Weak Hands in Gold Canyon
Back in December I saw an opportunity in Gold Canyon Resources. A major institution was dumping the shares and they dropped as low as $.09. When I wrote about them just before Christmas, the shares were $.10. Four months later they climbed up to $.33 before dropping down into August/September. For those who read this site and listen to my suggestion of buying cheap and selling dear, they had a wonderful opportunity to make a nice profit even while gold wasn’t doing much.
Nothing has changed except the price of the shares. Gold Canyon has $1.5 million in the bank. The company issued a 43-101 resource in 2012 showing just over 5 million ounces of gold and 26 million ounces of silver in the pit. A PEA released in 2013 projected a mine life of 11 years with capital costs of $544 million and cash costs of $635 per ounce of gold produced. Given $1400 gold, the Net Present Value of the project in 2013 was estimated at $579 million.
Keith Neumeyer, of First Majestic fame, heads First Mining. First Majestic is a silver producer with mines in Mexico. The shares were as low as $.87 in the crash of 2008 but climbed to over $25 by early 2011. In 2011 the company had a $3 billion market cap.
I made the comment in my piece in December that GCU shares were moving from weak hands to strong hands. With a near double in share price for Gold Canyon in the last two trading days, that is more true today than in December. There is more opportunity now than there was immediately before the offer from First Mining.
The buyout from First Mining valued GCU shares at $.35 at the time of the offer. But a lot of weak hands are holding the stock and they used the offer as a liquidity event to unload their shares at any price.
On September 1st, some 10 million shares traded hands. The stock only climbed from $.115 to $.175, half of the value of the offer from First Mining. Most of that was from weak hands who lack the courage to watch Keith Neumeyer create yet another billion dollar company from scratch as he did with First Majestic and First Quantum.
In addition it appears there may be another player who shorted both First Mining and Gold Canyon in the hopes of queering the deal. Even though we have been through a long and bloody bear market in resource shares, I am confident that there are enough wise investors in the world who realize that all things change and the best opportunity to buy anything is at the bottom.
Gold Canyon shares traded another 8 million shares on September 2nd as they climbed some 17%. The stock will be trading higher very soon as people wake up.
The existing Gold Canyon shareholders have two opportunities. One is that they sell their shares at a profit and the other is to participate in yet another Keith Neumeyer success story. He has made it clear over the last six months that he sees an end to the bear market and that he wants to be picking up assets for pennies. This deal values Gold Canyon ounces in the ground at $11 and that’s tiny. So those who want to bail out can do so now, they have their liquidity event. Those who realize not all is well in the financial world and staying invested in resource shares at the bottom sounds like a good deal can stay fully invested.
In either situation, the foolishness of the weak hands or those tempted to short Gold Canyon create an interesting short term opportunity until people wake up.
Gold Canyon is not an advertiser. I do own shares. Do your own due diligence.
Gold Canyon Resources