Chinese Understand the Value of our Junior Miners as a Major Investment is made Monday in CLM.T
Monday morning it was announced that one of China's premiere steel producers, Wuhan Iron and Steel (WISCO), was making a strategic investment in CLM.T ($2.65). The company, subject to regulatory and shareholder approval, would invest $240 million U.S. for 29.7 million shares or 19.9% of the current shares outstanding. Surprisingly, the valuation was in the range of U.S. $8. Considering CLM was only trading at a small premium to its cash value, the investment by WISCO demonstrates once again the dislocation between reality and fantasy with these cash rich Canadian companies.
We have been preaching since November 2008 about the tremendous value in these cash rich microcaps on the TSX and TSX.V
To accomodate this we established our StreetSignal Vulture Fund for paid subscribers. We setup and maintained a model portfolio of 67 cash rich microcaps on the TSX and TSX.V (including CLM which we added at $1.70 when it held $2.10/share in cash).
Last week we started to lock in some gains and to date this model portfolio has resulted in:
1) 2 losses of 14% and 26%
2) 22 gains averaging 98.7%
3) 43 stocks that continue to be held - they have total cash of approx. $2 Billion
Nine of the remaining 43 are in a small loss position while 34 typically range from gains of 50% to over 100%. A good majority still trade near or below cash value. This week we have an indepth research report on one biotech still trading at almost 1/2 its cash value but offers dramatic growth potential beyond cash value over the next year.
In a nutshell... while the S&P has shocked everyone by gaining 22% in the past three weeks, we have systematically blown those gains away with our little stocks and focused strategy.
Many investors look to the share price and because they (incorrectly) believe the markets are efficient, they feel the share price reflects the true value (or problems) associated with a small stock. If you don't believe this, simply look at the recent example of Nova Chemicals (NCX.T). The market beat them down to $1.28 in February. Within 30 days the stock jumped to $7 on a buyout offer. While North American investors wrote them off, Abu Dhabi saw value in a share price 400% higher.
Now we are seeing the same thing with an investment in Iron Ore from the Chinese. As many of these stocks (and their underlying assets) continue to trade at ridiculous levels, we will see this trend continue throughout 2009 and 2010. Foreign investors with substantial cash, look beyond what North American investors seem to ignore (or take for granted) in their own back yard.
After all, why not invest in strategic metals, minerals, technology, and biotechnology versus putting their money into U.S. dollars at HUGE risk.
Expect the trend to continue - especially as economic and stock market volatility continues. Right now (with the exception of today), the broader market maybe has another 8% to 10% to go before economic reality will set in once again.
When that happens, expect that a lot of investors will once again have stepped into the market at the worst possible time. With MicroCap We will continue to focus on very clean balance sheets and CASH as we know the value is there as its proven not only with the gains, but deals like we're seeing with CLM today.