Has Tocvan reached the top of the "Wall of Worry"? Another good trading cycle for Tocvan Resources, holding the $0.70 barrier, trading only 170,000 shares for the entire week. This repeatedly low trading volume is an indication of a strong shareholder base, low number of outstanding shares (only around 39 M), and strong cash position (fully funded for the next two years and likely well beyond with exercise of warrants).
Has Tocvan reached the top of "The Wall of Worry"?
This phrase was coined back in the 50's to highlight how financial markets can buck the trend of negative factors and still keep ascending, it also can refer to the resilience of a single stock to overcome near term negative conditions. Take for example, a junior resource company that can't raise capital is eventually forced into consolidation of its share structure. Another example would be the dramatic rise and fall in the price of a stock during initial drilling and promotion when either nothing is found, gold bearing veins thin, or the deposit is deep. Reality quickly hits home with investors resulting in loss of confidence as to whether a mine can be economic. There are countless roadblocks that prevent a company from reaching the top of "The Wall of Worry" where investors are confident in holding a stock longer term.
Depressed market conditions have plagued early stage resource stocks over the last decade, but there are signs the market is beginning to come back to life as gold demand and Global market conditions have pushed gold prices over $2,000 US recently. Tocvan has not consolidated its stock and has overcome recent market conditions through systematic exploration, drilling, and advancement of key metrics such as the current bulk heap leach testing and better understanding of the type of gold to be extracted. There has been over 23,000 m of drilling showing that the average grades at Pilar are better than other viable producing mines in the area. But the most important aspect of Pilar is that mineralization starts at the surface. They were able to extract and crush over 1,400 tons of surface material with head grades from 15 samples sent to the lab ranging between averaging 1.64 g/t Au (1.11 g/t and 2.18 g/t Au).
The number one worry cited by investors has to do with the ability of a company to raise capital while managing share structure. Too many shares in an early exploration company generally leads to a stock consolidation. This is where Tocvan shines, they have funding in place for at least the next two years. This is a powerful de-risking aspect and shouldn't be underestimated as it will provide security to an investor looking to hold longer term. As the price appreciates, they will be able to raise more capital with less dilution. They also have a strong financing partner who has the ability to participate in follow-on investments, as well as exercising their warrants without having to sell stock in the market, thus keeping the share structure extremely tight.
I highly recommend listening to Brodie Sutherland's new interview with BLAZE Capital, it reflects my thoughts about why Tocvan is significantly de-risked, not to say that there isn't risk, but the advanced nature of Pilar suggests everything is coming together nicely and will either become a producing open pit mine or be acquired by a local producer.
BLAZE Capital interview with Brodie. https://www.youtube.com/watch?v=mvcHjFYfaas
Tocvan has demonstrated Pilar is mineralized at surface and at depth, and is well underway to proving gold and silver can be extracted economically. The explanation of "FREE GOLD" at Pilar, i.e., gold not associated with other material such as in hard rock mining, has recovery rates greater than 90% in studies (better than other producing mines in the area around 60% to 70% recovery), suggesting Pilar will be very profitable. The extraction costs with this type of surface deposit is far less, thus margins are even better.
Bulk Sampling versus Laboratory Studies.
Tocvan is very lucky to have a deposit that starts at the surface, allowing studies to be undertaken very quickly and in a cost effective manner. There is a very good explanation of bulk sampling versus laboratory studies in the video mentioned above. The only way to conduct testing on deeper deposits is from the core brought to the surface. The core is very small and limited as to the testing that can be done. In the case of Tocvan, over 1,400 tons of rock has been collected, crushed and will be used for a large heap leach study of almost 1,000 tons, as well the remaining material for other critical studies designed to optimize the production facility.
These large samples dramatically DE-RISK the interpretation and extrapolation of results to the rest of the property. As my dad said, "the larger the sample, the more accurate the results, the more secure your investment will be".
El Picacho - BLUE SKY Potential
Tocvan is well positioned in the Sonora area having recently acquired El Picacho, a similar property with surface mineralization and gold that has already been established during the first drill program last year. The BLUE SKY potential here is enormous since El Picacho is 20 times the size of Pilar and 100% owned. It will be very exciting to get the drills turning again here, as there is much to be explored. This property is littered with old underground mine shafts, and much like at Pilar where they just discovered more buried underground workings during trenching, it is logical to assume that similar potential exists at El Picacho as the property is explored. A few big cores could separate this property from others in the area and make it very attractive for investors.
My thoughts about risk going forward. Tocvan is a longer term investment with the potential for spectacular returns for those who have patience. There are many possibilities going forward, bringing Pilar to production for cash flow to develop El Picacho, or selling Pilar to a local miner, then concentrating efforts to develop El Picacho. No matter how this proceeds, the pieces of the puzzle are coming together nicely for shareholders.