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Into the Price Acceleration Phase

Bob Moriarty
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Mar 25, 2014

I first wrote about Cayden Resources (CYD-V) in May of 2013. The full report can be found here. CYD was $.72 a share then and it went higher to $1.80 by September. Then it got caught up in the general crash of resource shares and dropped to $.96 in mid-December. I talked about the company again in a piece I wrote at the end of November. The price of Cayden was $1.10 when I wrote, dropped slightly and as I predicted began a major advance to $1.99 last week. In either case, if you listened to me and made an investment, you have had a wonderful opportunity to profit.

Even though we are in the midst of a necessary and desirable gold correction, Cayden is about to enter into a price acceleration phase where the price goes much higher quickly. The stock was cheap in May and got more valuable. It was also cheap in November and got more valuable. At $1.94 it’s cheaper today than it was in May and November of 2013 for a whole bunch of reasons.

Prior to when I went to see Cayden in May of 2013, the company story was their Las Calles project at Morelos Sur in the world class Guerrero Gold Belt. Las Calles sits in between two Goldcorp mines, Los Filos and El Bermejal. Cayden sold a small portion of their Morelos Sur concession to Goldcorp in early 2013 and got the last of the $15.7 million in December of 2013.

The Las Calles segment is a vital segment for both Cayden and Goldcorp. If you look at the map linked to in the prior paragraph, Cayden controls a key piece of ground in between two of Goldcorp’s mines. Goldcorp has indicated they want to buy the land from Cayden and speculation of its value provided most of the value of Cayden shares until this last May. Literally, brokers were pitching the company as a speculation on what Goldcorp might pay.

The Guerrero projects belonging to Cayden were worth $4 a share long before El Barqueno became a project of theirs. They may well be again.

Cayden has made incredible progress on their El Barqueno property since May. As a result, the Las Calles piece is relatively meaningless but with a market cap of just under $90 million, either the El Barqueno project is valued at zero or the Las Calles property is valued at zero. I suspect that very soon, the market will begin to get it.

Cayden management has done a wonderful job of keeping a tight share structure. All of the $15 million from Goldcorp was put right back into the ground and what I saw last May as a theory has been proven correct by drilling and trenching. They have their hands on a district level play.

Just how big is the El Barqueno project? In 1983, the President of Mexico, Miguel de la Madrid, said that the El Barqueno district in Jalisco State was the biggest gold project in the world. Developing it would pay off all of Mexico’s debts. At the time, foreigners were not allowed majority ownership of mines in Mexico. The government of Mexico state mining company operated a mine there at the Azteca deposit and took out 250,000 ounces.

The President of Mexico got a little carried away. It’s not the biggest gold mine in the world or universe or solar system. But I’m not going to say it is not the biggest project in Mexico because it might well be.

I said back in May, “I think they can define 5 million ounces in 18 months with 5,000 meters of drilling. And I think it’s a gold belt both richer and bigger than the Guerrero Gold Belt. Cayden needs to be thinking about how they paint some lipstick on this puppy because some major is going to want to take them out within the next two years at something 50 times their current enterprise value.”

I’m going to admit I didn’t get it and I was wrong. I am almost certainly right about the 5 million ounces and 5,000 meters of drilling but this project is a whole lot bigger than 5 million ounces. One day suitors are going to come calling. It was clear that in May, gold was still in a down turn. And while I understood at the first of December that gold bottomed in June and December was nothing more than a retest, now lots of people get it.

Barrick got stiffed in Chile at the Pascua Lama project. Newmont got screwed in Peru at their Congas Mine project. Kinross took a giant financial hit in Ecuador when the government literally stole their Fruta del Norte mine from them. Do you see the pattern? As the price of gold went up, governments got more and more greedy. You may correctly assume the big players in the mining game are looking for safer homes.

Mexico has been stupid in the past, there was little outside investment from about 1910 until 1995 when they changed the laws. But Mexico has a long tradition of mining going back to 1522. In my view, it is still leading the rest of the world in the sanity of their mining laws, experience of labor and quality of mining projects today. If you have a really potential project in Mexico, the majors are going to be looking at it closely.

That’s where the Las Callas piece gets really interesting. If Cayden was a junior with nothing but that tiny piece of key ground, Goldcorp would buy it when they absolutely had to have it and not a day before. But you can’t look at the ground and say the price should be dependent on how much gold there belongs to Cayden. The price of that ground is going to be worth all of the gold belonging to Cayden and whatever gold Cayden CONTROLS that actually belongs to Goldcorp. Goldcorp knows how much gold is on their ground next to Cayden. And while Goldcorp owns it, because they can’t mine it without pushing the wall back onto Cayden’s Las Calles ground, Cayden CONTROLS it.

But Cayden is not a tiny junior with only one project. They have two. One of them used to be called the biggest gold project in the world (even if it isn’t.) Someday when senior mining companies want to pick up projects in one of the safest mining jurisdictions in the world, someone is going to put in a bid for El Barqueno. When they do, Goldcorp is going to find their nuts in a wringer. Goldcorp cannot afford to let another major pick up Las Calles. Las Calles is going to force a bidding war for Cayden.

In 1993, after the discovery of the Voisey’s Bay nickel project, Robert Friedland, President of Diamond Resources, convinced Falconbridge to get into a bidding war with Inco for the rights to mine the 141 million tonne, 1.6% nickel deposit. $4.3 billion dollars later, he and his shareholders walked away with happy faces.

It’s important to note that with any auction, you need at least two bidders to get the best price for your shareholders. Goldcorp doesn’t know it but they are already participants in any auction for Cayden. But Cayden understands.

The Spanish began mining at El Barqueno around 1545. Back then, mining gold required far higher grades than today. When I went to see the project in May, I commented that the rock was unlike any gold mineral I had ever seen. It’s a really strange project. It has elements of an epithermal vein system, a shear zone hosted system and an IOCG. (Iron Oxide, Copper and Gold) Over the current 465 square km of concession there literally are hundreds of gold rich vein swarms. It’s not a project for a junior or even a mid-tier. I’d guess you could do $100 million in drilling. It’s that big. While it’s still an exploration target, it has been mined and there is a world of technical data available to see.

Cayden and their brilliant technical team have been busy trenching and starting a 35,000-meter drill program. Results have been exceptional. They have just gotten permits for drilling additional targets and I expect a constant flow of news from the company.

I love the project. Company management has suggested to me that I GOT it before any of the other visitors or letter writers and understood the potential right from the start. I hope that’s true but it’s still meaningless, it’s really easy to see the potential now. I suspect majors will be breathing hard to do a deal. Given the Goldcorp wildcard, I can safely predict the first offer isn’t going to be the price the deal gets done at.

Even though I called the bottom on the stock twice, I simply didn’t have the cash to buy shares at the time and I have yet to own a single share but that’s because of my stupidity, not my view of the project. While Cayden is an advertiser and I have a financial interest in their success, it’s also one of the very top projects and management teams I have visited ever. They will get bought out, there will be a mine unless Fukushima has totally poisoned the Pacific and shareholders are going to walk away with a smile.

Obviously I’m as biased as I can be. Do your own due diligence, please.

Cayden Resources
CYD-V $1.93 (Mar 24, 2014)
CDKNF 46.2 million shares
Cayden Resources website

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Bob Moriarty
President: 321gold
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