Date / Location of update
|
Comments |
10th November 2008, Weekly Update
(Stock price: C$0.065)
|
For
some time we have been suggesting that people take advantage of the
indiscriminate nature of the gold/silver stock sell-off by switching
from relatively high-risk to relatively low-risk stocks. Up until now
we haven't removed any of the highest-risk stocks from the TSI List,
but we are now going to do so. Specifically, we have decided to realise
large (>90%) losses on two of our most speculative junior resource
stocks -- Apogee Minerals (TSXV: APE) and International Barytex
Resources (TSXV: IBX).
We are very reluctant to exit APE at its current ultra-depressed price
of C$0.065 because the company has been making good progress with its
exploration-stage Paca-Pulacayo project in Bolivia. However, even
though this high-potential project is being valued at almost zero,
there are, at this time, other projects with just as much upside
potential and a lot less risk that are being valued equally lowly by
the stock market. For example, US Silver's (TSXV: USA) stock price and
enterprise value (market capitalisation plus debt minus cash) are just
as low as APE's, but USA.V has more than 2M ounces/year of current
silver production and no political risk. For another example, two
week's ago the stock market became so irrational that it was assigning
New Gold (NGD) a lower enterprise value than APE (as we noted at the
time, when NGD traded below US$1 in late October its 250K ounces/year
of current profitable gold production was being valued by the stock
market at less than zero).
|
7th April 2008, Weekly Update
(Stock Price: C$0.33)
|
APE is having a hard time garnering any new buying interest DESPITE
having reported good drilling-related news over the past few months
(most recently last Thursday). The drilling results achieved to date
suggest that APE's Paca-Pulacayo project in Bolivia contains a valuable
silver-zinc-lead deposit.
The current drilling program is expected to continue until next month,
following which a resource estimate will be done. APE should therefore
generate good news-flow over the next couple of months. A concern/risk
is that the company will need to raise more cash in the near future via
an equity financing.
Speculators who currently don't have exposure to APE should consider
taking a small position in the low-C$0.30s in anticipation of the
aforementioned exploration news and because the company's current
market capitalisation is extremely low relative to the potential value
of its assets.
|
14th January 2008, Weekly Update
(Stock Price: C$0.36)
|
Bolivia-based
silver miner Apogee Silver (TSXV: APE) is also worth highlighting as a
speculative buy at this time, especially if it can be purchased in the
low-to-mid C$0.30s. APE announced some excellent drilling results on
Friday that caused the stock price to rise 50% near the start of
trading, but this rebound began from an ultra-depressed level and by
the end of the day the stock had given up about half its early gains.
APE's market cap is tiny (C$19M at Friday's closing price of C$0.36),
so it doesn't take a lot of new buying to generate a large percentage
increase in the stock price. If future drilling results are as good as
the ones announced on Friday then a large percentage gain will be the
likely outcome.
|
8th October 2007, Weekly Update
(Stock price: C$0.30)
|
We
haven't said anything about this Bolivia-based microcap
zinc/silver/lead miner over the past few months because there has been
nothing worth saying. For one thing, some of the other
exploration-stage stocks we follow appeared to offer better risk/reward
ratios. For another thing, the company didn't appear to be active on
the exploration front and was therefore unlikely to have the sort of
news-flow that would generate speculative interest in the stock.
Lastly, in the absence of positive company-specific news a highly
speculative stock such as APE is unlikely to do much during periods
when the general level of interest in junior mining stocks is low (as
has been the case over the past several months), almost regardless of
how under-valued it happens to be. For these reasons we didn't want to
highlight the stock as a buy. At the same time, the stock was way too
low relative to the potential value of its assets to be highlighted as
a sell.
We have, however, now decided to re-visit APE because it has just
announced the commencement of a 20,000m drilling program at its
Pulacayo and Paca silver-zinc-lead deposits in Bolivia. According to
the company's recent press release: "The objective of the drill
program will be to increase the resource base by incorporating a
significant resource contribution from the Pulacayo deposit and upgrade
the current resource at Paca to an indicated category (CIMM definition)
in order to support completion of a feasibility study." The initial
inferred resource for the Paca project was reported earlier this year
at 19 million ounces silver, 433 million pounds zinc and 237 million
pounds lead.
This drilling program will potentially generate the sort of news flow
needed to boost the stock price. This, and the fact that the stock has
just dropped to the bottom of a lengthy downward-sloping channel (see
chart below) suggest that an opportunity has arrived for risk-tolerant
speculators to do some buying.
|
28th May 2007, Weekly Update
(Stock price: C$0.48)
|
We've
got nothing new to say about micro-cap silver/zinc miner Apogee
Minerals at this time (refer to
http://www.speculative-investor.com/new/APE.html for our previous
comments on the stock), except to point out that it has pulled back to
near its lows of the past 18 months. Patient speculators could consider
doing some 'nibbling' near the current depressed level.
With reference to the following chart, we find it interesting that the
stock has spent the past 8 weeks retracing the gains achieved within
the space of just three days in March. This, we think, reflects two
things: First, that it only takes a small increase in buying to propel
a stock such as APE 20%-40% higher; and second, that during those times
when the speculative juices are stagnant in the world of junior
gold/silver stocks, the stock price of an exploration-stage mining
company that issues no market-moving news is likely to drift aimlessly
downward as small investor after small investor loses patience and
'throws in the towel'.
|
21st February 2007, Interim Update
(Stock price: C$0.60)
|
After
the close of trading on Monday we e-mailed a brief note to subscribers
to the effect that SBB's rise to the C3.20s had created an opportunity
to take PARTIAL profits. We emphasised the word "partial" because the
stock continues to offer good value and the potential for large
additional gains over the coming 1-2 years. It had simply become
over-extended on a short-term basis courtesy of an almost-vertical rise
over the past 2.5 months.
APE, like SBB, has a large undeveloped silver-zinc deposit. We began
following APE and SBB at roughly the same time, and due to their
similarities have discussed the two companies alongside each other in
previous commentaries. Both companies have very low market
capitalisations relative to the potential values of their in-ground
metal resources, but based on stock price performance it is clear that
the market likes the SBB story much more than it likes the APE story.
That could change, but it's the way things are right now.
We can identify four reasons why SBB has dramatically out-performed
APE. First, SBB's in-ground metal resources are in Canada whereas APE's
are in Bolivia (Bolivia may not be the world's worst location from a
political perspective, but it's right up there). Second, SBB has
already defined a huge resource to "indicated" status, whereas APE has
just announced an initial and relatively small "inferred" resource.
Third, Silver Wheaton's decision to purchase a 20% stake in SBB late
last year had the effect of highlighting SBB to the investment
community. Fourth, Agnico Eagle's recent decision to buy Cumberland
Resources directed more attention toward SBB (SBB's Hackett River
project is in the same part of the world as Cumberland's Meadowbank
project).
The third and fourth reasons are fortunate turns of fate that couldn't
have been predicted when we originally recommended SBB, although good
things tend to happen to dramatically under-valued stocks in bull
markets. We were very aware of the first reason as the plunge in APE's
price in response to a sudden increase in the market's perception of
Bolivia-related risk last April-May was one of the things that prompted
us to add the stock to the TSI List, although we undoubtedly
under-estimated just how far off the deep end Bolivia's president would
eventually go in his efforts to remain popular with the coca farmers
that form his power base.
In any case, we still see speculative merit in both stocks. APE remains
by far the riskier of the two, but then its market cap is now just
one-sixth that of SBB so the additional risk appears to have been well
and truly factored into the current stock price. We had hoped that the
announcement of the initial resource estimate for APE's Paca
zinc-silver-lead project would generate some interest in the stock, but
in the current market environment the news that the initial inferred resource comprised 433M pounds of zinc and 19M ounces of silver was greeted with a yawn.
Lastly, the difference between the performances of APE and SBB
underlines a point we've made numerous times in the past: it's
dangerous to concentrate on a small number of junior resource shares.
Someone who included both APE and SBB in their portfolio would have
done well to date and would still have the upside potential offered by
APE, but someone who chose to focus on APE would probably be feeling
more than a little frustrated by now.
In general terms, it's impossible to know in advance when Ms Market is
going to fall in love with a stock. However, if you do the appropriate
research and buy a group of, say, ten stocks that appear to have
excellent risk/reward ratios then you stand a fair chance of having a
few big winners over a 12-month period; and these winners should more
than offset the adverse impact of the laggards (there will inevitably
be some laggards) and enable the overall group to achieve a good
return. However, if you decide to focus on only 2 or 3 stocks then you
will be exposing yourself to unnecessary risk and putting yourself in
the position where achieving a good return will depend more on good
luck than on good judgment. At the other end of the scale, if you own
an excessively large number of stocks then the best you will be able to
do is perform in line with the overall market.
As we've noted in previous commentaries we think seven is the minimum
number of stocks to own, with the optimum being around ten and the
maximum (for someone who is not a professional money manager) being
fifteen.
|
5th February 2007, Weekly Update
(Stock price: C$0.64)
|
APE, an exploration-stage silver/zinc miner with projects in Bolivia,
just can't seem to get any respect. The company reported very good
drilling results from its Paca-Pulacayo project last week, including
intercepts of 151m grading 120g/t silver and 33m grading 313g/t silver,
but the market just yawned.
Political risk-related fears are almost certainly responsible for the
stock's sluggishness and low valuation. It would be economically
illogical for the Bolivian Government to do anything to discourage a
company such as APE from progressing its projects since these projects
will not be developed in the absence of foreign investment; but, as
evidenced by the US Government's ethanol subsidies, economic logic is
often overwhelmed by misguided political aspirations.
We don't think the Bolivian Government will end up taking any actions
that have the potential to kill-off foreign investment in the mining
sector, but it is certainly a risk that investors/speculators need to
keep in mind. The good thing about obvious risks, though, is that they
can lead to excellent speculations because the stock market will
sometimes apply an excessive risk discount. This, we think, is the
current situation with APE.
The main reason for mentioning APE again in today's report is that the
initial NI43-101 resource calculation for the Paca project is scheduled
to be complete by the middle of this month. The market has been largely
ignoring APE's drilling results, but in the absence of a worsening
political situation in Bolivia the independent confirmation -- the
resource estimate is being put together by Micon International -- of a
sizeable in-ground resource could grab the market's attention. If
nothing else it should allow analysts (us included) to do preliminary
estimates of the project's value, thus shining a spotlight on the large
gap between the company's low market capitalisation (US$27M at Friday's
closing price) and the potential value of its assets.
With reference to the below chart, the stock has dropped back to near
the 52-week low reached in October. However, the slide since the
early-November peak has the look of a consolidation as opposed to a new
leg down. If so then the next move of note should be a rally up to
resistance in the C$0.90-C$1.00 range. Breaking through this resistance
range would then set the stage for a test of the 2006 peak.
|
10th January 2007, Interim Update
(Stock price: C$0.60)
|
Political
risk has again reared its ugly head within the usual South American
suspects over the past few days. To be specific, Hugo Chavez reiterated
his goal of transforming Venezuela into a Socialist utopia and took a
further step in that direction by announcing plans to nationalise the
country's electrical and telecommunications companies. At the same
time, the Bolivian Government began to lay the groundwork for a massive
tax increase on mineral exports.
The aforementioned developments naturally prompted some shareholders of
publicly traded mining companies operating in Venezuela and Bolivia to
take their money and run, leading to sharp declines in share prices.
In our opinion the risk profiles of Venezuela and Bolivia have not
changed at all this week; it's just that this week's news has brought
the risk back to the forefront of the investing community's collective
mind. From our perspective, the main problem with political risk is
that it's virtually impossible to quantify. In Venezuela there's
obviously a risk that Chavez will nationalise the mining industry, but
this would be such an absurd thing to do from an economic perspective
that determining the probability of it happening boils down to
determining the probability of the maniacal president completely losing
his grip on reality. It's quite possible that even those closest to the
president would have a hard time handicapping such an outcome. And in
Bolivia, the cash-poor government of Evo Morales will obviously have to
increase the rate of tax on mining, but it needs to be careful not to
get too greedy otherwise no new mines will be developed.
Two of our stock selections were affected by this week's political
risk-related sell-off: exploration-stage silver/zinc miner Apogee
Minerals (TSXV: APE) and mid-tier silver/gold miner Hecla Mining (NYSE:
HL). All of APE's assets are located in Bolivia and about half of HL's
revenue is generated in Venezuela.
Our view is that APE is a strong speculative buy near the current price
of C$0.60 because although the risk is high the potential reward is
MUCH higher. With HL the downside risk is nowhere near as great because
its more profitable operations are located within the relative safety
of the US, but the upside potential is also nowhere near as great. We
consider HL to be a 'hold' at this time.
|
18th December 2006, Weekly Update
(Stock price: C$0.65)
|
As
far as the members of the TSI Stocks List are concerned, two of the
most obvious candidates for a "January effect" bounce are Gryphon Gold
(TSX: GGN) and Apogee Minerals (TSXV: APE). We wouldn't, however, buy
either GGN or APE right now in anticipation of being able to take
profits following a multi-week rebound. We think both stocks are now
excellent candidates for new buying for longer-term holders looking to
build-up their exposure to exploration-stage gold/silver stocks, but we
don't think it's ever a good idea to buy thinly traded stocks as
short-term trades. This is because traders must be able to limit the
downside risk and the downside risk can't reliably by limited unless
there's ample liquidity.
|
29th November 2006, Interim Update
(Stock price: C$0.68)
|
On
Wednesday APE announced some spectacular drilling results from its La
Solucion zinc/silver property in Bolivia. These results included a 3.7m
intercept grading 212g/t silver and an incredible 26% zinc. Refer to
APE's press release for further details.
Both of APE's main projects (Paca/Pulacayo and La Solucion) look very
good, but the stock price is obviously being weighed down by political
risk considerations (Bolivia). The risk with APE is high due to asset
location, but the potential reward is an order of magnitude higher than
the risk.
|
6th November 2006, Weekly Update
(Stock price: C$0.66)
|
In
market cap terms, Apogee Minerals (TSXV: APE) and Sabina Silver (TSXV:
SBB) are tiny exploration-stage silver-zinc miners (a chart of SBB is
included below). In terms of in-ground metal resources they are,
however, quite bulky. As noted in a recent article at http://www.stockhouse.com/shfn/editorial.asp?edtID=18840,
SBB has already proved up a huge metal deposit to "indicated" status at
its Hackett River project in Northern Canada. APE is yet to define a
resource to NI 43-101 standards, but extensive drilling results suggest
that its Paca-Pulacayo project in Bolivia is substantial (likely big
enough to be of interest to its neighbour, Apex Silver).
There is always a reason for a stock to be dramatically under-valued.
In APE's case the main reason is the perceived political risk
associated with Bolivia and in SBB's case it's most likely a
combination of a lack of stock promotion and the remote location of the
company's projects. In neither case, however, do these reasons appear
to be deal-breakers. For example, although Bolivia's political risk
shouldn't be ignored we think it's very unlikely that the Bolivian
Government will end up doing anything that jeopardises foreign
investment in the country's mining industry (note: the Government's
plan to issue a new mining code has been put on hold due to a lack of
funds); and other metal projects in Canada's remote Nunavut region --
projects owned by Cumberland Resources and Miramar Mining -- are
progressing to the construction phase.
Both APE and SBB are planning to announce updated resource estimates
before year-end. These new estimates will almost certainly highlight
the relative cheapness of the respective stocks and could be catalysts
for sizable stock price increases.
|
18th October 2006, Interim Update
(Stock Price: C$0.55)
|
Apogee
Minerals (TSXV: APE), a small silver miner with assets in Bolivia and a
member of the TSI Stocks list, has recently been hit by fears of
increasing political risk. To be more specific, Apogee's stock price
has just suffered a sizeable fall in response to fears that Bolivian
President Evo Morales is about to nationalise the country's mining
industry.
As far as foreign mining companies are concerned, the situation in
Bolivia is both precarious and muddy. It has, in fact, been this way
ever since the election of Evo Morales late last year and particularly
since early-May of this year when Morales decided to follow-thorough on
one of his election promises and nationalise the country's oil/gas
industry.
When the plan to expropriate oil/gas assets was announced a knock-on
effect was that the shares of mining companies with significant
exposure to Bolivia were hit hard. This, in turn, prompted us to add
two Bolivia-based silver miners -- Apogee Minerals and Apex Silver --
to the TSI Stocks List because we considered the 50% declines in their
stock prices to be an over-reaction. It was an over-reaction, we
thought, because the probability of the Bolivian Government actually
seizing the assets of either company was low given that there was
almost no chance of these assets being developed into
employment-generating tax-revenue-producing operations in the absence
of foreign investment. In other words, it appeared to be in the
Bolivian Government's interest to leave both Apogee and Apex alone.
Our assessment of the situation seemed to be validated at the end of
May when the Bolivian Government issued a draft proposal for a new
mining code. The draft mining code contained no nationalisation
provisions and, in general, seemed quite reasonable.
Due, in part, to the aforementioned draft mining proposal the stock
prices of Apogee and Apex began to rebound from their fear-related
lows. We subsequently took profits on Apex in early September when it
became apparent that a sector-wide downturn had begun, but kept Apogee
due to its attractive longer-term risk/reward ratio. We remained
concerned about political risk, but considered the risk worth taking in
light of the stock's huge upside potential.
Unfortunately, political risk has moved back to centre stage over the
past two weeks due to a violent dispute between state-employed and
independent miners at a large Bolivian tin mine. In a knee-jerk
reaction to this dispute Bolivia's president announced, last Sunday,
that "these minerals [gold, silver, tin] have to pass to the Bolivian
state under the social control of the Bolivian people. I know that's
the next urgent step we have to take". This statement and a few others
like it caused fears of asset expropriation to reach a crescendo in the
stock market on Monday, the result being that investors dumped the
shares of mining companies with substantial exposure to Bolivia.
Significantly, however, the presidential statements that poured
gasoline onto the already-simmering fears of government theft early
this week were part of an off-the-cuff speech delivered in a field to a
group of peasant farmers; they were not official policy statements.
Furthermore, the cooler/calmer vice president subsequently stated that
private investors had no need to worry.
In our opinion there are good reasons for private investors to worry,
but the situation does not appear to be any different today than it was
two weeks ago or even five months ago. Morales is a populist who will
do/say whatever he deems necessary to maintain his popularity with the
majority of voters, but he almost certainly realises that halting
foreign investment in Bolivia's mining industry would have the effect
of depressing his popularity by reducing employment and tax revenue.
The stock market abhors uncertainty and right now there is uncertainty
in droves when it comes to Bolivia's treatment of foreign mining
companies. Interestingly, though, this week's political-risk-related
declines in the shares of Bolivian silver miners hit Apogee much harder
than it hit Apex. We suspect that this is because institutions and
professional money managers dominate trading in Apex shares whereas
small-scale members of the investing public do most of the trading in
Apogee shares. The larger investors are, perhaps, less likely to make
knee-jerk buy/sell decisions in response to news and more likely to
delay taking action until they've made an objective assessment of the
facts. We therefore think it is a positive sign that Apex's stock price
has held-up well in the face of this week's news.
The bottom line is that we view APE as a strong speculative buy near
the current price of C$0.55, with "speculative" being the operative
word. The stock can be likened to a call option with an undefined
expiry date. If political risk fears subside and APE achieves what we
expect it to achieve on the resource-definition front then there is a
good chance that its stock price will rise by at least a few hundred
percent over the next 2 years. On the other hand, if, for some reason,
Morales comes to the conclusion that it is in his interest to take
actions that will jeopardise foreign investment in Bolivia's mining
industry then the stock price could drop 50%-70% below its current
level.
Bolivia's new mining code is scheduled to be issued on 31st October. If
this new code doesn't contain anything unexpectedly onerous then fears
will most likely subside for a while.
|
13th September 2006, Interim Update
(Stock Price: C$0.84)
|
APE is developing a number of silver/zinc deposits in Bolivia. Excellent drilling results were reported last Thursday (http://biz.yahoo.com/ccn/060907/200609070345931001.html?.v=1),
but due to the sector-wide downturn these results were essentially
ignored by the stock market. APE has huge potential and, we think, is a
bargain near Wednesday's closing price of C$0.84.
|
2nd August 2006, Interim Update
(Stock Price: C$0.73)
|
In
late May and mid June we added two Bolivia-based silver/zinc miners --
Apogee Minerals (TSXV: APE) and Apex Silver (AMEX: SIL) -- to the TSI
Stocks List. APE was added as a longer-term speculation (unless the
story deteriorates or the stock becomes very over-priced our holding
period is likely to be 1-3 years) whereas the much larger and more
liquid SIL was added as a shorter-term speculation (expected holding
period: 2-6 months).
We added these stocks to the List after they had been thoroughly
beaten-up due to political risk fears -- the nationalisation of
Bolivia's foreign-owned oil and gas deposits in May naturally made
investors fearful that the same fate would befall foreign-owned mining
deposits -- and a sharp decline in metal prices. However, despite the
subsequent rebound in metal prices and the political risk now appearing
to be a lot less than it did (over the past few weeks the Bolivian
Government has demonstrated a willingness to enter stabilisation
agreements with foreign miners, including SIL), APE and SIL remain near
their ultra-depressed levels of May-June. Both stocks are, we think,
suitable for new buying near current levels (around US$15.00 for SIL
and the C$0.70s for APE).
Zooming in on APE, the following chart shows that the stock has good
support at C$0.70. Buying stocks after they've pulled back to
intermediate-term support usually works well during a bull market, but
our liking of APE near the current price has little to do with its
chart and a lot to do with the underlying value of its assets. It is
one of the best two 'value plays' we know of in the world of micro-cap
silver miners, the other being Sabina Silver (TSXV: SBB). SBB has the
advantages of having its major deposit in relatively low-risk Canada
and having already defined a large silver/zinc deposit to NI 43-101
standards, while APE has the advantages of having a producing mine in
addition to its high-potential exploration-stage assets (APE's La
Solucion mine is currently producing at the rate of almost 1M
silver-equivalent ounces/year) and having about half the market
capitalisation of SBB (SBB's current market cap is C$74M and APE's is
C$37M).
|
28th June 2006, Interim Update
(Stock price: C$0.75)
|
Today
we are going to take a look at two opportunities to buy in-ground metal
and future production potential at bargain-basement levels. The first
of these opportunities is a current member of the TSI Stocks List while
the second is an addition to the List.
The first stock is Apogee Minerals (TSXV: APE). At Wednesday's closing
price of C$0.75 APE has a market capitalisation of around US$35M.
APE's market cap is very low considering that:
a) The company is well financed
b) Based on historical data and recent drilling results it is very
likely that the company's 60%-owned Pulacayo-Paca Project hosts a large
and economically viable silver-zinc deposit (a NI 43-101 resource is
scheduled to be completed later this year)
c) Apogee is a silver/zinc/lead producer as well as an explorer (the
company's 100%-owned La Solucion mine is currently producing at the
annual rate of 900K silver-equivalent ounces)
One of the reasons for APE's low valuation is the fact that its
projects are located in Bolivia, but we think the market is
over-estimating the country risk. Our thinking is that the Bolivian
Government would have nothing to gain and a lot to lose by either
expropriating development-stage mining assets or imposing onerous
financial conditions on foreign mining companies.
After experiencing a panic liquidation during the first half of May on
the back of Bolivia-related fears, APE is now into the low-volume
"aimless drifting" bottoming phase described above.
|
5th June 2006, Weekly Update
(Stock price: C$0.92)
|
The decision by Bolivia's president to nationalise the country's oil
and gas industry prompted a sell-off in the stocks of mining companies
with substantial assets in Bolivia. Investors were obviously concerned,
and rightly so, that a government that would blatantly violate the
property rights of oil companies might do the same to mining companies.
After the stocks of Bolivia-based silver mining companies had been
crushed due to the combination of political risk perceptions and a
sector-wide downturn in gold/silver, we thought the risk/reward
justified becoming bullish on some of these stocks. Our thinking was
that the probability of government expropriation of mining assets was
actually quite low whereas stock prices had been marked down to such an
extent in response to the perceived threat of expropriation that the
risk/reward had become heavily skewed in favour of reward. In the 22nd
May Weekly Update we therefore suggested taking positions in Apogee
Minerals (TSXV: APE) and Apex Silver (AMEX: SIL). At that time we
described APE (a junior silver producer/explorer) as a potential
longer-term investment and SIL (a development-stage silver/zinc miner
on its way to becoming a mid-tier producer) as a trade. Charts of these
stocks are included below.
Fortunately, some uncertainty has just been removed and the
intermediate-term political risk has abated somewhat due to last week's
release, by the Bolivian Government, of a draft proposal for a new
mining code. The proposed new mining code does not contain anything
onerous or unreasonable (refer to APE's press release at http://biz.yahoo.com/ccn/060601/200606010331044001.html?.v=1 for details).
Although the sector-wide correction in gold and silver shares probably
still has some way to go it's quite possible that the political
risk-related panic that occurred during April and May created
sustainable lows for both APE and SIL. If the silver price were to drop
to our intermediate-term downside target of around $8.50 then these
stocks might trade below their May lows, but probably not by more than
10% or so.
Near their current prices (the low-C$0.90s for APE and US$15 for SIL)
both stocks continue to have attractive risk/reward ratios.
|
22nd May 2006, Weekly Update
(Stock price: C$0.80)
|
Junior silver miner Apogee Minerals has been on our radar screen for
some time; we've just been waiting for the right opportunity to add it
to the TSI Stocks List. The recent price action has provided us with
such an opportunity.
A detailed description of the investment case for APE was written by Alf Field and posted at http://www.321gold.com/editorials/field/field042706.html near the end of April. Partly in response to this article, but mainly in response to some good drill results
announced soon after the article was published, the APE stock price
rocketed up from C$1.20 to C$1.50 on the 1st of May. However, the next
day the Bolivian President -- APE's projects are all located in Bolivia
-- nationalised the country's oil and gas industry, quite naturally
making investors in mining companies nervous that mining assets would
also be expropriated. This caused the stock prices of APE and other
companies focused on mining in Bolivia to tank. Due to these fears and
a general downturn in metal-oriented stock market plays, APE's low of
last Friday represented a 50% discount to its 1st May high.
We don't take the country risk lightly, but we are far more comfortable
buying APE now that 'every man and his dog' is fully aware of the risk
than we were prior to the recent scare. There is definitely a risk that
APE's assets will be stolen from it by the Bolivian Government, but the
risk is very low because the government would have nothing to gain and
a lot to lose by stealing projects that will require the input of
substantial foreign capital and know-how in order to get them to the
point where they are creating significant revenue and local employment.
Anyone who thinks they might be interested in adding this
exploration-stage silver stock to their portfolio should read the
afore-linked Alf Field article, although we wouldn't take his 12-month
price target of C$6.00 too seriously. If our long-term metal price
expectations are in the right ballpark then a stock price of C$6.00
would be achievable within the next 3 years, but we think C$2.00 is a
more realistic upside target as far as the coming 12 months are
concerned.
Here's a summary of the investment case as we see it:
1. Positives:
a) The management team is experienced and well respected
b) The company is well financed having recently completed a C$9M equity financing
c) Historical data and recent drilling results indicate that the
60%-owned Pulacayo-Paca Project hosts a large and economically viable
silver-zinc deposit
d) There is likely to be good news flow over the coming months as the
company reports on the results of its drilling program and works
towards completion of a NI 43-101 resource estimate and Feasibility
Study for Pulacayo-Paca
e) Apogee has recently moved to 100% ownership of the La Solucion Mine.
As a result, it is now a silver/zinc/lead producer as well as an
explorer. La Solucion is currently producing at the annual rate of 900K
silver-equivalent ounces.
f) APE's current market cap is only US$37M, which is very low given the company's stable of high-potential assets.
g) The share structure is reasonably good.
2. Negatives/Risks
a) Country risk
b) Market risk. In particular, the prices of industrial metals are likely to trend lower over the coming months.
c) There is a risk that the Pulacayo-Paca Feasibility Study will not be completed on time and/or that it will not be positive
Of these risks, we think b) is the most significant. However, this risk
can be managed by scaling into a position over several months.
|
|
