An investment environment that allows us to start looking at grassroots exploration again
Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
Asher Resources (TSX: V.ACN, Stock Forum; 28 cents)
Shares outstanding: 11 million
Nevada gold exploration
Since the downturn in junior exploration stocks began 18 months ago, we have been focused on micro cap stocks with large cash reserves. This helped manage downside risk and maintain capital preservation.
With gold now approaching $1800 and a moderate recovery emerging in the junior gold exploration companies, we can begin to carefully dip our toe in the pool of more speculative, low-priced stocks with strong management and attractive upside potential from an initial resource discovery.
Junior exploration stocks produce the strongest gains during certain cycles. One of those cycles is the initial resource discovery phase. Equally important during that period of time is share structure. If a company has too much paper outstanding or it is not tightly held, it will often cycle through millions of shares in a tight range that mutes the percentage gain during that discovery phase (assuming there is a discovery in the first place).
In the case of Asher, the share structure is appealing because they only have 11 million shares outstanding with 10 cents per share in cash (no debt). Fiscally, it is run very prudently.
My primary concern with presenting a low-float stock to a larger audience is that liquidity at this lower level can be an issue – although there has been decent liquidity in the 20-cent range recently. I am also assuming there is only a small audience interested in grassroots exploration plays.
Stock promotion - a critical element to the success of junior gold exploration companies.
Asher CEO Richard Buzbuzian understands the importance of promotion to the success of junior exploration companies. Richard was the Investor Relations officer/director for New Dawn Mining back in December 2008, when the stock was trading at five cents. Under his direction the stock ran to $1.80 within six months and by mid 2010, New Dawn was trading at $2.25.
Obviously you need the results to go along with the corporate communications effort but it must be a carefully orchestrated process. During that period he also assisted with a hostile takeover of Central African Gold and raised $7.5 million at $1.80.
Nevada exploration – King Mine
It seems every time we turn around in 2012 there are problems (government, taxation, labor disputes, blockades) in foreign countries where so many junior companies are doing exploration – this is particularly troublesome in several regions of Africa and South America.
Asher’s focus is mining-friendly Nevada, where many world-class projects exist. It has become very difficult to find high-quality gold exploration projects in Nevada but Asher has been fortunate in securing a project called the King Mine.
Asher defines the King Mine project as; 1) high grade with strong mineralized gold at surface; 2) targets that are large and amenable to open pit mining; 3) in close proximity to past producers; 4) excellent regional infrastructure; 5) having significant blue-sky targets in the proven Walker Lane trend.
This Nevada project was historically mined by hand in the 1920’s and 1930’ with a stamp mill onsite. Very high grade material was extracted from over 11 shafts - all which sit above a very highly charged IP measuring 1200 meters by 450 meters.
Above the anomaly, where historic mining occurred, Asher’s sampling from their 2012 summer work program included eight samples above 1.0 g/t Au, three samples above 6 g/t/ Au and one sample at 55.7 g/t Au.
Their summer work program provided sufficient data to enable them to define initial drill targets and they expect to have a drill rig running in early 2013. To date, the geological model based on geology and geophysical signature suggests excellent potential for a near surface zone of economic gold values and a deeper, porphyry style gold-copper deposit.
It is also worth noting that prior to 2012 modern geophysics and drilling had never occurred on this property (a challenging situation to find in Nevada).
I always question how small companies find these projects and why they have not been picked up and drilled by someone else – particularly if they have strong upside potential. I discussed this with the CEO and it is a lengthy story that we don’t have space for here, but I was satisfied with the explanation.
Asher will raise a bit of capital this winter to fund drilling (expected in Q1/13) but the project has strong enough potential that they should not have much difficulty. I suspect they will want to try and do their first round of financing as close to 40 cents as possible. Because they have a very attractive share structure, it is possible for these companies to stage their financings to the benefit of existing shareholders.
Asher’s Powerpoint presentation is well done and provides further due diligence.
CEO contact - firstname.lastname@example.org
In addition to this weekend column and the bottom fishing research sent to paid Ticker Trax subscribers on Monday, I also provide free MicroCap alerts throughout the week. These are based upon News or Abnormal Price/Volume Activity on the several hundred stocks we track from our own research, brokerage analysts, or third-party newsletter writers.
Disclosure: Danny Deadlock owns 25,000 shares of Asher Resources (TSX: V.ACN).