February 20, 2000
These are three stocks in which we have a large ownership position, which we believe have the ability to appreciate significantly in an environment of rising gold prices. In general, the microcap golds have been hit with extreme negative sentiment due to the slide in gold prices over the last three years and the fallout from the Bre-X scandal. These stocks with the exception of Pacific Amber are selling at or near their all-time lows. Two of these stocks, Alamos and Copper Ridge, have market caps under $2 million. All figures are in US dollars although these stocks sell in Canadian dollars on the Canadian Venture Exchange (CNDX) (web site link), the newly opened electronic exchange which has appreciated about 43% thus far in 2000. This makes it among the best performing stock indexes in the world in 2000. It was formed out of the union of the Vancouver and Alberta Exchanges and small companies from the Toronto and Montreal Exchanges.
The appreciation of the CNDX is attributable to a preponderance of gold, technology and oil & gas companies. These three areas have been strong due to rising oil and gold prices and the strong public interest in emerging technology companies. These stocks are all speculative and have a high degree of risk, although at current prices they seem to incorporate that risk. Thomas O’Brien, the author, is an advisor to Pacific Amber regarding its new strategy and has an option position. The financial statistics presented are based on the most recent available financial statements. Market caps include in-the-money options and warrants.
Price $0.11 AAS-CNDX
ALOXF- OTC Bulletin Board
Market/Book: 0.29X L-T DEBT: $0
This Company was founded by Chester Millar, a pioneer in the heap
leaching process. He founded Glamis Gold(GLG-NYSE) and was among the first to
successfully use the process to produce gold.
Alamos sells just above cash
per share and at about 30% of stated book value. It has two properties which
can be put into production fairly rapidly.
The first is the San Antonio in Mexico is undergoing a bulk heap leach
test. If successful, the property could produce 30-50,000 ounces per year at a
total cost of about $300 including amortization of capital cost and overhead.
Cash costs would probably be in the area of $250. At current gold prices, the
production would be marginally profitable and cash flow positive.
Management plans on putting this property into production this year.
Total resources may be in the area of 500,000 ounces or more.
The second is the San Antonio property which is also in Mexico. It may
have up to 230,000 ounces of gold and 3.2 million ounces of silver. This
property is not economic at current prices. At $350 gold it could be a
profitable mine.
If the San Antonio property reaches 30,000 ounces of annual production
and gold prices reach $325, cash flow could exceed $1 million per year. This
would indicate a market value in the area of $10 million or about 6X the
current stock price. At $400 gold, cash flow could exceed $3 million and would
indicate a stock price in the $2 range.
This stock therefore represents a high risk, potentially high return play on gold prices.
CPRXF-BB
Cash/Share: $0.03 Market Cap: $1.5 Million
Market/Book: 1.5X L-T Debt: $0
KRX was founded last year by the former management of La Teko Resources which was acquired by Kinross Gold (KGC-NYSE) for approximately $40 million.. They discovered the True North property which KGC is currently putting into production. Therefore, Management has demonstrated its ability to find new gold deposits.
Kinross made a deal to put La Teko’s exploration properties into Copper
Ridge and invested $500,000 in the Company. Kinross holds about 15% of the
shares outstanding. KRX had encouraging results from exploration drilling last
fall, having hit several good gold shows. Although none could be characterized
as discoveries, they seem to be on the right trail.
This is a speculative exploration play with the potential for
significant appreciation if they are successful during the upcoming drilling
season.
Management has done it before, and may do it again.
Price: $0.41 PCR-CNDX
PAABF-BB
Cash/Share: $0.12 Market Cap: $7 million
Market/Book: 0.40X L-T Debt: $0
Pacific Amber has discovered a significant gold property in Indonesia which has been farmed out to Placer Dome (PDG-NYSE) for a sliding scale royalty based on gold price. Placer Dome is very bullish on the property and sees the potential for a world class deposit. It is one of only a few of PDG’s exploration projects. This royalty interest is a long-term proposition as it would be years before the property would go into production provided PDG takes it to production. At its peak, prior to the Bre-X debacle, the stock traded as high as $7 per share based on this property. About $12 million was spent exploring this very large prospect which is located on the island of Kalimantan (formally Borneo).
The Company, realizing that their financial commitment to the
Indonesian property is minimal going forward, has switched its strategy to one
of investing in early stage internet start-ups in Vancouver, BC. With labor in
this area scarce and expensive in the US, the business environment in British
Columbia is very favorable. Quality people, with strong computer skills are
available for the price of a burger flipper in Silicon Valley. This is a
product of a very favorable exchange rate (69 cents to the US dollar) and the
lack of health care costs because of Canada’s nationalized medicine.
The Company currently has about $1.4 million in cash which it plans to
invest in three or four internet start-ups. The stock has appreciated
considerable on the news, but may have further upside if deals can be
successfully completed. They have yet to consummate any deals.
If successful, the Company could become an “incubator”. It also may
have upside potential if Placer Dome opens a mine on the property in Indonesia.
Placer would probably offer to buy out the royalty interest if they plan on
producing, which could bring additional capital for internet investment.
This is a very speculative situation, but based on valuations afforded
similar companies in the US, this could be a winner.
This is not a complete analysis of any company or industry. It is for informational purposes only. This is not an offer to buy or sell any security. The author, Thomas O’Brien have positions in the securities of the companies mentioned. Mr. O’Brien has an option position in Pacific Amber. He was not compensated in any way by Copper Ridge or Alamos Minerals.