MicroCap.com AnalysisI don’t own SMI but did buy a bit of the GXS at 0.68 after the SMI run. My leverage is much greater with GXS given the proven tonnage and large land position. Contrary to being defined as a basher by someone looking through their rose coloured glasses, I hope SMI does well but you need to have realistic expectations. I would love to see SMI run far higher as it will help GXS but I just can’t see that happening. If it doesn’t I will also sell GXS.
I have subscribed to MicroCap.com for the past decade so asked Danny Deadlock for his opinion. When Goldsource was trading near the highs in 2008, Deadlock wrote a very accurate report on why the play was doomed to failure. This was shortly after investors financed $18 million at $11.75. I found those original stories from 2008 so you know that he knew what he was talking about.
https://www.stockhouse.com/Columnists/2008/July/21/Saskatchewan-coal-play-is-dead--Microcap-Monday
https://www.stockhouse.com/Columnists/2008/July/28/Saskatchewan-coal-drama-continues--Microcap-Monday
Deadlock has given me permission to post his comments about SMI here.
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www.MicroCap.com March 29, 2011 - reference: Saturn Minerals rally
1) don’t underestimate the day traders and momentum players. For as long as they want this trade to continue, it will continue. Regardless of the fundamentals. Just remember that when the party is over and the boys head home, the picture will change dramatically. Just take a look at NKW recently.
2) the same infrastructure and market problems faced by GXS will be faced by SMI. Given the high demand for coal, this is unfortunate. But there is no market for this coal in Saskatchewan, Manitoba, or even Ontario. Unless by some miracle it came back with metallurgical properties (for steel making), but this would be hard to imagine. Otherwise there would be no reason to try and ship it west and compete with mountain mines of Alberta and B.C.
3) The big drill intersection is great and indicates potential of a large coal basin. However, it doesn’t matter unfortunately. And it also doesn’t matter if the overburden is low, or if the sulphur content is lower and BTU’s higher. Who is going to buy it and who is going to finance it ? Very unlikely anyone would finance a mine-mouth operation (power plant). Coal-to-liquids or coal gasification is just too much money with natural gas this low.
4) As an investor or speculator in SMI, you really need to understand these issues and how they affected GXS. To do otherwise means you will miss taking gains when the opportunity presents itself. March 17th GXS released a long awaited economic assessment and the market could care less. It still trades at the low and is running out of cash. It has an awesome land position though – just not sure what it’s worth to anyone. The assessment basically said their main hope is a coal to liquids project worth almost $2 Billion. That will never happen.
5) The GXS report also stated “the Border coals contain moderate to high amounts of sodium which causes problems (fouling) with coal-fired generators. Reduction in sodium may be possible with further testwork. The PA recommends using of part of the bulk sample to carry testwork for sodium and sulphur reduction.” If this was a reasonable and economically viable fix, GXS would not have been stuck in the
.60’s. They are sitting 100 million tonnes of coal. If it was economic or useful to someone, they would trade dramatically higher or would have been bought out a year ago.
Most people don’t understand the coal industry. Lately it is getting a lot of attention so it creates hype. The sad part is, if people are not careful and have pie-in-the-sky dreams, they will lose their shirt.
Saturn has a great drill intersection and maybe they will hit many more. Even if the coal quality is better than GXS, it unfortunately means very little in this part of central Canada. If the opportunity exists for someone to finance their dream, then more power to those raking in the fees. At the end of the day however, I would be shocked if the outcome is any different than Goldsource.
After all, GXS ran from
.20 to almost $20 in a matter of months and then they were able to finance $18 million at $11.75. Only to have their investment worthless in 2 years. I always thought people with plenty of money were the intelligent ones but GXS investors proved that theory wrong.
This time around it is Goldsource that will hurt those big financing numbers for SMI because now there is a reference point. In the past it was some very slick corporate finance salesmen that had the last laugh.
Oil Exploration ?
Coal deposits in Canada are almost always surrounded by oil in one fashion or another. Even if the coal is not economic, it would be great to see more of these companies involved in regional oil and gas exploration. Saturn is doing such exploration and this could help their cause. I wish I could sound more optimistic over another coal discovery here, but other than a short term rally, it’s unlikely to generate longer term success once reality sets in.
Unfortunately one only needs to understand the struggle of Goldsource.