DDGoldex Resources (CA: GDX)
This company has a tiny market cap, barely $7m, with about $1m of that in cash. It’s a gold exploration company with three main properties, one in Mexico and two – including its flagship asset, El Pato – in Guatemala. Guatemala is relatively underexplored and several major mines, two of them belonging to Goldcorp, have been discovered there in the last 10 years. Both the geology and the laws are extremely favourable to mining.
El Pato was originally drilled by the UN (!) in the 1980 and 1990s. The average grade is around seven grams per tonne of rock. But geologists have located mineralization beyond the UN drilling areas, and trench results so far have been outstanding.
Drilling is currently underway so results should be coming out any time soon. But speaking to management, they are so excited about the rock – which is high grade and near surface – that they believe they could start trucking it to a nearby mill and get some production straight away.
I’d like Goldex to do that. Too many companies are focusing on proving up a resource and raising capital, which leads them into dubious deals with sometimes ruthless Vancouver fund raisers. It leaves them too vulnerable to the ebbs and flows of the capital markets. But with gold at $1,500, forget all that. Just get some production. If you can produce just 1,000 ounces a month at $500 an ounce, that’s $1 million a month profit, or $12 million a
year. Those numbers are just too compelling to ignore.
Goldex have also acquired another property nearby, La Chorrera. This is a silver deposit that is very similarto Tahoe’s huge silver discovery just a few kilometres away, which I know management is extremely excited about. Drilling is planned for later in the year. Meanwhile their Mexican property – which is as grassroots as it gets – is also in a prolific region, surrounded by other mines. One geologist described it as ‘the best undrilled property in Mexico’.
The company raised over $2.3m at 5c earlier in the year. In my view, that was too low a price. It attracted a large audience of the bigger brokers in Vancouver. Even the founder and head of Canaccord, Peter Brown, took 700,000 shares. The company must have plenty going for it to have attracted this kind of audience, who are likely planning to make more than a few pennies on it.
The share price flew to c
.25, then turned back down. That c
.05 stock became free-trading in early June, so a huge amount of selling pressure has come into the company, bringing it back to c
.08. A good eight million shares have traded hands since early June, so much of that financing will have been washed out, but there is still some to get through.
But the two Guatemala properties could have something special. And as all the ‘stock flippers’ from the cheap placement look to bail out of the stock, there will be plenty of liquidity coming into what is normally an illiquid stock, which means you now have the chance to put some speculative money to work and accumulate a position on the cheap. At the moment, it’s well worth a punt in the c
.06 to c
.08 range. If those drill results are any good and this market picks up, it could get a lot dearer.
This is the most speculative of all my recommendations. It could easily go up 5 times or more if the results are strong. But it could just as easily fall 75%. Well worth a punt but only with money you can afford to lose.
Recommendation: Buy under c
.10. Speculative funds only. Target: c
.20, then c
.40.
Goldex Resources 12-monthly performance over past five years:
2006: +26.7%; 2007: -61.8%; 2008: -82.8%; 2009:+80%; 2010: +66.7%; 2011 so far:
+0%.
Chuck Interviewed by Ted Ohashi