Buy with both hands
Every newsletter writer is
kinky in his own way. Some like fundamentals: some prefer technical
analysis. I like crowd psychology. I use one chart, which has
proven valuable time after time. It is the ratio of the XAU divided
by gold. In the most basic of terms, the chart shows when investors
are most optimistic and most pessimistic. When they are most
optimistic, they prefer to buy the shares in the XAU and when
most pessimistic, prefer to buy physical gold. You want to do
the opposite of the crowd, the crowd is always wrong.
The quick and dirty story of Terrane is that it was the product of Rob Pease, President and CEO, who had over 24 years working for Placer Dome. But let me get into the story of the jewel of the Terrane Crown first, Mt Milligan.
Mt Milligan is a gold rich copper porphyry system first discovered in 1987. The project is located near Mackenzie in Central British Columbia some 150 km northwest of Prince George. Being a porphyry, it's low grade but very big. The project went through a variety of owners before falling into the hands of Placer Dome. It advanced as far as a pre-feasibility study in 1991 but wasn't economic at the copper/gold prices of 1991. The project went on the shelf to gather dust.
Both copper and gold finally awoke in 2001 and prices shot higher. Alas, when Placer Dome's ship finally came in, they were out at the airport. In early 2006 with copper and gold hitting new highs, Placer was taken over by Barrick and Goldcorp. Most of the western Canadian assets of Placer Dome, Mt Milligan, the Berg project and the Howard's Pass zinc property ended up with Goldcorp. That's where Rob Pease came into the Terrane story.
Rob knew the Mt Milligan and Berg projects and he's a production guy, he wanted to put both projects into production. Not as a company employee but as president of his own company. After many months of negotiation, Rob announced a deal with Goldcorp in July of 2006. Rob's new shell took over ownership of Mt Milligan and Berg, Maze Lake in Nunavut along the giant zinc play at Howard's Pass in the Yukon.
Goldcorp owns 70% of Terrane and was issued 240 million preferred shares at a deemed price of $.50 a share in exchange for the projects. So the share structure looks a little more confusing than it really is. There are 70.5 million shares outstanding but adding the 240 million shares of Goldcorp and about 30 million warrants and options, the total number of shares fully diluted is about 342 million. Exercise of all warrants and options will also bring in an additional $30 million Canadian.
Rob had been working on putting together a team as the negotiations took place and his team hit the ground running. As I said before, Mt Milligan is big now and the Terrane team is making it bigger. The current resource based on previous drilling consists of 3.7 million ounces of gold and 1.12 billion pounds of copper.
Terrane outlined a twin phase drilling program at Mt Milligan. Phase I, an 8200 meter drill program will provide representative bench and pilot plant test work samples for process design. An additional 8200 meters in Phase II is intended to increase the quality of the resource, converting inferred resources into measured and indicated categories. Rob and his team intend to complete a Feasibility study by 4th quarter of 2007. Current plans call for putting the project into production by 2010.
Mt Milligan is both a call on China in the form of a perpetual call on copper. As long as China keeps growing, they will need more copper. As well, Mt Milligan is a put on the economic policies of the US in the form of a perpetual call on gold. George Bush and the Gang of Fools from both sides of the aisle are determined to destroy the dollar and they are succeeding. Regardless of the fate of the dollar, the fate of gold is clear. It is going higher.
When you are dealing with companies with $238 million dollar market caps as TRX has today, they move a lot slower than companies with a $2 million dollar cap. That is an opportunity if investors look at it in the right way. It's a disadvantage in that it isn't going to double in the next week but an advantage if you invest based on longer-term trends.
I have long felt that for most investors, a company with the quality of management and projects such as NovaGold, is the best investment to make. If you could be buying NG at 10% of the yearly low and selling anytime it goes 10% over the past high, you could probably make a real consistent 50% a year.
Rob Pease and his team are absolutely first class. They are production guys and have a lot of experience behind them. As major shareholders in their own company, you may rest assured that they are going to do a great job. They have done all this stuff before, now they get to reap the benefit for themselves. Like NovaGold, they are going to succeed and any weakness in share prices is a reflection of the weakness of the investing public, not a weakness of the company.
So here's what I would do. Anytime the company comes within 10% of the yearly low, I'd be looking at buying some shares. Don't be greedy; you can afford to take time. This company is like an elephant, it isn't going to make any sudden moves and it will tend to move in the same direction until it's time for a change. Right now the current real yearly low is about $.61 in November and December. It traded for $.66 on Friday. Given that the XAU/Gold chart is screaming, "Buy Me-Buy Me" and that TRX is within 10% of the yearly low, it is a pretty safe time to buy.
Many times I will write about a stock and call it an easy five-bagger or ten-bagger. TRX isn't either. But it will vary within a band yearly and be fairly predictable. If you are ok with 50% return a year, I believe TRX can deliver it on a consistent basis.
There is an interesting sleeper that I think most writers and investors may skip over and it's like having an ace up your sleeve when playing poker. Everyone looking at TRX is focused on Mt Milligan as they should be but may be ignoring the Berg property, which they shouldn't.
The Berg project is located some 80 km southwest of Houston, B.C only 22 km northwest of the Huckleberry copper-moly-silver mine operated by Imperial Metals. Historic drilling has indicated a resource of some 2.1 billion pounds of copper along with 120 million pounds of moly. Moly is trading at $30 a pound and the project has additional silver credits. The resource is historic being compiled prior to 43-101 but TRX has scheduled a 12,000-meter drill program for this summer to test past drill results and hopefully expand the deposit both laterally and at depth. Plans call for a 43-101 resource by the 4th quarter of 2007.
Berg gets real interesting because of the proximity to Huckleberry. Imperial Metals, to use a technical term, is making money hand over fist from Huckleberry with the mine repaying $121 million in debt in 2006. But the mine runs out of ore and closure is planned for 2010. Which is right about the time Berg would be ready to put into production.
There are a couple of alternatives for the Berg property and you can believe that management of Terrane have thir thinking caps on. This could have quite an impact on the stock with the market wakes of to the very real value at Berg.
Terrane is now an advertiser.
I have not participated in any Private Placements and don't own
any shares at present but am looking at the company closely with
an intention of getting in at the right price. I am biased; I
was really impressed with Rob Pease and his depth of management.
Terrane management is first class and there is no reason to believe
they will not succeed. It's a strong team.