Major Positions In My Portfolio and Why I own Them!
Mike Hoy
I will make no apologies for the excitement and enthusiasm I carry for the first two companies I am going to share with you out of our portfolios. Wanda and I, own a lot of stock in both of these companies. In fact I believe the quantity of stock we own in both companies will make us financially independent if my thinking proves correct. I have put my money where my mouth is and I will continue to add to my positions in both of these companies. I will reveal the amount of shares we have in both companies as well as the price appreciation goals I hope to achieve later in this article.
For those of you who are currently on my e-mail list these two companies are not new. What is new is the internal growth that both companies are achieving. Both these companies have been very successful in moving towards production and most importantly they continue to create value for their shareholders. The current market value of both these companies does not come close to reflecting the shareholder value that has been developed and in my opinion offer terrific opportunity for long term capital gains. I have never been as excited about the long term prospects for a company as I am for both of these companies.
Both of these companies are traded on the TSX Venture Exchange. http://www.stockwatch.com is an excellent website that I use to get twenty minute old quotes. This website gives me bid, offer, size, news, last ten trades and charts all for free; check it out.
ADANAC MOLY CORP.
AUA FOR CANADIAN QUOTES AND ANCGF IN THE US MARKETS
As I analyze AUA I can't help but sit back in my chair and go WOW! AUA has the Ruby Creek Property near Atlin in Northern B.C. This property is no stranger to the moly industry. Twice in the past, Kerr Addison and Placer Development took this property through the feasibility stage. In 1980 Placer fully permitted this project and was ready to put it into production before moly prices fell to $2.00/lb. Placer committed to do this with a net 60% interest. AUA now holds a 100% interest and moly prices are sitting pretty above $30.00/lb.
AUA projects to complete their Full Feasibility in Jan.-Feb. 2006 and are in the process of applying for all permits as I write. AUA projects they will receive all permits by mid year 2006.
To top this off, a wholly owned subsidiary, Traxys, of the largest steel producing company in the world, Arcelor, signed an offtake agreement with AUA in June giving Traxys exclusive rights to market AUA's moly world-wide to end users. I have to believe that the largest steel producing company in the world has a very good understanding of the need to develop additional moly supplies to meet the ever-growing demand. Traxys approached AUA after doing six months of homework and due diligence.
In December AUA will sit down with Traxys in an attempt to finalize an agreement giving Traxys the right to buy X percentage of AUA's moly at a stipulated price for a guaranteed period of years. If successful in reaching an agreement with these people AUA will be able to bank finance this project as the lenders will have no doubt that their invested capital and interest will be returned.
If AUA and Traxys reach an agreement; I personally believe that financing will be easy to achieve as it would make no sense for Arcelor Traxys to do a deal with AUA without knowing the financing will fall in place. I believe the largest steel producing company in the world will bring financing to the table.
Arcelor, on November 11, announced that they have budgeted $5,900,000,000 for acquisitions. Common sense leads me to believe that Arcelor would like to lock up a guaranteed supply of moly at a very competitive price. This guaranteed supply of moly will fill a very important void within Arcelor. Working with Arcelor, or any other major steel producing company, would be a win-win situation for both companies.
It is important to remember that Adanac's Ruby Creek Moly Mine will be the first major producing moly mine to come into production. This gives Adanac Moly Corp. a terrific advantage over other moly companies that the majors are fully aware of.
Production is expected by the end of 2007. Pre-feasibility cost estimates range from $300,000,000-$400,000,000 with internal rates of return estimated at 44% on the lower cost and 28% on the higher cost. Production will consist of processing 20,000 ton/day and a yield of 35,000-40,000 lbs. moly per day. Operating costs are expected to fall into the low quartile of producers because this is a pure moly play with no expensive sulphides to remove from the ore.
The most important points to understand with AUA:
- The feasibility study is underway and should be complete in January -February 2006.
- All permits are in the process of being applied for as I write and should be in hand by mid 2006.
- In December AUA will sit down in an attempt to finalize an agreement with a wholly owned subsidiary of the largest steel producing company in the world that will enable AUA to access funding that will lead to production by the end of 2007 if successful.
- AUA will be the first major moly mine to achieve production on the North American Continent in the last 30 years. When the majors turn their attention to the acquisition of moly they will direct their attention to the company that will be the first to bring production online.
- AUA will be a pure moly producer: In other words the Ruby Creek Mine does not have copper and other impurities to separate from their moly. This makes the mine environmentally friendly and the ore very inexpensive to produce. Both these factors are very important in bringing a new mine online.
Rough "back of the napkin" numbers show me that the possibility exists, with current moly prices, showing that Ruby Creek is capable of returning $6,000,000,000 over the next twenty years to the fortunate souls who own it. The funny thing about all this is the fact that the total market cap. of AUA is roughly $40,000,000. As the investment world wakes up to the fact that moly is the metal of the 21st Century and AUA will be the first major mine to go into production on the North American Continent in the last 30 years; shareholders stand to reap profits of 10 X their investments over the next two years.
In my portfolios we own roughly 300,000 shares and I have no intention of selling any stock below $5.00/share. I personally believe that a major will surface and buy us out within two years. The longer it takes for a major to surface the higher the price I expect to receive for my shares.
I personally believe sophisticated investors and large pools of investment capital will soon recognize that moly is the metal of the 21st Century. Once this capital understands that moly prices are not going to collapse and that the growing demand for moly makes it imperative for properties, like Ruby Creek, to be developed then I believe you will see moly stocks perform in the same or better manner than uranium stocks have performed.
On a short term basis the stock is currently doing a private placement which will probably keep the stock in the $.60-$.65 Can. level. For those of you who invest in private placements this is one you should give me a call on.
GOLDREA RESOURCES
GOR IN CANADA GORAF IN US.
Goldrea is a particularly attractive gold and moly play. I do not plan to spend much time on the moly projects in this article as their value will be developed down the road. It is important to recognize that GOR is not a "one trick pony." There are several properties in this company that could lead to much greater shareholder value as attention turns to them; "All In Good Time."
As all of you know I am very positive about the future of gold. I believe we have just begun the second leg of what should be "The Greatest Bull Market of All Time." By the time the second leg of this market is complete I expect gold to set new highs before consolidating for the third leg. I believe that big money will begin to find their way into the precious metals sector and as a result I believe that companies who are about to become producing companies will be very well rewarded.
As stated in an article "This Is What It's All About:"
In the article; I said that I did not know of any gold producing companies trading below $10.00/share in 1980 when gold was above $800/oz. I also stated that I believe the current economic conditions will develop into an extension of what transpired in the late 70's and early 80's. As the second leg unfolds in this gold bull market; producing companies stand to be very well rewarded. Not only will producing companies have increased earnings as gold prices rise but the market will expand their P/E ratios as a result of the "new" and "emotional" money that will flow into the sector.
Goldrea Resources, GOR is a company with a property in China that is unique. This property surrounds an open pit mine that produced for ten years, with the last three years production of 65,000 oz./year. GOR is in a position where they do not have to spend a dime on a mill as a modern 1750 ton/day mill is already in place. The costs associated with mine construction will be minimal as GOR will drive drift underground to achieve production. The main costs will be equipment. GOR hopes to be driving drift within the next three months. GOR hopes to have three underground drifts producing at a rate of 500 tons/day each within the next year. If this is the case then conservative estimates at that time exist for annualized cash flow in excess of the current share price.
What is important to understand about China is the fact that the Chinese did not produce ore from depth. The main focus in the past for the Chinese has been open pit mining as a result of the lack of funds and technology to go underground. In other words; Chinese production has only dealt with the "Tip of the Iceberg." The greatest quantities of gold and wealth exist underground. GOR plans to take full advantage of the underground opportunities as well as the availability of the mill.
When I toured the property in China at the end of July I was very impressed with what I saw. I like the idea of being able to become a producing company for a very small amount of money. I also like the idea of being able to go underground to pursue the potential for high grade ore. It is important to understand that there are no defined 43-101 compliant reserves at this point in time. When drifting underground resources and reserves will be discovered and proven. The nice part about proving the reserves is the possibility of being in production while driving drift and proving up ore. The possibility exists that the ore taken out of the ground, while driving drift, will give yields similar to the open pit operations. By driving drift we can eliminate much of the need to separate the non productive ore from the gold producing ore.
Another huge bonus is the fact that seracite, a mineral used in the making of concrete blocks, exists in the same ore that the gold is found. This seracite is worth about $40/ton of ore milled at current market prices. This coupled with the fact that mining costs are substantially less in China gives Goldrea opportunities in China that would be difficult to equal in most parts of the world.
When I draw up cash flow estimates using conservative numbers from the open pit ore that has been mined in the past I can't help but wonder what these numbers and ore grades will look like if GOR is successful in their underground drifts.
I am very excited about the potential for Goldrea Resources and as a result I have accumulated a position of roughly 1,000,000 shares and I am still buying the stock. For starters; I personally believe that if GOR is successful in developing underground reserves through their drifting and are producing 1500 tons/day through the mill a year from now, I would have a hard time believing the stock would not be worth at least $2-$3/share. I can't help but wonder what the stock will be worth if gold happens to run to the old highs of $800+/oz. in the next couple of years and GOR has maxed the mill capacity out. The only question I will have left is what will be our net revenues/ton?
From these levels I feel all our surprises will be pleasant and the stock, @ $.25/share Can. represents very little, if any, downside risk. For some reason there is a block of stock hanging over the market @ $.27-$.28/share; I think this is great! For any of you who have attempted to buy large positions in thinly traded companies know; it is very complicated to get the amount of shares that we need to build a full position without running the stock higher. It was a very complicated task for me to acquire the position I have. The lack of liquidity is usually a huge buying opportunity as this shows a lack of emotion and enthusiasm. When the time comes to take a profit I am sure that emotion and enthusiasm will be running very high giving the owners all kinds of opportunities to take a profit. As for me, I want to see production from three drifts and what the revenues/ton will be.
In my last article, I wrote the piece about no producing gold companies below $10/share in 1980 for a specific purpose. Do you think I view Goldrea Resources as a likely candidate to repeat history? Why do you think I have almost 1,000,000 shares?
If any of you have questions please give me a call and I will be glad to answer your questions.
This is a very important point to make about both Adanac Moly Corp. and Goldrea Resources. The upside in both companies, in my opinion, is easily more than 10 X my investment, while I view my downside as practically non-existent and a terrific opportunity to add to positions in the event of weakness. In other words; I will gladly add to my position if the market offers me an opportunity to build my position at a more affordable price. The only events that would change my thinking is an event dealing with the potential of the properties and the fundamentals of the companies. I feel it is likely that the odds favor good news becoming great news.
MANAGEMENT;
LARRY REAUGH
You may have noticed that I have said nothing about the management of both of these companies. I have purposely left that for last as I feel that is the best part.
Larry Reaugh just happens to be President of both of these companies and I am proud to say that this man is the best I have worked with in my 20+ years of being involved with Junior Mining Companies. As I made perfectly clear in the prior piece; the best property in the world is worthless if the proper management team is not in place to develop it. Larry Reaugh is credited with three mining discoveries that have come into production. This man knows exactly what it takes to develop a property into a producing mine.
I have watched Larry successfully develop shareholder value in both these companies while the market has sat back and virtually ignored his successes. I believe it is only a mater of time before the investing public realizes the value they have been taking for granted. I suggest that each of you click on the website links below and the first stop I would make would be to listen to the BTV Video Story on both Adanac Moly Corp. and Goldrea Resources. You can find the Adanac Video link at the bottom right corner of the home page next to the timeline and the Goldrea Video is in the upper right hand corner of the home page.
I believe the next few months will virtually eliminate the "traditional risks" associated with Junior Mining Companies. I am very thankful for the time and the opportunity I have had to build positions in both these companies and I want to extend my gratitude and thanks to all those who sold me their shares at such a reasonable price for the last several months. I figure on a worst case basis all I have to do is sit back and allow Larry Reaugh the time to develop each of these companies.
The investing public is sometimes forgetful to the fact that the development of a mining company takes many years. Many investors feel that they have to "have it now!" What some investors fail to recognize is the fact that both these companies are well into their journeys and shareholders will soon be rewarded for their time. If by chance there is weakness from these levels I want each of you to know that I will have a smile on my face as I add shares to my portfolios at prices I know are dirt cheap. This ladies and gentlemen is how big money is made in the stock markets!
NOVAGOLD NG
NG has been my core holding for the last three years. This company has developed itself from an exploration Junior Mining Company to a developmental and soon to be producing gold mining company. The reserves NG has developed over the last three years are mind boggling and still growing. The success NG has experienced from their drilling programs is second to none.
I view NG as my savings account. I feel that Ng will eventually be bought out for the reserves they have successfully proved up. Major gold producers are depleting their reserves and are forced to acquire reserves or spend their own money to explore and find new reserves. Buying proven reserves is much easier and more cost effective than risking capital in exploring for new reserves.
I want to own the companies I feel will be acquired for their reserves rather than the companies who will be forced to acquire these reserves due to the depletion of their own reserves from production. I only hope that NG will move higher so the eventual buyout will be at much higher levels.
I do have to admit that I have taken some profits from NG to invest in AUA. I believe AUA will rise many times in value while NG may return less. In other words I feel selling one share of NG and depositing the proceeds into 15+ shares of AUA will give me the leverage, in the end, to possibly buy many shares of NG back when I take my profits from AUA if I chose to do so.
I personally feel that AUA offers me the potential to be the next NG and that is exactly what I am looking for.
These are the main positions of our portfolios. There is so much more I would like to say but that will have to keep for another day. There are other positions in our portfolios but I will not talk about or write about positions that I do not plan to hold as an investment.
I want to state that the opinions I have expressed here are my own opinions. I have shared my reasons and thinking for owning each of the stock positions, of size, in our portfolios. It is up to each of you to do your own homework and due diligence. The first place I would turn to is website of each company mentioned above. Your opinions may vary from mine.
I disclosed the size of our positions in Adanac Moly Corp. and Goldrea Resources because I want each of you to know the seriousness of my own investments in each of these companies. These positions are net of any stock options. I am also a paid consultant with both these companies as I do receive a modest monthly income and a stock option position in both companies. I am not or have I ever received compensation of any kind from NovaGold.
www.adanacmoly.com
www.goldrea.com
www.novagold.net
Mike Hoy
mhoy@neb.rr.com
402-483-4484
November 18, 2005
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