A recent surge in the value of Colonial Coal International Corp. (CDX: V.CAD, Stock Forum) shares means that it might be right time for investors to consider taking some profits off the table.
After closing at $1.60 on Thursday, the stock has leapt from the$1 level in early October, giving the company a market cap of $96 million, based on 60.2 million shares outstanding.
This tightly held stock, of which roughly 27% is held by management, is trading in a 52-week range of $1.97 and 80 cents.
The recent jump is a big one for a company that is without revenues and which is still a long way from delivering on an ambitious business plan that involves transporting metallurgical coal from two properties in northeastern British Columbia's Peace River area to buyers in Asia.
Metallurgical coal is a key ingredient in the production of steel.
It is hoping that shipments will be made through the port of Prince Rupert, which is why the company issued a press release on November 3rd saying it has signed a preliminary non-binding deal with aboriginal groups that may or may not lead to the acquisition of a site that currently houses the former Skeena Pulp Mill.
Subject to further due diligence, Colonial Coal and an unnamed "industry participant" hope to develop a shipping terminal at the 180-acre Watson Island site.
"We envision 15 to 25 million tonnes of bulk material, but not all of it will be coal," said Perry Braun, a spokesman for Colonial during an interview with Stockhouse.
However, implementing such a plan, if it were ever to happen, would likely cost hundreds of millions of dollars, a move that a junior like Colonial would be unlikely to undertake on its own.
When asked about the stock's recent rise, Braun said that in his view it comes down to speculation that Colonial is a potential takeover candidate. "We are building this to be taken out. We are just eliminating the risk," he said.
Any takeout would be a big win for David Austin, the company's Chairman, Chief Executive Officer, President, and director.
Colonial's biggest single shareholder with about 15% of the outstanding shares, Austin served as a director at Western Canadian Coal, which was swallowed by Tampa, Fla.-based Walter Energy Inc. (NYSE: WLT, Stock Forum) in April, 2011 in a $3.3 billion merger deal.
Colonial currently has working capital of $13.2 million, including cash and cash equivalents of $12.2 million, according to its recent financial reports. That's enough to finance exploration work at its flagship Huguenot Coal project in northeastern B.C.
Resource estimates complaint with 43-101 requirements indicate that the property contains about 55 million tones of measured, indicated and inferred resources that could be recovered via open pit mining methods. The company is hoping to increase the tonnage level to about 160 million tonnes.
Colonial is also hoping to develop coal resources on a second property in the area known as Flatbed, which lies adjacent to the former Quintette coal mine.
Regulatory filings indicate that the junior has allocated $3.35 million for work at the Huguenot project this year, plus an additional $550,000 for environmental studies. Drilling work is proceeding with the support of helicopters.
Meanwhile, in the nine months ended April 30, 2011, the company posted a loss of $4.2 million or 8 cents per share, compared to a loss of $761,581 or 2 cents in the same period last year. The loss included stock based compensation of $3 million.
At the Thursday close of $1.60, the stock is trading above a key resistance level of $1.55. Recent trading patterns suggest that it might be due for a correction before resuming its climb.