In this kind of market, Leede Financial investment advisor says he likes to own companies with no permit, financial or political risk.
Stockhouse talks to Ian Worobetz, Investment Advisor, Leede Financial Markets Inc. in Vancouver, (member CIPF).
Focus: Resources and venture capital
Can you give us your perspective on what is happening in the market right now?
“There is a perceived China slowdown, resulting in less demand for resources. This is putting pressure on the Canadian and Australian dollars, leading to lower investor interest in the resource sector. It makes it difficult to obtain venture capital for resource investment.’’
How do you think this will play out over the next few months?
“It could be a very quiet summer. Ultimately I think resource companies which have projects and are under financed are going to find it difficult to raise financing dollars. They are going to have to share an interest (in their projects) with those that have money, or sell to those with money. There could be a huge shakeout here.’’
How does this affect your work as an investment advisor?
“People who I would call career investors are noticeably down on their investments, compared to last year in things such as private placements. They are reluctant to put new money into the market until they can find liquidity on some of the investments that they already hold. So there isn’t as much trading activity going on. And there isn’t as much financing activity going on. Those that are engaged in the venture capital business are not doing as much business, or are finding it very difficult right now.
So given the environment that you see, can you give us some of your stock picks?
“It is nice to own stocks that have no permit risk, no finance risk, little political risk and have purchase agreements in place.’’ That would be a key reason to own the following names:
I still like Fire River Gold Corp. (TSX: V.FAU, Stock Forum). The company has set a target of 40,000 ounces of annual production from its Nixon Forks mine in Alaska. The company recently added a carbon in leach circuit that is expected to deliver ore recoveries of over 90%. That’s up from 70% in March. Fire River was trading this week at 17 cents. But Worobetz thinks the stock could worth between 80 cents and $1.
SilverCrest Mines Inc. (TSX: V.SLV, Stock Forum) has an amazing story to tell. The company is producing roughly 1.5 million ounces of silver equivalent per year from its Santa Elena silver-gold mine in Mexico. But as a result of an expansion, production is expected to increase to 4.6 million ounces annually by 2014. SilverCrest is also tipped to develop a large silver equivalent resource (200 million ounces plus) at another Mexican project, the La Joya, a move that has prompted Canaccord Genuity to put a $5.75 target on the stock, with a speculative buy rating.
“Diamcor Mining Inc. (TSX: V.DMI, Stock Forum) is a diamond production story in South Africa which has performed marvelously well in a difficult market,” Worobetz said. After establishing a strategic alliance with luxury retailer Tiffany & Co. (NYSE: TIF, Stock Forum), Diamcor is in the final stages of putting its Krone-Endora mine into production. Diamcor is targeting production levels of between 120,000 and 240,000 carats per year for the next decade. In March 2011, Tiffany provided Diamcor with a $5.5 million loan comprised of a $3.5 million term loan and a $2 million convertible debenture. The debenture can be converted into shares of Diamcor at 75 cents per share. Diamcor traded at 88 cents this week, giving the company a market cap of $24.3 million, based on 27.6 million shares outstanding.
Coalspur Mines Ltd. (TSX: T.CPT, Stock Forum). The company is developing a large coal project near Hinton, Alta., with a view to supplying the Asian market. “I think Coalspur has really got a good story to tell,” said Worobetz. Coalspur’s flagship asset is the Vista Coal project, which is billed as potentially the largest export thermal coal mine in Canada. Initial development costs are expected to be $860 million with an additional $370 million required to reach full capacity. Trading at $1.77 this week, Coalspur has a $1 billion market cap, based on 573.8 million shares outstanding. “It could be a $5 stock or better,’’ Worobetz said.
Ian Worobetz may have been involved in financings in the above company in the past. Ian Worobetz may or may not personally own the stock.
The comments and opinions expressed herein reflect the personal views of Ian Worobetz. They may differ from the opinions of Leede Financial Markets Inc. and should not be considered representative of the research beliefs, opinions or recommendations of Leede Financial Markets Inc.