Eagle Plains: Out of Hibernation
In my opinion the dreadful gold and silver bear market ended starting in December of 2015 for the metals themselves and a month later for the shares. Actually the decline in gold from 2011 until late 2015 was relatively mild while silver did crash indeed, declining some 74%. All commodities crashed from 2011 and many dropped more than gold and silver.
But bear markets breed bull markets. The lower the bear goes, the higher the bull will climb. Think of the markets as a pendulum. They swing from one absurd level to the opposite absurd level. In late 2015, prices of gold shares having dropped almost 90% were predicting $300-$400 gold. That’s not about to happen. The climb in the XAU and HUI since January was the steepest rally in the history of mining shares. Now we are in the midst of a perfectly normal correction. I expect by the end of summer the correction will be over and we will resume the advance. And I believe gold and silver are going to eventually set new record high prices.
Mining companies are highly leveraged to the price of gold and silver and I would expect a 50% increase in the price of gold or silver to generate a 500% to 1000% increase in some share prices. If you think I have gone goofy in my old age, you may want to reread the first gold article I ever wrote from 15 years ago. It may sound as if it was written yesterday but it wasn’t.
Some of the companies I like the best use a model called project generation. They look for attractive properties when markets are slow and advance them just enough to get other juniors or senior mining companies interest when bears become bulls. Then they partner with the other companies gaining both shares and cash payments in exchange for giving up a major part of the project. Those who are good at project generation do very very well in bull markets.
At the end of 2015, Eagle Plains (EPL-V) closed the year at a price of $.05. According to their latest financial reports, they had right at $.05 a share in cash giving them an enterprise value of zero. You could in theory buy the whole company, give away their 50 some odd projects away, fire everyone, burn down the office and break even on the investment.
While the XAU and HUI were valuing mining shares as if we had a gold price of $300-$400, investors were valuing Eagle Plains at a gold price of zero. And since I love having my readers think for themselves, if you can pick up 50 mineral projects located in one of the safest mining jurisdictions in the world for zero cost, it’s probably a pretty good deal on your part. If gold even climbed from zero to $100 someone might be interested in at least one of those projects.
Silver Standard just gave the market an indication with their takeover of Claude Resources announced on March 7, 2016.
Guess who owns a larger land package of similar rocks right next door! Right. It’s Eagle Plains.
Silver Standard didn’t pay over $337 million for what would be about 1.1 million ounces of resources at Santoy/Seebee. Ounces in the ground today are worth maybe $50 to $100 in a decent market. Silver Standard paid up for the potential. And with a larger land package than Claude Resources owned, there is even more potential for Eagle Plains to make a major discovery.
It’s exactly the same rock package as Claude Resources just sold to Silver Standard. It extends over a 25 km strike length. The Tabbernor Fault controlling structure was the source of the 40 million ounces of gold at the Homestake Mine in South Dakota. Historical samples from the Fisher project included 12.6 g/t gold over 7.8 meters and grab samples as high as 37.3 g/t gold, 9.5% copper.
What Eagle Plains now calls the Fisher project was the consolidation of four original packages owned by four different owners. It is now 100% owned by EPL due to the harsh climate of the past five years.
Eagle Plains currently is undergoing a comprehensive compilation of all existing GIS data on the Fisher Project. They plan a highly aggressive exploration project on Fisher this year. Eagle Plains has already made plans for drilling Fisher this year so the stock could go on a tear with good results.
Eagle Plains has been in business for 22 years. During that time they have been ten baggers three different times. I believe they will be again. They have never had a rollback and have a modest 84 million shares outstanding. In light of the poor climate for gold stocks in recent years, they haven’t done a financing since 2009 but had partners spend over $15.5 million in drilling and exploration doing some 15,000 meters of drilling. The company is sitting on a cash kitty of $4.1 million in cash and short-term investments. The company currently holds over $1 million in shares from their JV partners. As the market goes up, so will the value of those shares and the number of JV partners.
Eagle Plains isn’t as attractive now as it was a short four months ago but few companies are selling for the cash they have in the bank now. I believe the project generation model will be the sweet spot for investors in this market. And you need to be looking for the companies that have succeeded in the past. That would be Eagle Plains.
I am a shareholder of shares bought in the open market and Eagle Plains is an advertiser. Naturally I am biased. You need to do your own due diligence.
Eagle Plains Resources