Is Tocvan Resources a good long-term investment? Nice to see new buyers around Tocvan Resources on Friday, closing at $0.60 on 117,000 shares, with about 327,000 shares trading for the week. I don't want to read too much into this but Tocvan's share price has held up extremely well in this very difficult junior resource market. One doesn't have to look at very many companies to see that the juniors are basically on their knees as funding is very difficult to secure, forcing companies to either consolidate their shares or reduce exploration and promotion programs.
Take a look at your portfolio over the last year, and ask yourself, could I have done better?
As my dad always said, "seasoned investors shy away from speculative stocks during BEAR markets and tend to invest in advanced development plays where there is less risk". This is not an easy thing to do or we would all be rich by now. As any good financial advisor will tell you, investing in good companies will yield returns over the long term.
There is a general rule of thumb in the Venture Capital industry, 4 out of 10 investments are written off in the first year, 4 investments are the walking dead requiring more and more money, while 1 or 2 generally pays for all the losses and results in spectacular returns.
I once asked my dad, "how do I separate good companies from less risky companies, thus avoiding the riskier ones altogether?" He simply replied, "it's complicated" but there are criteria one can use to increase the number of winners.
Here is a quick snapshot of the most important criteria.
Management - take a look at management's track record of success and their ability to raise capital. I suggest staying away from companies that are run by "Professional Early-Stage Stock Players". They rarely succeed but rather, they use the Public markets to raise capital, issue stock options, promote, and then exit, leaving inexperienced shareholders crying foul play. It is generally referred to as the "Rinse and Repeat" cycle. I am sure everyone has been caught in a slick stock promotion, only to find out that there was little to back up results, generally the price of the stock runs up fast on high volume, and then collapses. These are the companies you want to avoid at all cost but they can be a lot of fun to play - sometimes - as the rewards are quick and short term if you win. Playing these high risk plays over and over again can be very frustrating and cost you a lot of money.
Share structure and ability to raise capital - find companies that have well managed share structures and have demonstrated the ability to raise "Good" capital, not capital from "Mules" who provide money at deep discounts with the understanding they are going to sell during the first promotion. Mule groups care little about the long-term potential, thus only participating in cheap Private Placements with free warrants, and have no desire to wait. Everyone has seen companies that issue millions of cheap shares to insiders, only to find that they have sold all their stock during the price runup, and then when they need to raise capital, they can't because of the high number of shares outstanding.
Advanced properties - no doubt this is likely the most important over the long-term. Find companies that have already been successful in drilling and have the potential for a significant resource that will attract serious investors with the desire to take the property to production.
What are the key drivers that make Tocvan Resources a good long-term investment?
In the mining industry, the old saying goes something like this, "you get what you pay for'' or "it's too good to be true". Tocvan's agreement to purchase Pilar from Colibri Resources was costly, but the property came with over 17,000 m of drilling and excellent exploration upside. Significant progress has been made in the last few years as Pilar now has over 23,000 m of drilling. They have submitted notice to Colibri Resources Corp. to purchase their 49% ownership in the Pilar gold-silver project in Sonora, Mexico. This will give Tocvan 100% ownership of Pilar.
Realizing the significance of Pilar, it gets better, Tocvan is acquiring over 21 sq km surrounding Pilar, and now that due diligence is complete the company looks to have a definitive agreement completed in the following weeks. Recent placer activity, historic workings and prospective geology all indicate the area is highly prospective for gold and silver, and represents significant "Blue Sky'' potential to add to Pilar's resource. This is the first major land consolidation in this area and has the potential to become a multi-million oz gold and silver discovery. This acquisition also gives Tocvan the needed space to develop a large scale heap leach mining operation, adding significantly to Tocvan's overall resale value.
Tocvan has taken less than 4 years to transition from a speculative penny stock play, to an advanced development play with near-term potential of bringing Pilar to production. It appears they are planning to file a production permit by the end of the year, with approvals in a year or slightly more, potentially putting Pilar into production by 2025. This may seem long, but time will fly by when you are happy seeing your investment strengthen over time. This is relatively short in mining terms compared to how long the approvals could be in the US, which is a testament to the friendly mining jurisdiction in Sonora, Mexico.
Tocvan has a deep pocketed investor, Sorbie (Sorbie Bornholm LP and Orrick, Herrington & Sutcliffe (U.K.) LLP) who has participated in two financings thus far for $5.6 M. There is about $1.5 M remaining from now until June 2024 which gives plenty of time to attract additional investment with little dilution, and still have plenty of money for drilling. The great part about the story is Tocvan only has about 40 M shares outstanding and all the shares to Sorbie have already been issued and held in escrow, released on conditions, so there is no more dilution. This is speculation on my part, but I wouldn't be surprised to see Sorbie follow on with another investment to perhaps fund the acquisition of Colibri's 49% stake or the acquisition of the land surrounding Pilar. If I was an investor looking to protect my investment, what better way to do so by participating in future investments.
At 40 M shares, Tocvan is in a sweet spot where they can raise money at the current price resulting in less overall share dilution, while at the sametime, advancing Pilar to production. I suspect that as the business plan is executed, the share price will increase to reflect its value in the market.
I recommend everyone read the recent report prepared by Caesar, it is a good overview and discussion with Brodie Sutherland, CEO of Tocvan. The link is provided below.
https://www.caesarsreport.com/reports/report-tocvan-ventures-advances-the-pilar-gold-project-with-metallurgical-studies-and-exploration-potential/
Lastly, don't forget about the potential of El Picacho which is 100% owned by Tocvan. This was a much better structured deal, and I believe the upside potential is significant. I suspect the drills will be turning there very soon. The current fully diluted market cap for Tocvan is only about $23 M Canadian, a very attractive entry point for anyone looking for a longer-term investment.