and I bought in again, but once more the stock price drifted down with the market. I was debating whether to sell or buy more when a single press release sent the stock up an initial 150% in a few days last week on the news of their latest result. You can see the history and current price here[4]. How many stocks over, say, $5.00 have given you a $150% return in under a week? My extensive due diligence, faith in the ultimate success of the project, and above all patience, have been rewarded. As usual with spectacular announcements that act as catalysts for a stock, they swing to extremes, so I never advocate “chasing a stock”, in fact it has already fallen back to $0.21 from an interim high of $0.32! Either put it on a watch list or put in a “stink bid” around $0.17-$0.18 as it may still be several years before this project reaches its potential, even though the recent preliminary PEA shows a robust after-tax NPV of $341,803,000 and an extremely healthy IRR of 41%, with a potential 20-year mine life. I would advocate getting on their mailing list after checking out their website for full information, and adding to holdings, as I will, whenever the stock falls back as people become impatient or distracted by other market news and developments. In my books this is a keeper to add to on any further weakness.

Here is a paragraph from a very insightful essay on Mining.com about why precious metals are bound to rise, particularly helpful for anyone who has bought into the establishment’s “fear mongering” that gold is dead or in a bubble and likely to drop to much lower levels. The complete essay is available here[5] (a rather long but very worthwhile read, as it provides a great deal of valuable and persuasive evidence).

“Secular commodities bulls don’t end when technical milestones are breached, they end when global supply-and-demand fundamentals no longer support them. And gold drives gold-mining profits, and profits ultimately drive stock prices universally in the markets. So as long as global gold demand growth exceeds supply growth on balance, gold is heading higher and the gold stocks will follow. It’s that simple.”

You may have heard the mantra that, “it’s an ill wind that blows nobody some good” or expressed another way, “every cloud has a silver lining” and I believe that is the case with the continuing economic mess in Europe. Being a contrarian, I don’t think you should buy propaganda that the sovereign debt problems are being resolved; that is a self-serving illusion being painted by the entrenched establishment. So what is the silver lining? Simply this: in contrast to greedy communist-leaning semi-dictators in some South American countries raising taxes and other extortionate practices, including outright expropriation of assets, European countries like Portugal, Spain, and even East Germany for example, have a horrendous unemployment problem. The positive on that is they are desperate for job creation, and while Europe is not at the forefront of investors’ minds for mining investment, there are two strong positives. First, explorers active there are, for the most part, not well known by North Americans and therefore undervalued. And second, local governments are super co-operative and supportive of development to establish much needed jobs. A third positive is that well funded and managed Canadian companies are active there, so my spotlight this month is on Europe with three attractive projects to highlight for your consideration.

The first one has been on my watch list for about six months. It is Avrupa Minerals (AVU.V, AVPMF).  An interview with an analyst that has visited their key projects and is an investor personally is here[6]. Also check their website[7] for more detailed information and their latest press releases.

This is what I like about Avrupa Minerals: 

  1. It is a Canadian company financially backed on its main project by Antofagasta Minerals, the huge South American miner. With the support of this major it should not have financing problems, as their projects are advanced and they make additional discoveries on their nine exploration licenses covering 2600 sq. k.
  2. This is not “moose pasture exploration”. All of their projects are in areas with existing mines of long standing with strong geologically proven potential. It has been said by many geologists that “the best place to find a new mine is near an existing one” and I like their diversified and deep pipeline of projects for a wide array of potential minerals.
  3. They are a “prospect generator” company with several joint ventures, which spreads and greatly reduces risk, allowing them to concentrate personally on the projects showing the best immediate potential.
  4. They are looking for silver, lead and zinc in one project in Kosovo and copper and gold in another, and gold and tin in Eastern Germany, but Portugal is their main focus in the Iberian Pyrite Belt, which includes tungsten and gold in Northern Portugal and copper and zinc in Southern Portugal. At a current $0.055 this is, in my opinion, a grossly undervalued and unrecognized junior whose price could explode quickly on any significant discovery. So while still speculative, it represents a compelling value in today’s market with comparatively low risk compared to many other junior explorers, in my opinion well worth a small speculative stake to await developments.

My second favorite European project is another little known, and in my opinion overlooked junior, that is actually on sale by the market for less than its cash in the bank! This is a very rare anomaly occasioned only by the market distortions created by the Fed’s “quantitive easing” and may not last long when the market recovers its senses as manipulation is reduced and investors become less fearful. Mundoro Capital Inc. (MUN.V, MUNMF) at $0.32 boasts a $14.9 million treasury, so at $0.36 per share based on 44.8 million fully diluted shares, which is quite low considering its resources, represents another compelling stock for country diversification. I discovered this particular stock because I own shares in Reservoir Minerals (RMC.V, RVRLF) at $3.05, which has a joint venture with well-known major copper and gold producer Freeport-McMoRan (FCX) at $28.22, still near its low of $26.37, compared to its high of $43.65. While out of favor right now, I consider both to be good buys whether copper prices rise or fall, providing you buy on dips as the market reacts to changes in copper prices. What makes Mundoro so interesting is they have a district scale land position in the “Tethyan Belt” that stretches from Serbia into Bulgaria where they have holdings near a currently producing mine. The Tethyan belt already has identified resources of 58M ounces of gold. In Serbia they have drill-ready targets adjacent and west of Reservoir’s Bor mine in the Timok region. While I already hold Reservoir and intend to buy more on dips, for new investors the fundamentals of Mundoro may provide even better leverage to gold. Mundoro also has seven exploration licenses in Mexico and a 5% interest in the Maoling gold project in China, 95% controlled by the China National Gold Group. You can read more about each company on their respective websites.

Last but not least, is Astur Gold (AST.V, ATRGF), at $0.29 (low $0.25, high $1.30) having only 45,201,297 fully diluted shares for its 100% owned Salave project in Asturias on the northern coast of Spain. They are near port facilities and the national highway, with high voltage power lines running through the property, and well situated with abundant water resources as well. They recently closed a $10M loan facility, so no worries about the difficulty of financing juniors that is so much in the news these days. With a conservative share count for their stage of development, with $40M having been spent by previous owners, this is an attractive project. A now outdated 2011 pre-feasibilty study showed excellent economics even at $1100 gold, with pretax NPV of $391M, an IRR of 46% and a pre-production payback of only 2.2 years. A new and definitive feasibility study commenced in June and is expected to be completed in the first quarter of 2014 that could lead quickly to a mine building decision. They have a rather unique mine building plan (see website[8]) that results in reduced capital expenditure and per-ounce mining costs that are projected to be under $600. With one of the largest undeveloped gold deposits in Western Europe, they are an advanced stage project, having received a drilling permit in November 2012 and the approval for underground mine development in December 2012. With measured and indicated reserves of 1,683,000 ounces of gold plus 388,000 ounces inferred based on 430 holes totaling 64,377 meters of drilling and four high-grade zones open at depth, the potential for further discovery is enormous. They have six concessions totaling 686 hectares and an investigation permit for a further 2765 hectares, so expansion potential is excellent. It is noteworthy that the original 2011 PEA at $1500 gold showed a NPV of an impressive $759M and an IRR of 75%, which is very rare. So, do the math of how profitable this mine could be should prices rise exponentially by the time this mine potentially reaches production in 2015 as currently projected! I would bet that if it only returns to its previous high of $1.30 within the next year to 18 months you would be thanking me profusely if you don’t wait too long to buy.

Updates from previous columns:  North American Nickel (NAN.V, WSCRF) continues to advance their project in Greenland, here are the COO’s comments from their latest press release[9]:

“NAN COO, Neil Richardson, states: We are pleased with the completion of phase one drilling and the overall progress of the exploration program at Maniitsoq., (Greenland). Over 100 electromagnetic and geological targets have been checked on the ground by our geological team and targets have been re-prioritized for the second phase of drilling starting in early August. Additional targets from the 2013 VTEM flying will continue to augment our target database.”

By the way, if you are not comfortable investing in an early-stage explorer like this, then consider a stake in VMS Ventures (VMS.V, VMSTF), which holds over 27% of the NAN shares and is itself well advanced in their Swan Lake Manitoba copper project and is “carried to production” by a well established and financed, mature and well-known company, Hubay Minerals (HBM) TSX $7.05 and NYSE $6.99! While I don’t currently own either one, I consider both as potential buys on market dips. Buying low is the first step to ultimate profitability, but as you already know, my limited capital favors low-priced undervalued stocks for the biggest potential gains.

LATE BREAKING NEWS: Today the potash market fell apart, but as usual the market over reacts and the pendulum swings to extremes. Tomorrow I will be looking for potential ”bounce back” plays in the sector and if I come up with anything worthwhile and am too late to get it into the column I will post it as a “comment” once the column appears in my inbox on Friday. Until then, profitable investing.

Avrupa Acquires New Marateca License in Pyrite Belt, South Portugal

July 31, 2013

Avrupa Minerals Ltd. (AVU:TSXV) is pleased to announce the acquisition of a new license in the northern Pyrite Belt of Portugal.  The Mining Bureau of Portugal issued the new Marateca license to Avrupa on July 26, 2013.  The license covers approximately 742 square kilometers and is located 40 kilometers north of the Company’s Alvalade joint venture project with Antofagasta Minerals, SA.  Avrupa previously held an exploration license, also called Marateca, covering some of the same area as the new license. The new Marateca license covers a portion of the Pyrite Belt that is under-explored.  Targets within the license area are potential copper- and zinc-bearing massive sulfide deposits, hosted in a similar geological setting to that of the Alvalade Project.

This morning I also received an interesting press release on another company with projects in Portugal that I suggest subscribers at least put on their Watch List for future consideration once I check it out more thoroughly!

WATCH LIST ADDITION:  The full press release can be read on their website, here[10].

Medgold Awarded Key Boticas Licence in Portugal

Vancouver, Canada, August 1, 2013, Medgold Resources Corp. (TSX-V: MED), the European focused gold exploration company, is pleased to announce that it has been awarded the Boticas exploration licence in northern Portugal by the Direção-Geral de Energia e Geologia (DGEG) of Portugal.

Dan James, the President of the Company, commented: “We’re delighted that the Boticas licence has been awarded and I would like to thank the DGEG and the Portuguese government for their continued support. We now plan to fast-track the project to resource definition using the wealth of historical data collected over the last three decades. In parallel, we will start exploring the wider licence area where we have numerous untested gold anomalies. We believe this work will add substantial value for our shareholders over the next two years. In addition to our new Boticas licence, we also have our other Portuguese asset, Vila de Rei, which hosts multiple strike-extensive, gold-bearing silica ribs. These two 100% owned licences represent very exciting exploration projects with potential in each to host significant gold mineralization.”

I currently own the following stocks mentioned in the above article: Energizer Resources (EGZ.TO, ENZR), Reservoir Minerals (RMC.V, RVRLF), North American Nickel (NAN.V, WSCRF)

Endnotes:
  1. Myron’s past commentaries can be seen here.: http://stockgumshoe.com/author/takeprofits/
  2. Gold Market to See Largest Short Squeeze In Modern History: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/30_Gold_Market_To_See_Largest_Short_Squeeze_In_Modern_History.html
  3. Retired Congressman Ron Paul on Detroit Bankruptcy Implications: http://www.mining.com/us-federal-government-will-end-up-like-detroit-sending-gold-to-infinity-ron-paul-30984/
  4. here: http://tmx.quotemedia.com/quote.php?qm_symbol=EGZ&locale=EN
  5. here: http://www.mining.com/web/gold-stock-rebirth/
  6. here: http://www.goldgeologist.com/audio/AmericanSceneRadio/American-Scene-Radio-Avrupa-Minerals.mp3
  7. website: http://www.avrupaminerals.com/
  8. website: http://www.asturgold.com/s/Home.asp
  9. press release: http://www.northamericannickel.com/news/news-details/2013/North-American-Nickel-Provides-Exploration-Update-on-its-Maniitsoq-Ni-Cu-Co--PGE-Sulphide-Project-Southwest-Greenland/default.aspx
  10. here: http://www.medgoldresources.com/images/content/Aug1.pdf

Source URL: https://www.stockgumshoe.com/2013/08/microblog-myron-july/


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