Been There, Done That
We are at a bottom. It’s been forming since April. It’s a bottom and the next major move is up. This is the time to be picking up quality assets, not whining about how low shares have gotten. Of course they are low but do you want to buy high and sell low or buy low and sell high. If the former, you are on the wrong site, you need to dial in one of the cheerleaders and worship them. Do it before all your money disappears because they told you shares and metals are supposed to go up every single day or it’s proof of manipulation. Bugger manipulation, even if it was true, you can’t invest on it.
Something has happened over the last dozen years that I don’t think has happened in history. Primarily because of globalization and China emerging from an agrarian society and becoming a consumer society, every commodity went into shortage and boomed in price. At all times in the past, one commodity or another was in short supply.
Wars always create huge demand for copper. Copper was in such short supply during WW II that the US government replaced copper in the 5-cent coin with silver. In theory, the wartime silver nickel was worth more in silver than it’s face value. The wiring at the Oak Ridge plant in Tennessee was made of sterling silver. The government had billions of ounces of silver but needed copper for the war.
Sometimes, iron was in demand, sometimes oil. Sometimes uranium, sometimes coal. But never in history was there virtually unlimited demand for everything. So between 2001 and 2011, all resources soared. Many resource companies did as well. At least until it was time to put up or shut up. Many of the “resource companies” were little more than flimflam games run to scam investors.
We are at a bottom. The opportunity to pick up great companies for cents on the dollar is exceptional. But there are still a lot of flimflam companies out there. Look and see what the history of management is. During the boom years, did they create or did they destroy?
I wrote about an interesting company in Peru back in early 2010. The company was Rio Alto. The price of their shares was $.44. It was a good call on my part. The stock never looked back as it ran to $6 a share 30 months later. That’s the kind of return you want to make once or twice in your lifetime. And the good news continues but the decline in the price of gold has investors spooked. Even though Rio just announced production of over 59,157 ounces, for the quarter, the price has declined 80%. Go figure.
Rio is a screaming buy but I am using them as an example to make a point. They had a deal with Iamgold in 2008 but their financing blew up. They continued to negotiate with Iamgold and finalized the deal in 2009. Under better terms than the original deal. That’s not bad.
The founder, CEO and President of Rio Alto at the time was Feisal Somji. He’s the kind of guy who likes to hit balls out of the park. He helped form Rokmaster (RKR-V) in 2010. He wants to do exactly the same thing in the same country with the same sort of project as he ran with Rio Alto. I really like that. I went to Peru to see them last week.
The project is the Pinaya Gold Rich, Copper porphyry located about 110 km North Northeast of Arequipa in Southern Peru right smack dab in the middle of elephant copper projects. The company has an option with AM Gold on the project to earn up to 75%. The terms call for payments to AM Gold of $2.8 million and spending $12 million drilling at least 10,000 meters to earn 51% and paying AM Gold $1.3 million and spending an additional $9.7 million and completion of a PEA to earn the additional 24%.
This project is not a pig in a poke exploration project. In the M&I category there is a 43-101 resource of 1.4 million ounces of AuEq and an additional 868 thousand ounces of AuEq in the inferred category. Between 2004 and 2008, operators drilled some 46,000 meters of core drilling in 160 holes. The property is a 192 square km project and covers a 25 km portion of the southeast extension of the emerging 300 km long Andahuaylas-Yauri Porphyry Belt. (Try spitting that out after a couple of martinis) The Peruvian belt is home to ten world-class deposits in development with over 6 billion tonnes of resources.
There are a couple of reasons I really like the project. Primarily I like it because management pulled off the same trick at Rio Alto. They took a world-class deposit and rapidly advanced it to production. But at $.085 a share, the market is valuing the company at a tiny $2.3 million.
Obviously the company is going to have to raise a lot of money to advance the project and make their earn in. There will be dilution and the junior market is near frozen now for those trying to raise money. But all things change.
Watching the Gang of Fools in Washington is soon going to turn the stock market into a cemetery and resources into the only game in town. What do you suppose is going to happen to Obama’s reputation when the world figures out the $600 million spent programming Obamacare software was poured down a toilet and there is no fixing the software? I was a programmer. That software can’t be fixed, only replaced and don’t look for that to happen in the next year. It ain’t gonna happen.
The United States is not going to collapse. All those guys calling for an utter collapse some time in the future have it dead wrong. We are already collapsing, it can’t be stopped. It will only get worse and there is but one safe haven, resources.
I’ve been to the La Arena project of Rio Alto and now I’ve been to the Pinaya project of RKR. Pinaya is going to be bigger than La Arena. It’s just my best guess but I’ve seen them both and Pinaya has a boatload of blue sky. It will take money, it will create dilution but it in Elephant country with a company filled with some great geos who love the project and management who have been there and done that.
I am not a shareholder. My portfolio is filled with tiny juniors selling for pennies that I think have ten-bagger and more potential. This is another. I am biased even though they are not advertisers. Do your own due diligence. It’s a lottery ticket.