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 the experienced investor, Ticker Trax provides an 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.
Both tables are updated monthly.
MONITOR FOR ABNORMAL ACTIVITY (ACCUMULATION or VOLUME)
For paid Ticker Trax subscribers I publish a list of cash rich micro caps that includes 54 companies with a total of $2.4 Billion in net Cash (after debt). We started the year with 82 companies but as they continue to burn through cash, I drop any that fall below $10 million in cash.
Any of these grossly discounted companies with big war chests can produce dramatic gains but they require a lot of patience and more important - the spare cash to invest.
Colorado Resources (TSX: V.CXO, Stock Forum) (35 cents) is one example of the dramatic gain potential. The company was on my cash rich list heading into 2013 and spent months trading below 20 cents. The stock collapsed to 15 cents in April (trading well below their cash value) and within two weeks released an impressive drill hit on their exploration project.
Within a month CXO (incredibly) ran to $1.70 and gained almost 1000% ! Gains of this nature are very uncommon, but they do occur.
The risk with any of them is that you tie up the investment for an indefinite period of time because many companies are looking for acquisitions or mergers. This strategy involves a lot of diversification but you can monitor them and try to catch abnormal trading activity that could signal something material is enroute. It doesn't always work but it also saves trying to throw a dart.
I tend to treat these as “shells” looking for a merger or acquisition that would rebuild shareholder value.
The companies are dramatically under-utilizing their available capital and the risk is that they are simply make-work projects (retirement projects) for the existing management or fee generators for the board of directors.
When you are sitting on a giant bank account drawing large salaries with a nice expense account and high priced office, there can be little motivation to take on something new that comes with added responsibility and risk.
I often question why large shareholders tolerate this activity but unfortunately I see it happen a lot.
I have highlighted three below – simply because they trade significantly below their cash value and because they each have more than $50 million in the bank. HOWEVER, if you look at the chart for Phoscan you will see a company that has accomplished next to nothing over two and half years.
And Africo should be embarrassed but obviously no one cares what image they portray. On their website they highlight the following:
“The Company is advancing the development of its high-grade Kalukundi cobalt-copper deposit in the Democratic Republic of the Congo through an aggressive plan of converting existing resources into reserves and bringing the mine into production in 2009.”
https://www.africoresources.com/c/c_i.php
A reference to 2009 ? Really ? This is a company with $59 million in the bank. It is no wonder they have not put a mine into production. They don’t even read their own website – a direct (poor) reflection upon management.
The trick is to buy them as cheap as possible and tuck away (if the burn rate is controlled) or try and catch them down the road - if it looks like they may be emerging from a long slumber.
The risk is that they first need an overhaul of the senior management and directors – and that may never happen before you die of boredom.
1) Africo Resources Ltd. (TSX: T.ARL, Stock Forum) (50 cents)
www.africoresources.com
Shares Outstanding 71 million
Net Cash: $59 Million - 83 cents per share
2) Phoscan Chemical Corp. (TSX: T.FOS, Stock Forum) (26 cents)
www.phoscan.ca
Shares Outstanding 169 million
Net Cash: $59 Million - 35 cents per share
3) Strategic Metals Ltd. (TSX: V.SMD, Stock Forum) (40 cents)
www.segroup.ca
Shares Outstanding 90 million
Net Cash: $53 Million - 59 cents per share
Disclosure: Danny Deadlock owns 25,000 shares of Phoscan
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