Stock Selection Update #25 - Sep-08 2004

Stock Selection Update #24 - Aug-25 2004

Stock Selection Update #23 - Aug-17 2004

Stock Selection Update #22 - Jul-13 2004

Stock Selection Update #21 - Jul-09 2004

Stock Selection Update #20 - Jun-04 2004

Stock Selection Update #19 - Jun-01 2004

Stock Selection Update #18 - May-24 2004

Stock Selection Update #17 - Apr-26 2004

Stock Selection Update #16 - Apr-16 2004

The main purpose of this e-mail is provide updates on a few of our stock selections, but before we do so we'll make a few quick comments about the markets.
 
First, gold and gold stocks are right on the edge. For example, the HUI and the HUI/gold ratio are just above their February lows, by some measures the HUI is almost as oversold as it was at previous intermediate-term bottoms, Newmont Mining has potentially just made its second higher-low since bottoming at the beginning of February, and last year's speculative favourites such as GSS and BGO are in reasonable shape from a technical perspective. What this means is that if we are going to see moves to new highs over the next 1-2 months then these moves must begin almost immediately. It also means that now would NOT be a good time to become short-term bearish. In our opinion, as long as important support levels continue to hold it is worth giving the benefit of the doubt to the bullish case. 
 
Second, the US stock market is also right on the edge. In particular, the NDX closed right at important support on Thursday and the riskier stock sectors were noticeably weak during Thursday's trading (a bearish sign). 
 
Now, onto the stock selections.
 
1. If the US stock indices are going to make marginal new highs before they embark on their next major decline -- as has been our expectation -- then the most likely time for them to do so would be during the next 2-3 weeks. We had therefore been planning to add one or more new bearish positions during this anticipated rally. However, although we continue to think the odds favour new recovery highs being reached over the next few weeks Thursday's trading has convinced us to add a second USPIX position immediately (we'll use today's closing price for record purposes). The reason is that the downside risk in the market is much greater than any short-term upside that we are likely to see. Specifically, a move to a marginal new high by the NDX would probably result in the price of USPIX falling by 20% or so, but the potential percentage gains over the next few months are several times this amount.
 
We will consider adding either a third USPIX position or some put options to the Stocks List if the market rallies over the next few weeks. 
 
As an aside (and as stressed in TSI commentaries over the past few months), the best way for most people to 'play' the risky equity-market environment is simply to have a large cash position. If you hold a lot of cash and the market tanks then the purchasing power of your cash will increase substantially, but if the market does the unexpected and continues to trend higher you won't lose anything by being in cash.
 
2. At some point over the coming 6 months we expect that the copper price will trade down to around US$1.10/pound. We will, however, leave Taseko Mines (TSXV: TKO) and Adrian Resources (TSX: ADL) in the Stocks List because a) both stocks are under-valued at their current prices ASSUMING a copper price of 1.10, and b) we expect that copper will be trading at new all-time highs (above $1.60/pound) by this time next year.
 
Zooming in on Taseko: at a copper price of US$1.10 we estimate that Taseko's Gibraltar mine would be worth around C$240M, or about C$2.40/share, once it is operating at its design capacity of around 90M pounds/year. In addition, Taseko owns the Prosperity Project, which has a resource of 2.3B pounds of copper and 6.7M ounces of gold, and as far as we can tell the market is currently assigning almost no value to this large resource. However, we suspect that this will change once Gibraltar is put into production -- currently scheduled to happen during the third quarter of this year -- and the company starts talking up its plans for Prosperity. 
 
We doubt that any metal stocks would be immune to a large decline in the broad stock market, but provided you are 'cashed up' we think it is reasonable to ride-out the swings in TKO in anticipation of MUCH higher prices over the coming 12 months. Also, those who currently have minimal exposure to the metals could consider buying some TKO at around its current level.
 
3. Metallica Resources (AMEX: MRB) announced news on Wednesday that resulted in a sharp drop in the stock price. The news related to a legal challenge to Metallica's rights to the land on which its Cerro San Pedro mine is being developed. The company's press release can be read at http://biz.yahoo.com/bw/040414/145295_1.html.
 
As far as we can tell, MRB has done everything right in terms of its dealings with local residents and authorities, but now another group consisting of "several people who do not reside on the land and obtained legal recognition as ejidatarios through their family lineage" has cropped up to contest MRB's legal rights. On the surface this legal action looks like an attempt to extort some money out of MRB and has little chance of being successful, but we don't have all the details and the news certainly does put a cloud over the stock.
 
At current metal prices we think MRB would be fully valued at around US$2.50/share and that the current price of US$1.55 more than adequately discounts the risk associated with this new development. However, we'd be inclined to take some money off the table if the stock price moved up to $1.80-$1.90 AND this legal situation had not been resolved. 
 
4. Richmont Mining (AMEX: RIC) is very cheap based on its enterprise value relative to its production/cashflow and therefore has less downside risk than most other junior gold stocks. However, due to its low resources/reserves it has failed to garner much respect from the stock market and tends to be a laggard during the gold rallies. Management is taking steps to boost reserves, but our patience has run out. We will therefore remove RIC from the TSI Stocks List if it closes at US$4.16 or lower.

Stock Selection Update #15 - Mar-12 2004

We were planning to comment on a few of the positions in the TSI Stocks List in yesterday's Interim Update, but ran out of time. Hence, this e-mail.

1. When we went on vacation in early February we suggested exiting the two bearish positions in the TSI Stocks List -- USPIX and the Dow put options -- if certain levels were hit. We want to make sure that everyone is clear, though, that this advice no longer applies. Our intention, at that time, was to provide some guidelines for exiting positions in case the market tanked while we were incommunicado; but now that we are back on board we will be able to respond to new developments as they occur. 

The stock market is facing two substantial geopolitical threats at the moment: the prospect that civil unrest in Venezuela will push the oil price above $40 and the re-emergence of terrorism. The terrorist threat has been lurking just beneath the surface for much of the past year, but the possibility that yesterday's train bombings in Madrid were the actions of Al Qaeda has brought the issue back to the forefronts of market participants' minds. 

The US stock market is getting quite oversold on a short-term basis -- for example, the McClellan Oscillator has fallen to near its lows of the past two years -- so it is reasonable to expect a rebound to commence soon. However, with terrorism now re-emerging as an IMMINENT threat we doubt that many people will be buying aggressively ahead of the weekend. In other words, a substantial rebound is probably not going to begin today. Also, being technically oversold is not something that would provide any support to the market if additional large-scale terrorist attacks did occur.

If fears continue to build then the chances will improve that we will get a climactic washout over the next 2-3 weeks followed by a strong stock market during April-May. This is what we described as the 'bullish alternative' in the latest Weekly Update, although it's certainly not going to feel bullish if the market accelerates lower over the coming weeks. The reason we refer to it as the bullish alternative is because it potentially extends the overall upward trend by a couple of months.

If you've already taken an initial bearish position in line with our previous advice and have plenty of cash then we'd sit tight right now and just watch how this plays out over the next few weeks (our thinking, at this stage, is that we will increase the size of our bearish bet during April or May). However, if you haven't yet made any speculative bets against the market but are planning to do so then you might consider buying some USPIX (or some other inverse index fund) today. 

2. A good summary of the on-going battle between IMA Explorations (TSXV: IMR) and our Aquiline Resource (TSXV: AQI) -- a battle which now looks to be headed to the courts -- can be found at: 
http://trinity.mips1.net/mgp04.nsf/Current/42256E450046276B85256E5400548ECE?OpenDocument

We are comfortable holding AQI at its current price, particularly since there should be consistent and positive news-flow relating to its Calcatreu project over the next few months. 

3. Further to our note in recent commentaries, we have added Corvis Corp. (NASDAQ: CORV) to the Stocks List at US$1.82. CORV has just made what appears to be a smart acquisition of another telecom service provider and would most likely have traded significantly higher on the back of this news if not for the weakness in the overall market. By the way, although we traded in and out of CORV for a quick profit earlier this year the current purchase is NOT intended to be a short-term trade.

4. Lynx Therapeutics (NASDAQ: LYNX) dropped sharply during Wednesday's trading session, perhaps as a result of selling by participants in the equity financing that was finalised on that day (http://biz.yahoo.com/prnews/040310/law035_1.html). We think LYNX's risk/reward is attractive with the stock in the low $5 area. 

5. Patricia Mining (TSXV: PAT) continues to trade like a brick. We weren't concerned when the stock price dropped back to the 0.55-0.60 range as this would have represented a normal pullback to support by this micro-cap gold stock, but the higher-volume drop from the mid 50s down to the mid 40s is more troublesome. The drop could indicate that the company is encountering problems in its drilling or it might just be the result of a large holder of stock trying to reduce their position for reasons that have nothing to do with the performance of the company (as was the case late last year when the Prudent Bear Fund decided to reduce its stake in Canarc for non-performance-related reasons). The recent weakness might also stem from the freeing-up for sale, in mid January, of the 7M shares issued at 40c/share last year as part of an equity financing.

If you have a small position in PAT -- we don't think it's wise to have anything other than a small position in any micro-cap stock -- then we suggest you continue to hold because any problems the company might have are probably already factored into the stock price. For example, at the current stock price PAT's 1.6M ounce inferred gold resource is being valued by the market at about US$2.80/ounce, which is, to put it mildly, rather cheap. However, we'd wait to see the next set of drill results before considering a new position in the stock or adding to an existing position.

6. We have no plans to add it to the Stocks List, but one stock that looks particularly interesting from both fundamental and technical perspectives right now is Bema Gold (AMEX: BGO). If you currently don't have much exposure to the gold sector then you might consider buying some BGO at US$3.50 or lower. 

7. Of the gold stocks that are presently in the TSI List the ones that look especially good at this time, taking into account fundamentals and technicals, are NovaGold Resources (NG), Metallica Resources (MRB), and Cumberland Resources (CLG). 

Stock Selection Update #14 - Feb-16 2004

We are going to make a few changes to the TSI Stocks List.

First, it is now an appropriate time to take some profits in Western Silver (TSX: WTC). The stock is not expensive at its current level, but a lot of its short- and intermediate-term upside potential has been removed via the recent run-up in its price. Also, the stock looks very extended from a technical perspective (the current price is about 75% above its 200-day moving average). We are therefore going to exit 50% of the position in this stock for a profit of around 230%.

Second, we are going to exit Bendigo Mining (ASX: BDG) for a loss of about 33%. BDG is very under-valued, but the stock has been a dog over the past year and we've run out of patience. The downside risk in BDG appears to be minimal and, in fact, the stock did not drop during the December-January correction in the gold sector. However, we think there is more upside potential elsewhere (see below). 

Third, we are going to add Australian junior Batavia Mining (ASX: BTV) to the Stocks List at today's closing price of AUD0.12. We've mentioned BTV a couple of times in the past at TSI, but haven't formally added it to the List until now.

BTV has just pulled back to a level where it has relatively low risk (as far as junior gold stocks go) and excellent upside potential. In particular, the company has recently upgraded its high-grade gold resource to 300K ounces and is likely to announce further increases over the next few months. And most importantly, it has just commenced a feasibility study at its Gullewa project in Western Australia which should be complete by April and, assuming a positive outcome, set the stage for production to commence during the final quarter of this year at the rate of 60K ounces per year. Note that mining infrastructure is already in place.

Refer to http://www.bataviamining.com.au/ for more info on the Gullewa Project.

Given that BTV's market cap is only about A$17M (US$13M), we think the stock offers very good value at its current price of 12c. The short-term downside risk appears to be about 1-2c while a stock price of 20c looks probable within 12 months.

By the way, although it is possible to trade the low-priced Australian stocks via US-based brokers, the buy/sell spreads are usually prohibitive. Therefore, the BTV recommendation is best suited for our subscribers who have accounts with Australian-based brokers.

Fourth, we are going to add junior silver mining company First Majestic Resource (TSXV: FR) to the Stocks List at Friday's closing price of C$1.42. FR has about 16M shares outstanding on a fully diluted basis and therefore currently has a market cap of C$23M.

FR owns the Niko-Estrella silver project in Mexico, a project with excellent exploration potential. What draws us to FR, though, is the fact that it is currently in the process of purchasing the La Parrilla silver mine in Mexico for US$3M (the transaction is scheduled to be completed on 26 Feb). Within 3-4 months of completing the purchase of La Parrilla the company expects the mine to be producing at the rate of 500 tonnes per day at 300g/t silver, 1.5% lead and 1.5% zinc. At current metals prices the mine would therefore generate revenue of around US$10M/year.

Something else to like about FR is that its management is led by Keith Neumeyer, the founder and president of copper producer First Quantum Resource. First Quantum has been a big success from both an operational and an investment perspective. 

Incremental increases in buying or selling can result in large price swings in these micro-cap gold/silver stocks so you should be careful when trading them. In particular, never place market orders and don't chase the stocks. In FR's case, we wouldn't pay more than C$1.50.

The Canadian stocks can be traded via many US brokers, but two that provide a particularly good service in this regard are Barry Murphy & Co. and Pennaluna. Refer to the below extract from the 20th August 2003 Interim Update for further info.

Best wishes,
Steve Saville

"We often get asked to recommend US-based brokers that can be used for the trading of stocks on the Canadian exchanges. One broker that we've mentioned in the past that appears to offer a reasonable service in this regard is Pennaluna and Company (www.penntrade.com). The only problem we know of with Pennaluna is that it is not registered in all states and is therefore not available to all of our US-based subscribers. 

Another is Barry Murphy and Co. (www.barrymurphy.com), a company based in Boston and registered in all 50 states. We've recently had a couple of discussions with Mr Barry Murphy Jr., the owner of the company, and believe that this company will be able to provide a good solution for non-Canadians (including people in countries other than the US) wanting to trade the junior gold/silver stocks (or any other stocks) on the Canadian stock exchanges. Barry Murphy and Co. can offer a flat rate of US$29.95 for each trade on a Canadian exchange, regardless of the number of shares traded or the price of the shares. Please contact Mr Damian Gates at Barry Murphy and Co. on 1800 2212111 or 617 4261770 for further details. Note that to get the above-mentioned flat rate you MUST identify yourself as a Speculative-Investor subscriber. Please also note that we receive no commissions or any other form of payment from any stockbrokers." 

Stock Selection Update #13 - Jan-14 2004

We continue to emphasise the short-term downside risk in the gold sector, but none of the junior gold/silver stocks in the TSI Stocks List appear to be over-priced. In fact, they all appear to be under-valued based on current metal prices. And the same, by the way, goes for the non-gold commodity stocks. It is therefore unlikely that we will make any specific sell recommendations, as far as our junior stock selections are concerned, unless there is an adverse change in the fundamentals of any company on the List or unless the price of a stock runs up to an attractive 'sell level' (based on technicals or fundamentals). For example, we have suggested taking profits in American Bonanza, Desert Sun Mining, Northern Orion and Red Back Mining at various times during the past 2 months following the achievement of our technically-based targets for these stocks. We would also take action to reduce the number of 'metal plays' in the TSI Stocks List if there was a negative change in our longer-term outlook for the metals.

In other words, if you are planning to do some selling in response to our warnings of heightened short-term downside risk then please don't wait for specific sell recommendations from us. We have laid out the case for a continuation of corrective activity amongst the gold and silver stocks and have also said that we expect the upward trend in the precious-metals sector to extend for at least another 4-5 months. What this means is that there is, in our opinion, a reasonable chance of a sharp pullback over the next few weeks followed by a move to new highs thereafter. The prospect of a near-term pullback would probably be irrelevant to a longer-term investor with moderate exposure to the gold sector, but it might be of concern to a short-term trader or someone with large exposure to the sector.

We are going to make two changes to the TSI Stocks List at this time.

First, in the latest Weekly Update we said we would take profits on North American Palladium (AMEX: PAL) if it moved up to around US$9.00. The stock closed at $9.20 on Tuesday so we will remove it from the List and record a sale at $9.00. The profit on the trade was 108%.

Second, we are going to take a small loss (around 9%) on the Kinross Gold warrants. Once we see some evidence that the correction in the gold sector is ending we will probably add some Kinross Gold call options to the Stocks List because this stock appears to have a lot more upside potential than any of the other major NA gold stocks. 

By the way, the XAU and several of the gold stocks we follow ended at support levels on Tuesday so if there was going to be a bounce in the golds then now would be a likely time for it to occur.

Stock Selection Update #12 - Nov-19 2003

*When the gold price dropped sharply on Monday it bounced from the vicinity of its 18-day moving average and held above the $390 support level on a closing basis. Furthermore, gold stocks (represented by the HUI) fell by a similar percentage amount as the gold price. These factors suggested that Monday's drop was simply a shakeout within an on-going upward trend. 

During Tuesday's gold-price rebound the HUI was considerably stronger than gold, suggesting that higher levels lie ahead for both gold and gold stocks.

With the upward trend in the gold sector very much intact we aren't enthusiastic sellers, but anyone with large exposure to the sector should take advantage of buying spikes in individual stocks to either reduce their exposure or to shift money to other gold (or silver) stocks that have greater upside potential. To reflect such an approach we are going to take profits on HALF of our position in Desert Sun Mining (TSX: DSM).

DSM's price has gained 347% since we added it to the Stocks List about 12 months ago. This, however, is not a good reason to take any profits as it is the likely FUTURE price action, not the historical price action, that should determine whether we buy, sell or hold. We like the prospects for Desert Sun the company and its stock price. In particular, we like the fact that the company has positioned itself to move rapidly towards production over the next 1-2 years. In fact, this is why we are going to retain 50% of our DSM position.

The reasons we are taking some profits in DSM are that a) the stock has reached our short-term target, and b) some other junior gold stocks (see below for details) look more attractive at current prices.

For those with light exposure to the gold sector and for those who have taken profits on existing positions and are looking for places to re-invest some of these profits, the following gold/silver stocks look particularly attractive near their current prices from both valuation and technical perspectives:

Canarc (TSX: CCM) at around C$1.00, Aquiline (TSXV: AQI) at around C$0.90, Exeter (TSXV: XRC) at around C$1.00, NovaGold (TSX: NRI) below C$6.00, NovaGold warrants (TSX: NRI.WT) at around C$2.30, Patricia Mining (TSXV: PAT) below C$0.80, Cardero Resource (TSXV: CDU) below C$2.50, Admiral Bay (TSXV: ADB) below C$1.40, Northgate Exploration (TSX: NGX, AMEX: NXG) at around C$2.60, Red Back Mining (ASX: RBK) in the A$0.50-A$0.55 range, and Batavia Mining (ASX: BTV) at A$0.12 or lower (note that BTV is currently not in the TSI Stocks List). 

*We plan to exit copper/gold company Northern Orion (TSX: NNO) if it trades up to C$3.40. We think NNO has a bright future, but will exit at $3.40 if given the opportunity because at this level the stock would have almost reached the short-term target mentioned in the 13th October Weekly Update and because we have substantial exposure to the copper price elsewhere in the Stocks List via Adrian Resources (TSX: ADL) and Taseko Mines (TSXV: TKO). 

*One of our bearish early warning indicators for the US stock market has been triggered and a few more will be triggered today unless the market rebounds.

*The scandals continue: http://biz.yahoo.com/rb/031118/financial_forex_arrests_5.html

Stock Selection Update #11 - Nov-14 2003

In the Stock Selection Update e-mail sent to subscribers yesterday we recommended the shares of Exeter Resource (TSXV: XRC), a micro-cap gold exploration company with excellent prospects. We also said, "Be aware that XRC is a thinly traded stock and therefore vulnerable to large daily moves in both directions. We would consider XRC to be a buy from the current level up to around C$0.90, but suggest that you do not pay more than 0.90 for the stock at this time. In other words, please do not chase the stock." Despite these cautionary words XRC traded as high as C$1.25 on Thursday before closing at C$1.09.

Those who bought shares of XRC near yesterday's highs should still end up doing quite well because even at a price of 1.25 the stock appears to be good value. However, if you chase these small stocks in the immediate aftermath of a buy recommendation from any newsletter writer you are taking an unnecessary risk because the initial flurry is usually followed by a sizeable pullback. For example, when we added Adrian Resources to the List a few weeks ago the stock quickly jumped from C$0.35 to C$0.50. It then pulled back to around C$0.40 before resuming its ascent. 

If you sit back and wait for a pullback then you obviously run the risk that you will not be able to take a position in the stock, but that's OK because it is still not difficult to find interesting opportunities amongst the junior resource stocks. In other words, if you miss one opportunity there will be others.

The large price moves that have tended to occur on the back of our recommendations over the past few months are, by the way, related more to the state of the market than to an increase in the size of our subscriber base. For example, when we first recommended the purchase of Aquiline at C$0.26 back in April there was no noticeable reaction in the stock price even though Aquiline, at the time, was a relatively unknown company with a market cap of only US$3M. In fact, it wasn't until around July of this year that our recommendations began to have a significant effect on stock prices. Our subscriber base has grown since that time, but the main difference is that the general level of speculation in the market has ramped up considerably over the past few months. This, of course, indicates a heightened level of risk, but one thing we shouldn't lose sight of is that the speculative enthusiasm for gold and non-gold resource stocks has, to date, infected only a small portion of the total pool of stock market participants. We think it is fair to say that 'the public' remains blissfully unaware of the bull markets that are underway in gold stocks and industrial-metal stocks.

In the TSI Stocks List we currently have exposure to copper via Northern Orion (TSX: NNO), Adrian Resources (TSX: ADL), and, to a lesser extent because 70% of its production is gold, Northgate Exploration (TSX: NGX, AMEX: NXG). Today we are going to increase our exposure to copper by adding a small company that offers enormous leverage to the copper price. The company is Taseko Mines (TSXV: TKO).

TKO is part of the Hunter Dickinson (HDI) group of companies (http://www.hdgold.com/hdi/Home.asp) and will benefit from HDI's proven ability to manage and promote junior mining companies. It has a fully diluted share count of 85M, giving it a market cap of C$88M based on yesterday's closing share price of C$1.04.

TKO owns the following 3 projects in British Columbia, Canada:

1. The Gibraltar project (http://www.tasekomines.com/tko/GibraltarMine.asp).

The Gibraltar mine was placed on 'care and maintenance' about 4 years ago due to the low copper price, but prior to that was producing copper at the annual rate of around 75M pounds. Gibraltar has a measured and indicated resource of 4.7B pounds of copper and there is excellent potential to expand this resource.

2. The Prosperity project, which contains 2.3B pounds of copper and 6.7M ounces of gold and has the potential to be developed into a mine producing 115M pounds of copper and 265K ounces of gold per year.

3. The Harmony project, which contains 3M ounces of gold.

The total resource controlled by TKO is, at today's metal prices, equivalent to around 26M ounces of gold. It is therefore not difficult to imagine that the Taseko stock price will perform well if, as we expect, commodity prices continue to trend higher.

Stock Selection Update #10 - Nov-13 2003

*American Bonanza (TSXV: BZA) announced some more drill results earlier this week which confirmed the very high-grade nature of its Copperstone project. At Wednesday's closing price of C$0.455 the stock is, however, quite expensive relative to the other junior gold stocks in the TSI Stocks List and relative to other opportunities available in the market (including the two stocks mentioned below). BZA deserves to sell at a premium due to the nature of its resource, but the high relative valuation means less leverage to the gold price. Also, during Wednesday's session BZA moved well into the 0.45-0.50 target range previously mentioned at TSI. We are therefore going to exit BZA now for a profit of around 150%.

*We are going to add Exeter Resource (TSXV: XRC), a small junior explorer with a market cap of only C$7.5M, to the Stocks List at yesterday's closing price of C$0.76. 

XRC looks similar, today, to the way Aquiline Resource (AQI) looked when we first recommended it back in April in that it's a small, relatively unknown company with a 720K ounce inferred gold resource located in Argentina and a good/highly-focused management team. It also looks reasonable from a technical perspective.

Be aware that XRC is a thinly traded stock and therefore vulnerable to large daily moves in both directions. We would consider XRC to be a buy from the current level up to around C$0.90, but suggest that you do not pay more than 0.90 for the stock at this time. In other words, please do not chase the stock. 

We'll provide some more information about XRC in Sunday's Weekly Market Update.

*We are also going to add Canarc Resource (TSX: CCM, OTC: CRCUF) to the Stocks List. CCM spiked up to around C$1.30 at the end of last month on the back of some good drill results, but has since pulled back to support at around C$1.00.

With a market cap of C$56M at yesterday's closing price of C$1.00 CCM is a much larger company than XRC. It has a 1.3M ounce high-grade gold resource at its New Polaris project in Canada, but our main interest in the company stems from its Benzdorp porphyry gold project in Suriname. Drill results announced over the past few months indicate the potential for a gold resource of several million ounces at Benzdorp that could be mined very profitably at the current gold price. Substantial exploration will be required over the next two years in order to 'prove-up' the resource, but if future drill results continue to confirm the potential indicated by recent results then the Canarc stock price will move considerably higher.

Stock Selection Update (not numbered - part of Interim Update e-mail) - Oct-30 2003

We are going to add another junior commodity stock to the TSI Stocks List. The company is International Barytex Resources (TSXV: IBX), a company with an option to earn a 75% stake in a large tin-zinc project in Yunnan Province, China. A write-up on IBX will be included in Sunday's Weekly Market Update, but in summary we are adding the company because it is very under-valued relative to the amount of metal it controls and due to the track record of its management.

As is the case with many of the junior commodity stocks IBX has already made substantial gains and is therefore likely to experience a lengthy consolidation at some point. However, the consolidation might occur at a much higher level. In any case, bear in mind that these juniors are apt to make very large moves in BOTH directions in response to incremental buying or selling and are therefore not for everyone. 

We will add IBX at yesterday's closing price of C$1.59, a price at which it has a market cap of around C$30M. 

Stock Selection Update #9 - Oct-15 2003

We've recently spent some time discussing the industrial metals, but we want to emphasise that our primary focus at this stage remains on the gold sector. In particular, everything that has happened over the past 2 weeks, including this week's new recovery high in the broad stock market, confirms our view that the recent drop in the AMEX Gold BUGS Index (HUI) is simply a pullback within a continuing upward trend. If history repeats itself, or even if it just rhymes, there will be considerable strength in the gold stocks during the few weeks immediately following a peak in the Dow Industrials Index. 

Before describing our latest addition to the Stocks List it's worth mentioning that the Dollar Index made a pronounced downward reversal on Wednesday with the euro making an even more pronounced upward reversal. This probably means that the Dollar's recent counter-trend bounce has just ended and that a move to new lows is underway. 

Up until now the stock market has not interpreted dollar weakness as a major negative, but we suspect that this will change shortly after the dollar moves decisively below its recent lows. An upside blow-off in the stock market over the next few weeks, with gold and commodity stocks leading the way, would not be surprising. However, if the US$ continues lower and especially if dollar weakness is accompanied by falling bond prices (up until now bonds have tended to move higher during periods of dollar weakness) then a very steep decline in the stock market would likely be the result. As we've stressed in the past, all stocks (including gold stocks) would get hit hard during such a decline. 

In summary; stock prices are probably headed higher before they move substantially lower, with gold and commodity stocks being amongst the best performers. However, the level of risk is high and will move even higher if/when the US$ breaks to a new low.

Now, on to the main purpose of this e-mail.

Adrian Resources (TSX: ADL) jumped by 40% yesterday following our recommendation. This sort of price action is unfortunate because it substantially increases the risk of buying, but there's nothing we can do about it if we want to bring junior resource stocks to your attention. We usually like to recommend stocks while they are consolidating because this allows anyone who wants to buy them to 'get set' at close to the price the stock is trading at when we mention it. However, the junior resource sector is hot right now and it is difficult to find interesting stocks that are in consolidation mode. In most cases, the stocks with the best prospects are already on the move and this means that additional buying in response to our recommendation is likely to have an outsized effect.

Further to the above, please keep three things in mind. First, the more you pay for a stock the more risk you are taking. Second, there will always be other opportunities so if one stock runs away from your bid you can always just sit back and wait for the next opportunity. Third, there's no law that says you have to buy all of your position in a stock at the one time. You can always just take an initial position at what might prove to be a less-than-optimum time to buy with the aim of adding to your position if the stock pulls back. This way, at least you have some exposure if the stock price continues to advance but won't have anything to fear from a sharp pullback.

In the case of ADL the stock price might continue to run higher given the underlying value and the fact that the company is not yet widely followed, but a more likely outcome is that a pullback will occur in the near future.

The next company to be added to the List is a play on silver, gold, and natural gas. The company is Admiral Bay Resources (TSXV: ADB, http://www.admiralbay.com). 

ADB has two interesting projects. First, it has the right to earn a 70% interest in the Monte del Favor silver/gold project in Mexico. This project has an inferred resource of 122M ounces of silver and 460K ounces of gold (about 2M gold-equivalent ounces). Second, it owns the potentially-large Moose River Basin CoalBed Methane (CBM) project in Canada (more than 10% of the gas produced in the US comes from CBM deposits). 

At yesterday's closing price of C$1.12 the market cap of Admiral Bay was around C$18M, a low value considering the potential of EITHER of the above-mentioned projects. ADB also has the advantage of having a price chart that hasn't yet gone vertical.

We plan to add at least two more industrial metal stocks to the List over the next week or so, but at this stage the stocks are too extended and we'd rather wait for a pullback before mentioning them.

Stock Selection Update #8 - Oct-14 2003

This week we are going to add some non-gold junior resource stocks to the TSI List, one today via this e-mail and at least two more tomorrow via another e-mail. Each of the stocks we are going to add has already experienced a large percentage gain over the past few months. This, in turn, creates the possibility that there will be sharp down-moves in the future due to the profit-taking of those who bought at much lower levels. However, the stocks have come off such depressed levels that they still represent excellent value and have the potential to move considerably higher if the overall stock market holds up for a few more months. As such, if you can tolerate the huge volatility in these speculative issues we think a reasonable approach would be to take an initial position now at somewhere near the current market price with the aim of buying more during a future pullback/consolidation.

Each of the stocks we are going to suggest trades in Canada. They also trade OTC (over the counter) in the US. We strongly suggest that you open an account with a brokerage firm via which you can buy/sell these stocks on the Canadian exchange (we've previously suggested brokers in the US that can provide this service). This is because if you choose to trade these illiquid stocks on one of the OTC markets in the US you will probably end up paying a few percent more when you buy and receiving a few percent less when you sell. You might also have trouble getting your orders filled at all. Also, regardless of where you trade these stocks you should never place "at the market" orders. Always specify a limit.

Adrian Resources (TSX: ADL, OTC: ADRRF) currently owns 52% of the Petaquilla copper/gold project in Panama and has an agreement with Teck to the effect that Teck will receive half of ADL's stake by funding the project through to production. A feasibility study completed in 1998 confirmed that Petaquilla has a mineable reserve of 9.4B pounds of copper and 1.37M ounces of gold. And the project's net present value was conservatively calculated to be US$335M based on a copper price of US$1.10/pound and a gold price of US$375/ounce. Therefore, if the copper price makes a sustainable move to $1.10 and Teck exercises its right to obtain half of ADL's stake then ADL would own 26% of a US$335M project. With a fully diluted share count of 71M (including the shares to be issued in November as part of a recent financing) this puts a value of about C$1.60/share on ADL. That is, ADL would be worth around C$1.60 per share assuming a sustainable 25% rise in the copper price from its current level. ADL closed at C$0.35 last Friday, so there is obviously scope for substantial further gains if the copper price continues to rise. We will add ADL to the Stocks List at C$0.35.

Note that the above-mentioned figures for the Petaquilla project are conservative. The total estimated resources at Petaquilla are 31.8B pounds copper and 9.8M ounces gold.

Stock Selection Update #7 - Oct-03 2003

*We've described NovaGold (TSX: NRI) in the past as one of the few junior gold stocks that could be classed as investment-grade. The company has great management, great assets and a very strong balance sheet. Furthermore (and this is what makes it a good investment), these attributes are being seriously under-valued by the stock market. We therefore think that NRI is a reasonable stock for investors with a 6-12 month time horizon to accumulate during the periodic corrections in the gold sector. 

For the more adventurous types, it is now possible to gain leveraged exposure to NRI via the NRI warrants that began trading on the TSX this week under the symbol NRI.WT. Each warrant is an option to purchase a NovaGold share at C$7.00 at any time over the next 5 years.

The warrants were issued as part of NRI's recent private placement and closed at C$1.15 on Thursday, a price at which they represent exceptional value. Even though NRI is already in the TSI Stocks List we are going to immediately add NRI.WT to the List. 

*In an article at theminingweb.com yesterday (http://www.mips1.net/MGGold.nsf/Current/4225685F0043D1B242256DB2004E8CA2?OpenDocument) a Durban Deep (DRD) spokesman ruled out a bid by his company for Emperor Mines (ASX: EMP). DRD has built up a 20% stake in EMP, the maximum allowable before a takeover offer must be made, and it obviously wouldn't have done this unless it was planning to buy the whole company. However, if we take the DRD spokesman at his word then a takeover bid for EMP is not imminent.

EMP offers extremely good value, but without the takeover 'kicker' the stock wouldn't have interested us enough to become a formal addition to the Stocks List. Therefore, since a near-term takeover no longer appears to be a high probability we will remove the stock from the List now for a gain of about 20%. Australian gold stocks that we prefer over EMP at this time include BDG (at the current price of around A$0.25), CTO (on a pullback to A$0.25), RBK (at A$0.50-0.54), and BTV (at A$0.10-A$0.12). BTV (Batavia Mining) is a small exploration play that is not part of the TSI Stocks List, but looks interesting based on drill results and the fact that it has mining infra-structure already in place (providing a fast track to production once additional resources have been proved-up). Those who are interested can read about Batavia at http://www.bataviamining.com.au/.

Stock Selection Update #6 - Sep-23 2003

*Our view is that anyone with a large exposure to gold stocks should have already begun scaling out into strength over the past few weeks and should be planning to continue this 'scaling out' process into strength over the coming 1-3 months. One way to accomplish this is to take some profits on stocks when they spike beyond fair value and to then apply a portion of the proceeds to stocks with greater upside potential and lower downside risk. We are also aware that some of our newer subscribers might not already have a large exposure to gold stocks. As such, although our goal is to GRADUALLY lessen exposure to the gold sector over the coming months we will continue to highlight new buying opportunities in gold stocks for as long as we see upside potential in the sector. At the current time the market is obviously much closer to an intermediate-term top than a bottom, but we expect further upside (primarily in the junior gold/silver stocks) over the next few months. 

*In line with our goal to reduce our exposure to the gold sector into strength we are now going to exit the position in the Resolute Mining options (ASX: RSGO). These options have more than doubled since we added them to the Stocks List in January and have more than tripled since we highlighted them as under-valued in the 4th August Weekly Update. They are currently trading at around A$0.50.

*In the 10th September Interim Update we provided some indicative short-term target levels for several of our gold/silver stock selections. If you have a large exposure you might consider taking some profits on the stocks as they approach these targets.

*We created some confusion on Monday by sending out 2 versions of Stock Selection Update #5, which we apologise for. Below is a copy of the correct version. The incorrect version left out the description of ITXC, a high risk and potentially high reward speculation (ITXC was trading at $3.25 shortly after our e-mail was sent on Monday).

*CRESY spiked higher following our buy recommendation in yesterday's e-mail and might pullback. Note, though, that it has now broken out of a consolidation pattern. If you follow our 'scale in' approach then the price and timing of your initial investment in a stock is not as critical as it is if you buy 100% of a position at the one time. We think it is still appropriate to take an initial position in CRESY near the current level.

Best wishes,
Steve Saville

COPY OF STOCK SELECTION UPDATE #5 (SENT MONDAY MORNING):

*We are going to add Argentine agriculture company Cresud (NASDAQ: CRESY) to the Stocks List at its current price of US$8.65. Cresud's main products are cattle and grains (soybean, corn, wheat and sunflower). The company owns 440,000 hectares of land in Argentina and 80,000 head of cattle. 

CRESY is currently trading at around 14-times earnings and 2.5-times net asset value. This is not cheap, but there aren't many ways for stock market investors to gain exposure to commodities such as soybeans, corn and cattle, so as the commodities' bull market develops the NASDAQ-traded Cresud is likely to attract considerable attention.

Our suggestion is to take an initial position now and buy more if it drops back to around $8.00.

*With a 20% market share, ITXC Corp. (NASDAQ: ITXC) is the world's leading provider of voice of internet (VoIP). It is also one of the world's fastest growing technology companies.

ITXC appeals to us as an investment for two main reasons. 

First, at a time when some tech companies with almost no business have huge market capitalisations thanks to the speculative mania in the stock market, ITXC is a company with a small market cap compared to the size of its business. In fact, at the current stock price of $3.40 ITXC's enterprise value (market capitalisation + net debt) is barely more than one quarter of its annual sales. 

Second, ITXC has appointed Morgan Stanley to assist it in the pursuit of strategic transactions. In other words, the company is up for sale.

Like many tech/telecom companies ITXC is losing money. It does, however, have a healthy-enough balance sheet ($61M of cash and only $3M of debt) to survive for at least another year if the business environment fails to improve and/or it is not taken over.

We will add ITXC to the Stocks List at the current price of $3.40. Be aware, though, that this is a very volatile stock that has the potential to gain 50%-100% or lose 30% in quick time, so don't buy it if you can't tolerate the volatility.

*Although it has moved up a lot since it was first added to the Stocks List, we continue to like the risk/reward of Aquiline Resources (TSXV: AQI) at around the current price of C$0.90. The company is going to announce the revised resource estimate on its Calcatreu gold project within the next few weeks and based on drilling results announced over the past few months the new resource figure will be significantly higher than the previously estimated 500K ounces. 

*The biggest risk with most stocks at the present time, including gold and commodity stocks, is general market risk. Sentiment is extremely optimistic, as evidenced by the fact that the TSI Index of Bullish Sentiment (http://www.speculative-investor.com/TIBS.htm) just hit its highest level since January of 2000. As we've noted in recent commentaries, the final peak for the rally in the overall market probably still lies ahead of us but things are most likely going to fall apart very quickly once the price trend turns south. 

*Today might be a good time to take a little more money off the table as far as the gold stocks are concerned. Don't do anything aggressive, just lock-in a few profits.

Stock Selection Update #4 - Sep-08 2003

When we added Wheaton River Minerals (AMEX: WHT) to the Stocks List in March very few people were bullish on the stock. Even as recently as May, when we added the Wheaton River warrants (TSX: WRM.WT) to the Stocks List, there was very little interest in the 'Wheaton story'. However, although almost nothing has changed with the company over the past few months from a fundamental perspective it now seems to be everyone's favourite mid-cap gold stock. The sudden surge in its popularity and price has, in turn, substantially worsened the stock's risk/reward ratio. 

We think the downside risk in the stock now outweighs the upside potential and we are therefore going to exit both the stock and warrants for profits of around 170% and 150% respectively (based on current prices of around US$1.98 and C$1.30 for WHT and WRM.WT).

Some of the profits from the Wheaton trades could be applied to the purchase of the below-mentioned stocks as well as to the purchase of Northgate Exploration (AMEX: NXG). However, we emphasise that we are in 'scale out' mode now with gold stocks. This means that although we might switch from some over-extended stocks into some with better risk/reward ratios, the net effect of portfolio changes at this time should be to REDUCE overall exposure to the market, that is, to increase cash reserves.

*From the 11th August Weekly Update: "Afrikander Lease (JSE: AFL, OTC: AFKDY) is a junior South African gold producer that is expected to grow very quickly over the next few years (from 70,000 ounces of production this year to annual production of 300,000 ounces in 2006). Like all South African mining companies AFL is going to struggle if the Rand continues to strengthen, but if the Rand started to weaken then AFL would be a reasonable stock to own due to its strong growth profile."

Afrikander Lease scores well in our valuation comparisons of junior gold stocks and also looks good from a technical perspective. There is risk that the Rand could strengthen further from here, but as mentioned in the latest Weekly Update there are some signs that Rand weakness is more likely than Rand strength over the next several months. We are therefore going to add Afrikander Lease to the TSI Stocks List at its current price of US$0.84 to provide us with some exposure to a further re-vitalisation of the SA gold sector over the coming months.

Note: One problem with Afrikander is that it trades on the "Pink Sheets" in the US (http://www.pinksheets.com/quote/quote.jsp?symbol=afkdy), a relatively inefficient market that typically has wide buy-sell spreads. 

*Patricia Mining (TSXV: PAT) came to our attention in mid July when it did a deal with Richmont Mines (AMEX: RIC). Under the terms of this deal RIC has agreed to pay C$1M to PAT in exchange for 2M PAT shares and an option to take a 55% stake in PAT's Island Gold Project by spending C$10M on the project or by bringing the project to production. Below is a description of the Island gold project from PAT's web site.

"Patricia's Island Gold Project, located 125 km southeast of  Hemlo, Ontario, has a modern fully permitted, 650 tonne per day mill and related mining infrastructure on the site, with access ramps to several zones of mineralization. A resource calculation by Patricia has outlined a significant high-grade Inferred Resource of 2,034,000 tonnes at 8.3 g/t (0.24 opt) at a 5 g/t cut-off for a total of 544,000 ounces of gold. This is part of the larger bulk tonnage Inferred Resource of 20.6 million tonnes, grading 2.35 g/t (0.07 oz/ton) gold for a total of 1,559,000 ounces of gold contained at a cut-off grade of 0.75g/t gold."

PAT is presently in the process of arranging financing via a private placement that is likely to result in the addition of about 7M shares on a fully diluted basis, giving it a total share count of about 23M. 

Assuming that RIC moves to 55% ownership of the Island project, investors at PAT's current price of around C$0.42/share are paying about US$10/ounce for PAT's remaining 45% ownership of the existing inferred resource base. This is low considering the high-grade nature of the deposit and the fact that mining infra-structure is already in place. It is also a 'plus' that cash-rich RIC likes the project and is probably going to be providing most of the financial backing needed to bring the project into production. On the negative side of the ledger, the current financing could keep the stock under pressure in the short-term. We therefore think that PAT is a reasonable SMALL speculation in the C$0.40-C$0.45 range. Be aware, though, that this is a very illiquid stock and, in our opinion, should only be bought within the aforementioned price range or within a few cents of that range.

Stock Selection Update #3 - Sep-05 2003

In the Stock Selection Update that was e-mailed to subscribers on 12th August we suggested buying the Northern Orion warrants (TSX: NNO.WT) which were, at the time, trading at around C$0.45. When we checked a few minutes ago they were trading at C$0.79, so they've gained almost 80% in 3 weeks. If you own both the NNO warrants and the NNO stock we suggest that you pocket the gain on the warrants now and continue to hold the stock. If you own only the warrants then it might be appropriate to sell half your position now. If you own only the stock then we suggest that you continue to hold because we expect it to trade much higher over the coming 6 months.

We expect to be scaling down to a 'core position' in gold stocks over the next several months. The stocks that comprise this core position are not yet known because the selection process will depend, in part, on future price levels. However, based on what we know now the most likely components of this core position are Cumberland Resources, Western Silver, Desert Sun Mining, Metallic Ventures, Aquiline Resources and NovaGold Resources. These stocks don't necessarily have the greatest short-term upside potential but are the most interesting from a longer-term perspective based on their managements, growth profiles and valuations.

If a stock is considered to be a core holding we will retain some exposure to it but will still take partial profits if a good opportunity to do so presents itself. In fact, we are going to take advantage of the recent sharp upward spike in the stock price of Metallic Ventures (TSX: MVG) and exit HALF our position in that stock now (when we last checked MVG was trading at C$5.60). 

NovaGold (TSX: NRI) has pulled back to support and is suitable for new buying at around its current price of C$4.60.

Stock Selection Update #2 - correction, Aug-13 2003

Please note that there was a rather large error in the e-mail we sent out yesterday (Tuesday). In the e-mail we said that the Kinross warrants (TSX: K.WT) have an exercise price of C$15.00, meaning that one warrant could be converted into a Kinross share via the payment of C$15.00 at some time prior to the expiry date (December 2007). In actual fact, THREE of the warrants plus a payment of C$15.00 would be needed to purchase one share. This means that the K warrants offer substantially LESS leverage than we originally thought and that rather than being under-valued they are fairly priced at their current level of around C$1.20. Given our expectations for the gold price and the Kinross stock price over the next several months we will, however, retain the warrants. Sorry for the mix-up!

Some other quick thoughts:

a) If you are lightly loaded with our favourite juniors make sure you take advantage of whatever short-term weakness the market provides in order to build positions. For example, Aquiline Resources (TSXV: AQI) traded as low as C$0.56 on Tuesday. We doubt that you are going to get the opportunity to buy this stock at a much lower level than this.

b) For reasons that we'll discuss in tomorrow's Interim Update, Tuesday's statement by the Fed was bullish for gold and bearish for the US$.

c) The stock indices have moved about as high as they can without negating our short-term view. In other words, if our short-term view on the stock market is correct then the indices will need to reverse lower over the next day or two.

Stock Selection Update #2, Aug-12 2003

In the latest Weekly Market Update we said that if we owned any large-cap gold stocks we'd be starting to scale-out now and would probably be shifting our investment funds from the stocks to the bullion. There is, however, one major gold stock that does look more than a little interesting at the moment, particularly from a technical perspective. The stock is Kinross Gold (NYSE: KGC, TSX: K). We'll take a look at KGC in the coming Interim Update, but KGC appears to be a reasonable buy at around its current price of US$6.60.

For the more adventurous types, the Kinross warrants that trade on the TSX under the symbol K.WT might be an appropriate speculation. The warrants offer considerably more leverage than the shares, something that would turn out to be a good thing if the bullish trend for gold remained intact and a bad thing if it didn't. The warrants, which were trading at around C$1.25 earlier today, have an exercise price of C$15.00 and an expiry date of 5th December 2007. This is quite a low price considering the large amount of time left to expiry, the exercise price and the volatility of the underlying security (Kinross Gold shares). We will immediately add the Kinross warrants to the TSI Stocks List.

The Northern Orion warrants that commenced trading on the TSX last week under the symbol NNO.WT also look interesting at their current price of around C$0.48. The Northern Orion stock (TSX: NNO), which was added to the Stocks List a couple of weeks ago and remains a buy at its current price, is already a leveraged play on copper and gold prices, but the warrants will provide even more bang for the buck assuming a continuation of the positive trends in the metals. The warrants have an exercise price of C$2.00 and an expiry date of 29th May 2008.

We won't add the NNO warrants to the Stocks List because NNO is already there.

Stock Selection Update #1, Jul-28 2003

* As mentioned in the latest Weekly Update, we are going to add the stocks of two industrial-metal producers to the Stocks List.

The first new addition has a market capitalisation of around one billion Canadian dollars and is therefore definitely not in the junior category. The company is Ivanhoe Mines and it trades on the TSX under the symbol IVN.

IVN has a lot of interesting projects 'on the go' throughout Asia. For example, it has an operational copper mine in Myanmar and produces iron ore at its Savage River project in Tasmania, Australia. These two operating mines generate annual revenue of around US$87M. IVN also has exploration-stage and development-stage projects in South Korea, China, Myanmar, Vietnam and Kazakhstan. The reason for our interest in the company, however, is its Turquoise Hill copper/gold project.

The Turquoise Hill copper/gold project, which is located in Mongolia's Gobi Desert, already has one of the world's largest copper/gold resources and could turn out to be the largest given that there appears to be excellent potential to expand the resource. Not that expansion is at all necessary since independent estimates (by AMEC), using a conservative copper-equivalent cut-off grade of 0.60%, put the current indicated resource at 3.1B pounds copper and 7.4M ounces gold, and the inferred resource at an additional 20.9B pounds copper and 6.3M ounces gold. The current total resource is 67M ounces of gold-equivalent (80% copper, 20% gold). There are also high-grade zones within the deposit that will improve the economics.

Although IVN already has a hefty market cap compared to most of the stocks we've mentioned over the past several months, if the copper price does what we think it will do over the next 12 months then IVN is going to do extremely well. The stock closed at C$3.69 last Friday and is sitting right at major resistance. We wouldn't be surprised to see it pullback to support at around $3.30 over the next few weeks, but an upside breakout also wouldn't be a surprise. As such, we think it is reasonable to take an initial position now with the aim of buying more if it pulls back.

The second new addition was previously in the Stocks List for a brief period earlier this year, but was removed after the company's management made what we think was a big mistake by substantially diluting the stock at an inopportune time. The company is Northern Orion Resources (TSX: NNO). The stock exited our Stocks List at a split-adjusted price of C$1.75 in May, subsequently dropped to around $1.20, and has since climbed back to $1.49. In our opinion the company made a mistake by issuing a massive amount of new shares to purchase a 12.5% stake in the Alumbrera copper/gold mine in Argentina. However, the valuation is still attractive, particularly if our bullish views on the copper and gold prices pan out. 

At Friday's closing price of C$1.49 NNO has a market cap of around US$125M. Its 12.5% stake in Alumbrera is going to generate annual revenue of around US$78M and cash-flow of around US$25M. Furthermore, NNO's share of Alumbrera's proven and probable reserves is 2.05M ounces gold-equivalent (56% copper, 44% gold). So, NNO is fair value based only on its Alumbrera stake.

The company's main asset, however, continues to be its 100%-owned Agua Rica copper/gold project which is situated 34km east of Alumbrera. Using a conservative 0.70% copper-equivalent cut-off grade, Agua Rica has a measured and indicated resource of 3.3B pounds of copper and 1.67M ounces of gold (around 9M ounces gold-equivalent). 

Taking into account Alumbrera and Agua Rica, NNO is a reasonable speculation at around C$1.50/share.

* In the Weekly Update we also said we'd add another junior gold stock to the List. The company is Metallica Resources (not to be confused with either Metallic Ventures or the rock band), which trades on the TSX under the symbol MR and on the OTC BB in the US under the symbol METLF.

At Friday's closing price in the US of around $1/share, Metallica has a market cap of around US$43M. This is low for a company with a 3.8M ounce gold-equivalent measured and indicated resource, 1.8M ounces of which are in the proven and probable reserve category. The market is no doubt concerned by the fact that Metallica will need to raise about US$40M before the end of this year in order to finance the construction of a mine at its Cerro San Pedro gold/silver project in Mexico (this is where the 1.8M ounce reserve is located).

Apart from the fact that it represents very good value, what interests us about METLF is that about half its resource is silver. This company is, in effect, a relatively unknown play on the silver price.