Sentiment towards gold by the investment community has gone pessimistic in 2013, but looks to be gaining a more optimistic view since the end of June. The reasoning behind the first-half negativity it is somewhat muddled and the depressed prices may present a premium opportunity for contrarian investors to “strike while the iron is cold” to maximize returns. Gold remains in a 12-year uptrend since lows of $255.80 per ounce in April of 2001. Those that saw the gold lining of the dark cloud as bullion faded from highs of $420 five years earlier were handsomely rewarded as the journey to over $1,900 per ounce was just beginning.
And what about when the markets collapsed in 2008 and gold fell from $1,030 per ounce to under $700? Those savvy investors that played the pullback were up more than 40 percent in a matter of months.
Investors like Warren Buffet, Carl Icahn and Carlos Slim have made their billions by seeing the opportunity when Wall Street is moving like sheep together without a rhyme nor reason. Safe to say that gold is still in demand globally as a precious metal and when the general markets decide to take a breather from these all-time highs, investors run back to the precious yellow metal.
Investors need to ask themselves several questions when looking for high growth potential given the reality that so many junior miners of varying sizes have seen valuations get squashed in this year. Questions such as: Does the company have properties close to major miners? This increases not only the potential for substantial reserves, but also acquisition opportunities in the future. Is there infrastructure in place to support a major gold discovery? This is imperative for immediate production and reduced expenses. This doesn’t mean just corporate infrastructure and seasoned management, it means onsite infrastructure as well, including roads, power, water, work force, equipment, etc.; everything that makes a mine go. Is the geopolitical landscape friendly to miners? This has obvious advantages for expeditious production and financial savings.
Another important aspect to consider when making an investment decision in a miner has to do with the paradigm shift toward high-grade gold production. With production costs ever increasing, miners are looking to move away from low-grade gold that requires larger amounts of mining and processing that erodes profits and becoming more focused on lower amounts of digging to yield higher revenues, hence the shift to high-grade projects.
All that remains is the final and most important question: Is the current valuations conducive to a large upside potential of the company?
Going through these questions systematically will eliminate the vast majority of junior miners and leave an investor with quality choices for a portfolio addition for the long haul.
At Baystreet.ca, we have taken these questions to the streets and uncovered a two-fold gem in Spartan Gold Ltd. (OTCBB:SPAG) and Sphere Resources Inc., which is listed on the NEX Board of the TSX-Venture Exchange (TSX-Venture:SPH.H). The two are meshed together as Sphere holds a 51.6 % controlling interest in Spartan Gold, so to a certain extent, the companies are a bit synonymous.
Combined, the companies have substantial holdings in some of the most prolific, high-grade gold regions of the world. Spartan has gold exploration and development projects in Nevada and Alabama, with its most significant assets centered in the Carlin-Rain and Round Mountain-Northumberland Gold Trends in Northeast Nevada. The Alabama holdings rest in the historical Arbacoochee Mining District.
Sphere also brings to the table its Dome/McManus and Alcourt projects in the gold-rich Red Lake District, positioning the companies in the two largest gold-bearing regions in North America.
Simply, the best way to find gold is to own property contiguous to producing mines. The companies’ 3,040-acre Poker Flats project in Nevada is only 1.5 kilometers south of Newmont Mining Corp.’s (NYSE:NEM) Emigrant gold mine that is estimated to contain over one million ounces of gold (about $1.6 billion at today’s prices). Poker Flats is the next logical progression of mines that follow the Carlin Trend of Nevada and it is literally surrounded by productive projects. To the north of Emigrant are a series of other mines, including Goldstrike, Leeville and Gold Quarry that produce over 3 million ounces annually and host about 140 million ounces of gold, as well as silver and copper.
A National Instrument technical report on Poker Flats shows the initial focus to be on Carlin-type gold mineralization (fine particles of low-grade gold in large amounts). Gold is gold and that plays an important role, but the property holds strong potential to host high-grade mineralization as well. Drilling last year at Gold Standard Venture’s Railroad Property immediately adjacent and to the west of the Poker Flats property boundary intersected 56.4 meters of 4.26 grams/tonne gold and another intersection 77.8 meters of 1.63 grams/tonne gold. Considering the new discovery looks to run directly into the large Poker Flats property, the Sphere/Spartan land could be a glut of both low-grade and high-grade gold.
The 4,540-acrea Ziggurat gold property has many of the same characteristics with Carlin-type gold and major miners enveloping the land. The 15-million-ounce Round Mountain and Gold Hill gold mines of Kinross Gold (NYSE:KGC) and Barrick Gold (NYSE:ABX) as well as Newmont’s 3-million-ounce Northumberland gold mine are all in the same vicinity.
Heading up into Canada, there is no better place for gold than the Red Lake District of Ontario. Many high-grade intercepts have been made at Red Lake since gold was first discovered in the 1920’s, including Goldcorp’s (NYSE:GG) mammoth strikes in 2010 of 136.3 grams/tonne gold across 34.7 meters and 1.7 meters of 1,826.3 grams/tonne gold. Now called the Red Lake Mine, Goldcorp produced 622,000 ounces in 2012 at a grade of 23.92 grams/tonne at about $400 per ounce in costs.
The 1,482-acre Dome/McManus property is only 1.5 kilometers from Goldcorp’s High Grade Zone area. Historic drilling at Dome has intersected 33 grams/per tonne gold over 2 feet, indicating that the property could host substantial high-grade deposits and supported by geologic maps of the Goldcorp mineralization trends. Drilling in 2011 and 2012 on the Dome/McManus property identified a gold mineralized system stretching 1.3kms long by 400 meters wide.
The smaller, 250-acre Alcourt property was also a subject of drilling with a non-NI 43-101 report suggesting that the property holds about 9,000 ounces of gold (at 0.45 ounces/tonne) which would likely be expanded upon additional drilling and induced polarization surveys.
The two companies have embarked on a novel approach for funding of development of these promising properties through a corporate bond approach. It’s no secret that funding has become a challenge in recent years for miners, no matter how stellar the location of properties. Sphere delivered a message updating shareholders on its offering of up to US$10 million of a five year senior secured debt instrument through a private placement. Potential investors identified by its New York advisors are slated to be assessed in coming weeks. This unique approach should give the company a competitive edge over other miners seeking funding as well as protect shareholders from the toxic financing that so many companies are forced to undertake in order to get boots on the ground at projects. Upon completion of the raise, the initial focus will be on immediate development at the Poker Flats project.
In a guest appearance on BNN this year, George Grignano, the president of InvestorsStockGuide.com, disclosed that he is a Sphere shareholder and briefly discussed the incredible potential of the Sphere properties because of their close proximity to massive gold reserves controlled by Goldcorp, Newmont and Gold Standard Ventures. Grignano sees a tremendous upside if the company completes the aforementioned bond offering, saying, “I can see the stock rising exponentially, probably 500 to 1,000 percent.” That video can be viewed at: http://www.youtube.com/watch?v=cnC18f4P0i4.
A discerning look at Spartan and Sphere provides the necessary answers to all of the questions above. A large portion of the reasoning for that is the experienced management teams that are calling the shots with Malcolm Stevens holding the chief executive position at both firms. All tallied, the companies’ executives and directors have about 200 years’ experience in the full gamut of business and mining with strong lineages in financing of junior companies. Each project meets investment requirements for being surrounded by gold producing mines owned by major miners, which provides necessary infrastructure as well as increasing the likelihood of strong reserves and perhaps aligning the property (or company) as an acquisition target in the future. All of the properties are located in the biggest gold mining regions of North America, where legislation is definitely pro-miner. The properties all have the potential for sought after high-grade gold discoveries, with the added benefit of the Nevada properties almost certainly full of open pit potential for low and high-grade gold mining.
Both the SPAG chart and the SPH.H chart are in positions for potential upward movements, but let’s focus on SPH.H for the sake of brevity. A look at a four-year monthly chart shows a massive double bottom pattern that has the stock price climbing off the bottom again. A bottom, just below a penny, that has never been broken in the trading history of the company. Since the low was last hit in August at ½ a cent, the stock price has scaled all the way up to 2.5 cents before pulling back to 1.5 cents. The last move in 2010 started similarly and resulted in a climb all the way up to 12-cent highs that delivered gains in excess of 1,100 percent. Now, we’re not in the price projection business, but from a technical standpoint, the stock will meet a bit of resistance at 2 cents and 3 cents, but there is not much more in the way until those old highs are hit.
Further, there is an uncanny similarity in the positions of the Moving Average Convergence/Divergence (MACD), Full Stochastics (STO) and Relative Strength Index (RSI), probably the three most commonly used barometers of trend and momentum used by technical traders. The STO, a gauge of momentum has already made a slight turn since the start of the year, making a three month uptrend even though the share price is still below January’s price. This can be viewed as a change starting in momentum. The MACD has turned and is now ready to drop a bullish cross as the 12 EMA looks to break through the 26 EMA, a signal that the downward trend has lost its steam and the momentum is swinging bullish again. The RSI has increased in value from the end of February through today’s trading, again a hint of momentum turning the corner as it corrects from an oversold condition.
Add it all up and this is one, big double bottom pattern that is worth putting a close eye on for continued upward pressure because large gains can be realized from these extremely low levels. All in all, both Companies look worthy of further due diligence in our opinion for bottom picking investors that can see the potential presented here. As we always mention at this point, these are merely the interpretations of Baystreet.ca. We encourage all investors to do their own due diligence and consult with a financial advisor prior to making any investment decisions.
Measuring technical and fundaments, things look right in both instances, presenting plenty of headroom for share price appreciation. Spartan Gold shares are trading for 5 cents per share while shares of Sphere are at 1.5 cents each, equating to market capitalizations of $2.12 million and only $2.08 million, respectively. It wouldn’t be a stretch to consider these firms undervalued given their substantial portfolio of properties. GSV was valued at $30 million before the Railroad Project discovery as a comparison with Spartan value of $2.12 million. It is for these reasons, as well as the ones mentioned above, that we at Baystreet.ca have decided to turn our next corporate spotlights on Spartan Gold Ltd. (OTCBB:SPAG) and Sphere Resources Inc. (TSX-Venture: SPH.H) and encourage our members to immediately begin their due diligence and add them to their watchlists.
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