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Leading analyst discusses his views on the economy, capital markets and specific stock picks
by Ubika Research on May 20, 2011
Today we welcome Mr. Vikas Ranjan, Analyst and Managing Director with Ubika Research to the SmallCapPower Interview series. Mr. Ranjan discusses his views on the economy, the capital markets, specific stocks he likes and resource investing.
SmallCapPower (SCP): Hello Vikas, thank you for joining us today. First off, can you share with our readers your view on the current economic outlook as well as your take on stock markets in general?
Vikas Ranjan: Sure, we feel positive about the economic outlook in general. We believe that the world’s biggest economy, the U.S economy, has turned the corner and will be on growth path during the remainder of 2011 and in 2012, albeit at a slower pace than the historical rates. The emerging markets continue to do well although some slow down should be expected there as well. There are definitely some risks related to the sovereign debt crisis in the Europe and continued weakness in the consumer demand in the U.S, however those should not derail the continued global recovery.
Globally, capital markets ran ahead of the real economy this year and have been going through some corrections lately. We believe that this phase will likely pass during the summer months and we will see better performance during the rest of the year.
SCP: Do you think that stock markets in North America have peaked for the year and that the rest of the year will see more corrections?
Vikas Ranjan: No, we do not believe that the rest of the year will see more damage to the markets. We feel that markets will likely settle at higher levels from here. The fundamentals are getting better, not worse, and the low interest rate environment will continue in the prosperous world for the foreseeable future, which will be positive stimulus for the markets.
SCP: Your expertise is on small cap companies, especially the small cap resource companies, which have seen their values get hammered in recent months. Do you think the current selling has been overdone or there is still more downside to come?
Vikas Ranjan: Yes, you are correct. We have definitely witnessed some intense selling in junior resource companies lately. We attribute that to the rotation taking place from riskier assets to traditional safer investments and to a certain extent to the seasonal selling that typically happens during the month of May. We all have heard the adage “Sell in May and go away”.
So, we believe that the selling is probably overdone and the downside from these levels is limited, if any. We would look for opportunities with respect to building positions in high quality junior stocks.
SCP: Within the resource sector, what do you currently favour and why?
Vikas Ranjan: Despite the recent fall, we continue to believe in the secular bull market in commodities. Within commodities we still like precious metals, particularly gold. We also like infrastructure oriented commodities such as iron ore, coal and copper. We also feel very positive about companies exploring for resources used in the agriculture sector such as Potash and Phosphate. So those are the sectors we like.
SCP: You have been very optimistic about gold and gold stocks in the past. Do you still hold that view?
Vikas Ranjan: Yes, we continue to hold that view. We believe that gold will be an asset of choice for many investors in the coming years. Investors will like to hold gold for a variety of reasons including to safeguard themselves from the threat of inflation and from a continuously weakening US dollar. The demand for jewelry, one of the major demand drivers, will continue to be strong in both India and China, the world’s largest gold consumers. All these will help sustain gold at historically higher levels.
SCP: It is puzzling to see that gold has reached new highs and still remains around $1500/oz but gold stocks have not done very poorly. What do you attribute that to and do you think eventually gold stocks will follow the upward trend in gold prices?
Vikas Ranjan: It is a very good question and a valid one. We think that one reason why gold went up lately was due to the weakness in the US dollar. Since gold prices are denominated in the US$, as the US$ weakened, the gold price went up. However, that need not necessarily translate into an automatic interest in gold stocks. We are also witnessing some very strong interest in the physical bullion as many nervous investors would rather get a direct exposure to the gold. We should also not forget that gold stocks, especially the junior gold stocks, had a very strong year in 2010. So some correction is inevitable. We believe that investors are taking a pause here and reevaluating the investments in gold stocks. However, we think that the interest will invariably come back in high quality gold companies if gold stays at such high levels.
SCP: In your last interview on Oct 1, 2010, you had correctly predicted that gold could end the 2010 at $1350 or higher and it ended the year $1422/oz. Again on Feb 28, 2011 in an interview with the Gold Report, you suggested that gold could break $1,500 by mid-year and we must say that you were right again. Where do you see gold prices going from here?
Vikas Ranjan: As I stated before, several factors are abetting gold’s prospects. We think that gold can keep growing by 10%–15% on a yearly basis for the next few years as it has for the last five or so. Don't be surprised if you see gold around $1,800/oz or even $2,000/oz. in a few years.
SCP: Your research firm (Ubika Research) launched an index of junior gold companies last year. Tell our viewers a little about that.
Vikas Ranjan: Yes, that is correct. We had quite a few very promising junior gold explorers and companies under coverage, so we decided to launch an index, the Ubika Gold 50 Index comprising 50 high-potential junior gold explorers. There is no such index in existence, as far as I know, and therefore it is not easy to find a list of 50 promising companies in the junior gold exploration space. We launched it in February 2010 and it has done very well since then. Even with the down markets, the index is still up by 76% since the launch. Anyone interested in keeping an eye on promising junior gold companies can follow this index regularly and can receive our weekly gold report available at here:
https://www.smallcappower.com/ubikagold.aspx
SCP: Can you discuss a few favourite stocks in your preferred sectors and what do you like about them?
Vikas Ranjan: Well, we follow several early stage resource companies. Several of our past picks still remain on track in meeting their operational targets. Our past favourites have included companies such as Lexam VG Gold (TSX: LEX), Hy Lake Gold (CNSX: HYL), Allana Potash Corp. (TSXV: AAA), Rodinia Lithium (TSXV: RM), Rye Patch Gold (TSXV: RPM), La Quinta Resources (TSXV: LAQ), Eagle Hill Exploration (TSXV: EAG) and Gowest Gold Ltd (TSXV: GWA). Ubika Research has followed these companies for some time. We have recently started coverage on a few new promising companies. Notable names include Meadow Bay Gold Corp (TSXV: MAY) and Glen Eagle Resource (TSXV: GER).
SCP: Tell us a little about the progress made by some of your past picks?
Vikas Ranjan: Most companies that we follow have been making good progress. However, the markets have not been kind to some of them lately. For example, Hy Lake Gold just announced that Goldcorp (TSX: G) has just accepted to become a 40% partner on one of its flagship properties, the Rowan Property. They have also been getting some very encouraging drill results at their Mount Jamie property. Lexam VG Gold continues to make significant progress. We continue to believe that the company represents probably the best potential in the Timmins Gold Mining Camp for a junior gold explorer. Allana Potash has been obtaining stellar drill results and just announced a funding from International Finance Corporation, which clearly demonstrates the strength in their property. We believe that Allana will come in with a resource estimate soon. Rodinia Lithium has been making significant progress in advancing its projects and has been receiving very encouraging drill results. Rye Patch Gold is another example of a company under coverage that continues to make significant progress. The company has been hitting several high grade zones of mineralization and will continue to drill throughout the summer months, which can lead to significant news flows. Gowest Gold is also expected to announce an updated NI 43-101 resource estimate, which we believe could be significantly higher than the current estimate. La Quinta Resources announced some very encouraging trenching results at its Easter Gold Project and is poised to start the drilling on a very promising target area. It is completing a financing round and will make good use of the capital by starting the drilling program. We expect the company to get very busy during the summer months. Eagle Hill is also working on a NI 43-101 report and we believe that it is expected in coming months.
SCP: What about some of the new additions to your coverage list?
Vikas Ranjan: Sure, Meadow Bay is a Nevada based gold exploration company. Its principle asset is the Atlanta Gold Mine project, which produced 120,000 oz of gold between 1975 and 1985. The company plans to focus on developing the Atlanta Gold & Silver Mine with a view to start gold production and to generate cash flow within 2-3 years. There is an internal resource estimate (Not compliant with NI 43-101) of approximately 464,000 oz of gold at a high cut-off of 1.8 gpt at the Atlanta Gold Mine property. The company believes that with limited drilling, there is strong potential to expand the resource base at this project to more than 1 million oz. It plans to undertake the necessary work to bring expand the current internal resource and to bring it to the NI 43-101 status in the near future, which is a key near-term objective of the company.
Glen Eagle Resources is a very interesting play on Lithium and Phosphate. It is currently working on a pre-feasibility study on its Authier lithium project situated near the lithium project of Canada Lithium Corp (TSX:CLQ) (TSE: CLQ) in Quebec. The Authier deposit contains 6.5 million tones of NI 43 101 compliant Lithium resource in the Val D’or mining region in Quebec that has access to world-class infrastructure, labour and technical personnel. It also recently acquired the “Lac Lisette” phosphate property located 50 km north of D’arianne Resources’ (TSX VENTURE:DAN)(CVE:DAN) Lac à Paul phosphate project. The company is currently working to aggressively develop this phosphate project located in the very attractive Saguenay-Lac-St-Jean region in Québec, Canada.
SCP: Thank you Vikas, finally do you have any final thoughts for our viewers?
Vikas Ranjan: At Ubika Research, we believe that the overall fundamentals in the economy are improving although there are still some risks that can impact the markets negatively. We like the markets at these levels and feel that good opportunities are available for astute investors. The second half of the year would be better in our view.
Disclosure:
1) Vikas Ranjan: I personally and/or my family own shares of the following companies mentioned in this interview: Lexam VG Gold Corp., Hy Lake Gold, Gowest Gold, Rodinia Lithium and Allana Potash Corp.
I personally and/or my family is paid by the following companies mentioned in this interview: None.
2) Ubika Research has received fees from several companies mentioned in this interview to provide research coverage. Ubika Corp. also has an agreement in place to receive options from the following companies mentioned in this interview: Rye Patch Gold Corp., Hy Lake Gold, Glen Eagle Resources, Rodinia Lithium, Meadow Bay Gold & La Quinta Resources Corp.
Except for the historical information presented herein, matters discussed in this interview/document contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future results, performance or achievements expressed or implied by such statements. Nothing in this interview and report constitutes an offer or invitation to purchase or acquire any shares in any company or any interest therein, nor shall it form the basis of any contract entered into for the purchase or sale of shares in any company mentioned in this interview and report.
Ubika Research and
www.smallcappower.com are both divisions of Ubika Corporation. They are not registered with any financial or securities regulatory authority and do not provide or claim to provide investment advice or recommendations to readers of this report. For making specific investment decisions, readers should seek their own advice. For full disclosure, please visit
https://www.smallcappower.com/disclosure.aspx