My End of Year SDRG analysisAs we near the end of this "hell year" for junior PM investors, I'd like to congratulate all the longs that hung in there, not just in the Dragon but in the sector in general.
The Gold/silver cartel has done everything in its power to subdue the PMs while they inflate away the value of our wealth. They've been able to keep it in down somewhat, but gold and silver are both up smartly. Furthermore, the game has now intruded too much into the real world, as the impact on gold and silver companies has caused supply to plummet.
The jig WILL be up in 2008, when gold and silver finally break out versus inflation and open the floodgates to a surge of investor funds. As usual, the quality juniors will be the biggest benefactors of this sector rotation, which is why I am so excited about the Dragon.
Most people look at the "E" as a horrible event for SDRG. In many ways, it is obviously true, as the stock got hit and much consternation ensued regarding the company's management structure and financing options. But, remember, the whole sector got crushed this year, and with or without the E SDRG would have been hit hard (perhaps less hard, but hard nonetheless).
Irrespective, in hindsight the E appears to have been a key inflection point in the company's history, and better that it occured now when there was limited interest in the sector than later when all eyes were on it. Because it occurred, it FORCED Marc to address a host of issues critical to the company's future. These issues would have eventually been dealt with, but were forced to the forefront as a result of the E.
Now let's just see what has been accomplished despite this HORRIBLE environment for the group (which, by the way, is not the first we've endured):
1. Comptroller hired, enabling Q's to be filed on time and ending the E issue for ever. Sri has been amazing, completely redoing the company's books to make them easier to be updated and interpreted. Additionally, Wellpoint software was installed so that accounting can be tracked and entered on a real-time basis from the company's Toronto, Mexico, and China offices. Additionally, a person was hired in China solely to convert Chinese accounting documents into a) the English language and b) GAAP accounting standards.
2. World class CFO hired. Colin Sutherland, whom helped move Gammon Lake from an explorer to a producer, is as knowldegeable of finance in this sector as anyone.
3. Full BOD appointed. All five members are young, motivated, and highly incented. Manual Chan is as loyal and competent as anyone I've met (met him at PDAC last year), with the same kind of work ethic Marc has. Terry Christopher is a top-notch geologist, and equally imporantly highly knowledgeable about how to write press releases to relate what North American investors are looking for. That is one of his new charges with the company, as part of the "Canadianization" process noted in recent press releases. I don't know Glen MacMullen, but his background has a hedge fund manager with Deutschebank clearly will give the company access to new funds.
4. Bridge financing at $1.00. $2.5 million raised at $1.00 this fall, despite the stock having only traded above $1.00 perhaps 5% of the time in the last six months. Not only that, but about 20% of this money came directly from Marc and other insiders. Clearly, someone believes in the future of SDRG.
5. TSX application. All hurdles appear to have been cleared, with the exception of having a certain amount of capital in the bank. But this is clearly being worked on in the near-term, and my guess is this hurdle is cleared in early 2008, paving the way for a relatively quick listing on the TSX. Marc has been obsessed with the TSX listing for some time (and, again, Toronto, NOT Vancouver), and it WILL occur in early 2008. This will be a HUGE accomplishment for the company, opening it up to a whole new avenue of potential investors.
6. Completed 43-101 reports in both Mexico and China, with more to come. Combined, Cerro los Minitas and Erbaohuo have a 43-101 resource of about 35 million ounces, and the Laopondao 43-101 process was initiated last summer with the target of coming out this spring. After that, the "Canadianization" process will continue as the nine Chinese properties are converted serially to 43-101 standards. And with more money in the bank and the first two behind them, the rest of the China 43-101 conversions will likely be quicker.
7. Major discovery in Mexico. Back in June, a huge new ore body was discovered, but because we were in the throes of the E controversy (all that 144a selling, for example), it was largely ignored. Mexico is going to be huge, in my mind a no-brainer to be as big as what Orko (OK.V) has, especially when the company has enough money to significantly drill it. We are still awaiting the results of the remainder of the 2007 Mexican drilling program, which were delayed by, you guessed it, assay lab delays. But I have to think those results are coming soon, as drilling was completed months ago.
8. Completed a major drilling program in China. These results, too, were delayed by assay lab backlogs. But these, too, are likely to be completed soon. I'm guessing that, like many PM companies, SDRG might be waiting until January because they don't want to release significant info into this pathetic PM market (TSX-Venture exchange down 20% in the last month for no good reason other than tax selling, book clearing, etc.).
Thus, while the E was a very frustrating episode in the company's history, it has led to an incredible transformation that has significantly strengthened it, enabling it to be prepared for the rush of new investors and new investment that I anticipate in 2008. I am much more excited about SDRG now at $0.67 than I was a year ago at $2.88, and the next time it gets there it is going to hold that level and surge forward in my opinion.
2008 will be the best year of the PM bull market to date, and I truly believe the year that SDRG becomes widely known to investors on a worldwide (not just North America) basis.
Best of luck to all (except bashers), and happy holidays to all!
yoyo