Stockhouse Ticker Trax is published to subscribers every Monday (annual cost only $195). 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 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.
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.
Takeover of South African based Eastern Platinum by the Chinese and its Relevance to Rockwell Diamonds – A Strategy of Buying Valuable, but “Ignored”, Assets
I started coverage of Eastern Platinum (TSX: T.ELR, Stock Forum) ($1.60) with Ticker Trax subscribers at 6.5 cents last November and issued a few updates through 2014. The company has been through a 10:1 rollback so the equivalent would be 65 cents. The speculation at the time was buying ELR's large war chest of cash ($90 million) at a discount to get the large mining facility and PGM reserves for free.
This is a strategy that has worked very well in the past for me and has worked well again recently. The Chinese are proposing a $225 million takeover of ELR that (if it closes), would give ELR net cash in excess of $250 million ($2.50 per share).
For subscribers that were able to buy and hold this one, the one year gains would be in the range of 100% to 300%.
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Rockwell Diamonds Inc. (TSX: T.RDI, Stock Forum) (30 cents) - Potential to be Another ELR?
www.rockwelldiamonds.com
Rockwell is another company I own and that we are following into 2015. This is a similar scenario to ELR in South Africa but we are not speculating on the discounted cash. Instead we are speculating on the substantial discount to their net book value and the unrecognized value of their diamond reserves.
At 30 cents the market cap is only $17 million versus a net book value in excess of $50 million (98 cents per share). These are high-demand, high-quality investment grade diamonds with a fully operational mine. Also keep in mind that the net book value does not recognize the diamonds sitting in inventory (the way the industry does their accounting), and it only recognizes a small portion of the potential diamond reserves.
Similar to ELR, few want to touch these companies because they are in South Africa. Yet they are sitting on substantial assets that are completely ignored by the investing public. In the case of ELR I noted this past year that fund giant Invesco was buying the stock in large quantity - yet most retail investors ignored that signal – I highlighted this publicly last December
https://stockhouse.com/opinion/ticker-trax/insights/2013/12/27/powerhouse-invesco-accumulating-7-cent-eastern-pla
Also like ELR, Rockwell Diamonds requires patience but if the speculation proves correct, the patience is worth it because the capital gain rewards can be substantial.
Operationally the company is doing excellent and the demand for high value, investment grade diamonds remains strong. Their website is very well done and this corporate presentation will help with due diligence.
https://smudgetest.co.za/rockwellwp/wp-content/pdf//2014-06-12-PresentationA.pdf
Personally I would rather buy companies like Rockwell that are fully operational with grossly discounted assets (ignored by the market) VERSUS the hundreds of grassroots exploration companies that have become the demise of the TSXV as they continue to burn through cash and have nothing to show for it. An ongoing vicious cycle of shareholder / portfolio destruction!
DIACORE & BRISTOW FINANCING – NOV 20th
Rockwell announced that they are completing a $4.1 million low interest convertible debenture financing with two of their core shareholders. Rockwell's principal shareholder Daboll Consultants Ltd., an affiliate of Diacore (Rockwell’s beneficiation joint venture partner) is doing $3.0-million and Mark Bristow, Rockwell's non-executive chairman, will do $1.1-million.
About Diacore: www.diacore.com – one of the world’s leading diamond companies with offices around the world. They are involved in every facet of the diamond pipeline (mining, manufacturing, polishing, setting, marketing and retail). Diacore diamonds are known to be amongst the best in the world.
About Mark Bristow: The founder and Chief Executive of Randgold Resources, a British multinational gold mining company with annual revenue in excess of $1 Billion. Mr. Bristow has been the non-executive chairman of Rockwell Diamonds since September 2011.
This was a strong vote of confidence in Rockwell and it saves significant shareholder dilution at this low share price. Junior mining companies are notorious for putting cheap paper into the hands of investors who are only interested in selling their stock after four to six months so they can hold the warrants at zero cost.
This financing transaction demonstrated Rockwell’s commitment to its shareholders and to building shareholder value without throwing investors under the bus at a time when valuations are depressed.
Back in August I did a fourteen page report on Rockwell that you can find here:
https://stockhouse.com/getattachment/opinion/ticker-trax/insights/2014/08/15/rockwell-diamonds-t-rdi-40-cents-with-96-cent-book-value/ttraxfridayrdi081514-1-(1).pdf
The report is just as relevant although the price has fallen back from 40 cents as small stocks across the board have been decimated the past couple months (capping off four years of severe losses for the TSXV).
Rockwell is also excellent at using social media to provide corporate and industry updates along with photos - https://twitter.com/RockwellDiamond
** TWITTER NOTE: I maintain a twitter page at - twitter.com/tsxalerts
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Disclosure: Danny Deadlock owns 125,000 shares of Rockwell purchased in the open market throughout 2014.
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