Stockhouse Ticker Trax is published to subscribers every Monday (annual cost only $99). We focus on best-in-class high growth small companies trading on the TSX and TSX.V between 5 cents and $3 with a market cap below $300 million.
Equity Analyst Danny Deadlock has 30 years of experience speculating on Canadian penny stocks and targets capital gain opportunities and diversification in metals and minerals exploration, energy, and technology.
For experienced investor, Ticker Trax provides and extra set of eyes and ears (idea generation) and for those learning to invest in micro cap stocks, we provide stock picks and market education.
Subscribers receive; (1) new research (stock picks) weeks in advance of being featured on this weekend column, (2) exclusive access to our list of junior gold exploration companies (critical for peer valuation), (3) exclusive access to our list of Cash Rich micro cap companies (our Virtual Vulture Fund), which contains 80 companies with almost $3 billion.
Both tables are updated monthly.
With the further collapse in gold (which started mid April) the junior metals exploration companies have now officially been decimated. While the rest of North America has been enjoying healthy capital gains, thousands of investors involved in this sector have suffered astonishing financial loss.
The TSX Venture composite (VIJX), which represents the best of that exchange and is very heavily weighted to resource stocks has lost 35% of its value the past nine months. The huge majority of junior exploration stocks have lost 60% to 90% of their value the past year.
The current valuations are WORSE than what we witnessed during the Q4/08 global economic crisis.
In this environment when companies exist that are trading rock bottom of their chart and have large proven ounces and healthy bank accounts, it becomes extremely difficult to speculate on grassroots exploration companies with limited proven ounces and even smaller bank accounts
One such (healthy) company I am featuring this weekend is Volta. There are several of these I track with subscribers but if you still have faith in gold and have some patience (along with a high risk tolerance), a company like Volta may be worth taking a look at.
1) Volta (TSX: T.VTR, Stock Forum; 14 cents)
www.voltaresources.com
I first recommended Volta to subscribers in 2012 and watched it swing from an 80% gain to a 25% loss as markets melted down. I dropped coverage in October at 66 cents.
The company has $14 million in the bank and 155 million shares outstanding. At 14 cents they have a $22 million market cap. This values its underlying resources and property at $8 million (market cap less net cash as per last financials).
Based upon drilling to date, its Kiaka project in West Africa contains an undeveloped gold resource of 4.86 million ounces (Measured and Indicated) and another 1 million ounces Inferred. Average grade is in the range of 1 g/t tonne. This is a higher risk grade with gold near $1200 but also the reason these gold companies have been under tremendous pressure (because operating costs and capital costs have risen significantly).
If we give them credit for 20% of their Inferred ounces, we can add 200,000 ounces to the 4.86 million. This wouldrealistically estimate they have five million ounces of gold in the ground.
As noted above, the market valuation (after removing cash) is only $8 million with the stock at 14 cents. If we divide that $8 million by the five million ounces, we determine that the market is valuing their gold at $1.60 per gold ounce.
The average gold valuation for companies of similar size and grade was approx. $40 per gold ounce in Q2 2011. At the time gold traded around $1400 per ounce. By December 2012 this average for juniors was down to $36 and in April 2013 it hit $18 per gold ounce. This is based upon the 50 junior gold companies we track with a minimum 1 million ounces in a 43-101.
Volta isn’t the only one stuck in this valuation trap. But this demonstrates the valuation growth potential (IF) you have faith that gold will recover. If you don’t this may be a pointless speculation.
Its June investor presentation has most of the information you require for further due diligence.
https://www.voltaresources.com/i/pdf/presentation.pdf
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Disclosure: Danny Deadlock owns 70,000 shares of Volta bought during Q2 2013.
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