We are initiating a new look at exploration plays we expect could do relatively well in 2010 and have come up with an initial trifecta* list of juniors that for one reason or another seem to have a good balance between risk and reward in our opinion. We will try to provide more detail on these companies later but as usual there is a chance this update might not happen for a while (if at all), so please use the comment section to ask questions and that way we can communicate our thinking quickly and clearly without spending many hours writing up a detailed prose on these companies in order to answer very basic questions that are already answered on each respective company’s website.
*In horse racing, a trifecta is a bet where the bettor must pick the first, second and third place finishers in exact order. Our trifecta “bet” will be made in a similar fashion because we believe these 3 companies have the possibility of being among the biggest winners of 2010 and we are also indicating which of the three we believe has the greatest appreciation potential.
In any case, let’s get to it and review our criteria. First, we wanted to pick companies in good mining jurisdictions to avoid any potential worries from geopolitical or social issues. So we picked one company from each of Canada, the U.S. and Mexico. Second, we wanted to pick mainly gold but also silver. Third, we wanted the companies to have exploration or development programs ongoing or pending. Fourth, we wanted smallish market capitalizations. Fifth, we wanted at least reasonably competent and honest management. Sixth, we wanted projects in world-class mining districts. Seventh, we wanted recent evidence of potential new discoveries being made either by the company or another company working in the same district. Eighth, we wanted the company to hold a reasonably-large land position in the district and not just a few acres or hectares. Ninth, we wanted the projects to be brownfield with excellent nearby infrastructure. And last but not least tenth, we wanted the companies to be currently trading significantly below their 52 week highs.
So, without further ado, here we go with our “trifecta” picks starting with the company we feel has the greatest appreciation potential, then the second, then the third:
Oro Silver (TSX-V: OSR) — Oro Silver has a district play in Zacatecas, Mexico near the Fresnillo mine, holding one of the larger land positions on prospective portions of mineralized trends that have produced several hundred million ounces of silver historically. Market capitalization around $10 million, competent management and exploration team, eye-popping assays last year close to existing mine workings with potential for significant expansion to depth and laterally, and MAG Silver recently discovered a major strike extension of the prolific Veta Grande vein (Oro Silver has an option to purchase the Veta Grande Mine and Mill).
PC Gold (TSX: PKL) — Exploring the historic Pickle Crow gold mine in northwestern Ontario, it seems like every time they drill to test a different mineralization type or mineralized zone, they come up with decent gold values. They have found gold deep, they have found gold shallow, they have found it laterally and off-kilter, they have found it in the historical quartz veins, in potentially disseminated form and in banded iron formations. The promotion of the company is a bit pushy and aggressive and so that’s a slight turnoff and they are diluting at a fast pace, but arguably this is what they have to do in order to advance their exploration program as fast as possible.
Coral Gold Resources (TSX-V: CLH) — The company holds a Carlin-style gold deposit of fair size (3+ million ounces of combined resources) called Robertson on the prolific Cortez gold trend in Nevada. Recent drilling by Barrick on a small nearby joint venture property discovered that the Roberts Mountain thrust and formation, the main host rock for much of the gold found on the Cortez trend, may underlie a portion of the Robertson property. Since circumstances favorable to mineral formation are also present as evidenced by the significant gold mineralization at surface, there is a strong potential that the Robertson property may contain significant blue sky exploration upside (at depth). While this potential is exciting, the more immediate upside for Coral Gold comes from the just-announced decision by the company to proceed with a scoping study on the near-surface heap leach potential at Robertson, which by preliminary estimates could contain 1.5 million ounces of gold. To properly put in perspective the value proposition offered by Coral Gold, we should also recall that the company was the jewel in the package of Cortez trend properties that Robert McEwen attempted to consolidate using his U.S. Gold vehicle in 2006, driving the share price of Coral Gold north of C$6.00. The deal was terminated when problems were encountered in converting Coral Gold’s financial statements into U.S. generally-accepted accounting principles within the required timeframe to close the transaction. Despite Coral Gold selling for a 90% discount to what Robert McEwen was willing to pay in 2006, the only things that have fundamentally changed since then are that the gold resource has grown, the exploration blue sky has increased and gold prices have gone up.
As mentioned in the beginning of this commentary, we will try to have more details later but for now we wanted to get this out while the companies continue to trade at reasonable prices. As with our other speculations, we prefer an approach of taking an initial stake of modest to moderate size and then adding on a pullback (assuming the drop in share price is due to the market doing its thing instead of circumstances turning negative). We can also add on strength especially if it is based on positive news that will sustain the share price in the medium to long term, but we are keenly aware (and you should be too) of the ease with which we can get caught up in chasing prices higher.
Disclaimer: We currently do not own shares in any of the companies mentioned herein but we will be buying shares of Oro Silver, PC Gold and/or Coral Gold in the days ahead especially if share prices remain at current levels or drop even further. We have not been paid by any party for writing this commentary. This is not investment advice, which you should seek from a licensed professional.