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Buying: Back into Canaco Resources

I think things have gotten a little stupid with Canaco. It goes down and it goes down and it goes down.

I bought the stock on Thursday at 87 cents.

A quick look at the company’s March presentation shows that cash on hand is $110M.  The market capitalization of the company is down to $174M.  That puts a value on Magambazi of $64M.

As Steve T has pointed out in the comments, subtracting cash on hand from capitalization for a junior is not a best practice.  The cash will inevitably be eaten up by drilling.  But Canaco can do a lot of drilling for $110M and I don’t think its a terrible bet to think that they find some more gold before they go through the cash.

I still have concerns about the Magambazi deposit.  The fact that the resource is being delayed until May suggests that some of my original concerns are valid (I did a detailed analysis of the Magambazi deposit here).  The company stated it this way:

However challenges encountered with final assembly of the large volume of project data necessitates a revision to the completion date of the initial mineral resource, now anticipated by May 15, 2012.

If I were to read between the lines, final assembly would suggest to me that there has been some trouble outlining the resource, perhaps, as I noted in my original post, because it pinches out so abruptly in spots.

So things are not perfect.  But there is a price for everything.  The stock is down from $5 to less than $1.  Even when I was at my most conservative I figured they had at least 1.5Moz at Magambazi.  Its still a decent deposit and it has the opportunity to get bigger.  The market clearly overreacted to the upside in the stock last year.  In my opinion, it has now overreacted to the downside.

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