The Metals Report: Which catalysts continue to positively move share prices in the small-cap junior gold equities market?
Jocelyn August: Ones that demonstrate the economic viability or the potential success of projects, like the announcement of positive feasibility study results, the completion of a feasibility study, the announcement of favorable drill results and the announcement of favorable regulatory permit decisions.
TMR: Rank the following eight catalysts on their likelihood to move a stock price: drill results, publishing of resource estimate, publishing of preliminary economic assessment (PEA), publishing of feasibility study, a change in the board or management team, investment by a strategic partner or investment bank, commodity price increases or decreases and the issuance of a mining permit.
JA: We generally don't follow or have analytical numbers on changes in management teams or commodity prices, so I'll rank just six of those.
These numbers relate to the stock prices the day after a catalyst has occurred: Investment by a strategic partner or an investment bank moves a stock up or down by 8.5%. This is a positive or negative number—an absolute number.
Drill results are after that, moving a stock by 7.92%. The issuance of mining permits moves a stock 7.36%. Feasibility study results or publishing of the feasibility study moves a stock around 7.2%. An initial resource estimate moves a stock 7.1%. There's a drop-off in the stock prices for an update to the resource estimate. The initial resource estimate really gives the big pop. The PEA is around 6 or 6.5%.
TMR: Did we miss any others that could be meaningful to investors?
JA: A go/no-go decision—a green light/no green light decision—is actually the largest. That doesn't happen as frequently, but it can move the stock an average of 9.918%.
A completion of construction announcement moves the stock around 7.8%, more than a production start does.
TMR: Have some catalysts become more important than they were when you first started?
JA: We started following the natural resource space in 2008. Since then we've seen minor changes in the rankings based on what catalysts have occurred and how different companies have moved. But catalysts that show a project's economic viability and the amount of the resource present remain the large movers.
TMR: Have you noticed any jostling of the rankings over the last four months?
JA: Really positive catalysts move the share prices more in this price environment. Whereas a positive feasibility study or drill results would usually move a stock 10–15%, they're now moving it upward of 15–20% for some of the junior miners, despite the depressed price of gold.
TMR: Why don't you factor in things like commodity prices? Why do you eschew that?
JA: We follow anything that can be anticipated and that is publicly available information—something you can put a time frame on, like H2/13 or Q4/13. A commodity price is more of a trend than an actual event.
TMR: But a change in a board or management team is public information, and you can track that kind of thing.
JA: But it's not an anticipated catalyst that has a specific time frame. You can track it afterward, but you can't anticipate it.
TMR: Your Q3 CatalystTracker includes junior gold developer International Tower Hill Mines Ltd. (ITH:TSX; THM:NYSE.MKT), which recently published its feasibility study. International Tower Hill's CEO, Don Ewigleben, made this announcement: "While the large project feasibility results are not economically robust in today's gold market, the Livengood project remains a very significant gold deposit in one of the most favorable jurisdictions in the world." This is obviously not a positive catalyst, but could it become one with a higher gold price?
JA: The effect of this announcement on the stock price wouldn't change, but if the price of gold goes up in the future, it could become a positive thing for the company.
On Tuesday, July 23, the day of the announcement, the company's price was up 16.88%, suggesting that investors were anticipating positive results. The day after the announcement the price was down net 46.75%, showing that investors were disappointed in the results. But the project would be economically viable at a gold price of $1,500/oz. or above. At a price of $1,700/oz. or above, it would actually have a positive net present value.
TMR: Sagient Research also publishes information that tracks private investment in public equity investments by large institutions. Do certain institutional investors move junior stocks higher?
JA: Deals with named institutional investors move the junior mining stock more significantly than deals without named investors. When a large institutional investor publicly invests in these companies, the stock price can move a lot in the short term, within a week of the announcement. Some large investors are Ironridge Global Partners and Brookfield Asset Management, which just invested in North American Palladium Ltd. (PDL:TSX; PAL:NYSE). There was big movement after that. That information is available on our PlacementTracker website.
TMR: Is there similar movement when a senior gold producer takes a position in an explorer or a junior gold developer?
JA: I know it was a very positive thing for Silver Bull Resources Inc. (SVB:TSX; SVBL:NYSE.MKT) when Coeur Mining Inc. (CDM:TSX; CDE:NYSE) invested in it, but I can't comment on the overall trend.
TMR: What types of small-cap mining equities should investors seek in this market?
JA: Look for a good management team that is transparent in its announcements and consistently meets its milestones. If it says it's going to finish its feasibility study within six months or within H2/13, it makes that deadline and announces its results within that deadline. Even if it has a negative or disappointing result, that shows it has a good management team that is setting and meeting goals.
TMR: What companies with near-term catalysts can you tell us about?
JA: We expect several near-term catalysts for Silver Bull's Sierra Mojada project within the current quarter—its maiden PEA and the announcement of metallurgical results. It plans to announce those together, and when it does, it will be a pretty big mover for the company. This is definitely a milestone. If the PEA and the metallurgical results are positive, the company plans to advance the project to feasibility in 2014. We discuss those two catalysts in our Q3/13 Outlook report, published on the Streetwise website.
TMR: If Coeur added to that position, would that be a further catalyst?
JA: That would show its confidence in the project and would be a great thing for Silver Bull.
TMR: What's another example of a catalyst?
JA: On July 31st, Richmont Mines Inc. (RIC:TSX; RIC:NYSE.MKT) announced the completion of the bulk sampling phase at Monique, the estimated mineral reserves for the project, and a positive production decision for the project. In the month prior to this announcement, the stock price rose approximately 18%. Once this announcement was made, the stock was relatively flat, actually down almost 2% on the day of the announcement. This suggests to me that investors were already anticipating this type of big announcement, hence the large increase in the stock price in the month prior to the announcement.
TMR: You're on a roll, Jocelyn. Tell us about more companies with near-term catalysts.
JA: Colossus Minerals Inc.'s (CSI:TSX; COLUF:OTCQX) Serra Pelada project is expected to go into production by the end of the year, but it hasn't announced an initial resource estimate. That may be because it's a historically producing mine, but it really needs to make that announcement as soon as it can. It will definitely help it or hurt it.
TMR: Colossus recently did a $33 million equity financing, underwritten by a group of brokerage houses. Did that have an impact on the share price?
JA: The share price is still only $0.74/share. If it had the resource estimate, it probably would have gotten a better share price.
We are also looking at two catalysts this quarter for Global Minerals Ltd. (CTG:TSX.V; DPF:FSE)—an updated resource estimate and a PEA. They are both expected in Q3/13. The partner is Esperanza Resources Corp. (EPZ:TSX.V), and the project is Strieborná, in Slovakia. We're also looking for permit approval by the end of the year.
TMR: How likely is that? Global Minerals seems to have good connections with the Slovakian government.
JA: It has an excellent relationship with the community, which it needs. You see projects where companies don't have a good relationship with the local community or government, and things don't work out for them.
TMR: Does CatalystTracker go into intangibles like that?
JA: When we track upcoming catalysts, we put in a lot of information about relationships with the local community. For permitting decisions, particularly, we'll put in information about court decisions or decisions by the local government. For example, Pascua Lama keeps getting pushed back, and things are happening within Chile that are making it a not very positive experience for Barrick Gold Corp. (ABX:TSX; ABX:NYSE). Even if we're tracking the production start catalyst, we will include information about the permitting and the project's environmental aspects.
TMR: Are you following other mine commodities?
JA: We follow silver, copper, nickel and iron. We're following Rogue Iron Ore Corp. (RRS:TSX.V) and anticipating a resource estimate for its Radio Hill project in the current quarter.
TMR: The end of August? The end of September?
JA: It gave the Q3/13 timeframe in May of this year. We're still looking at Q3/13, but one third of it has already passed.
TMR: What's moving the big names in the gold space?
JA: Earnings seem to move them the most, moving the stock 5–6%. Obviously, the stock price has a lot to do with it. With a larger stock price, events won't move the stock the same percentage as they will with a smaller junior miner. For companies like Barrick or Goldcorp Inc. (G:TSX; GG:NYSE), announcements about particularly large projects can also move the stock price.
TMR: Either way, we've found out.
JA: Pascua Lama is a good example of that. There was also some movement with Goldcorp and the Éléanore project.
TMR: There were some forest fires in the area of the Éléanore project. Does that tend to impact the share price, or do investors typically figure it's just a temporary problem?
JA: It may impact the share price in a lesser way, but forest fires seem like a temporary thing. If a company was having difficulties with permitting or with environmental groups, that would be a negative catalyst for the longer term.
TMR: Do Barrick or Goldcorp have any positive catalysts coming up?
JA: Nothing is expected for Goldcorp's Éléanore until 2014. Barrick has been scaling back its exploration and development in light of the gold price.
TMR: Do you have any parting thoughts on catalysts, maybe a tip for investors?
JA: A lot of investors are scared. Obviously, there is a lot of negativity, but if you can find the companies doing good things, there is still money to be made. You can't just throw a dart and expect to hit one the same way you used to do, but you can find good value and investment opportunities. You just have to find the right companies and the right catalysts.
TMR: Jocelyn, thank you for your time.
Read Jocelyn August's interview on catalysts in the energy sector in The Energy Report.
Jocelyn August is currently the senior analyst and product manager for CatalystTracker, Sagient Research's proprietary research product of focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the "Catalyst Impact Study: Natural Resources Sector." Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a Master of Business Administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a Bachelor of Arts degree in sociology.
Want to read more Metals Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.
DISCLOSURE:
1) Brian Sylvester conducted this interview for The Metals Report and provides services to The Metals Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Metals Report or The Gold Report: International Tower Hill Mines Ltd., Silver Bull Resources Inc., Richmont Mines Inc., Colossus Minerals Inc., Global Minerals Ltd. and Goldcorp Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Jocelyn August: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.
