Mr. Hyde Buys Barkville Gold Mines
I am two investors rolled up into a single portfolio.
On the one hand there is the meticulous researcher, searching out value that has been overlooked by the market. This fellow is the investor that does most of the writing here, drawing logical conclusions from stepped out deductions and well thought out inferences. We might call him Jekyll the Investor.
But there is another fellow that haunts these pages from time to time and who comes from a somewhat different place. He likes to jump into more speculative positions, sometimes with no more reading then a news release, a quick scan of the company’s presentation and a few back of the napkin calculations. While he still does more work than most do on the stocks he chooses, it is not with the same care as his counterpart. Time is of the essence to him. He is especially attracted to gold and oil stocks that hold the opportunity of a big score, and you saw his work with the purchase of Gold Standard Ventures a couple of months ago or with the purchase of Mart Resources a couple of weeks ago (while he perhaps isn’t so thorough, he is still often quite lucrative). We could call him Hyde the speculator.
Now to be fair, Hyde is not some sort of willy nilly gambler. He has honed his craft with over 10 years of studying the business of getting commodities out of the ground. The reason that he can take such quick action is because he has made enough moves, both good and bad, to develop an intuition about it.
Hyde begins to watch Barkerville Gold
I’ve had my eye on Barkerville Gold Mines (CA: BGM) for a month now. It wasn’t a close eye, and I wasn’t really interested in buying stock in the company so much as I was curious about what they would do next.
I owned Barkerville 2 years ago for a brief one month stint when gold prices were going up and the best thing to buy was the cheapest junior with a story and a property. I wrote about my purchase of the stock here, and then about my sale soon after here. I think I summed up my reason for being so quick to be in and then out quite well with this comment:
My experience is that you can make some money on juniors by projecting out cash flows based on a successful mine and then waiting for other people to make those same calculations. But you are better off selling out before you test out the theory of whether those cash flows are realized.
Mining is hard, and its pretty easy to screw up a mine and there seems to be just as many disasters as there are successes. So unless you are willing to play this ‘greater fool’ game with your finger on the trigger, you’re probably better off in the long run with the big producer.
This is something I am trying to remember with these gold juniors we have been talking about lately. The numbers we and the analysts are throwing about are legitimate for a trade, but don’t start believing them.
I added the bold and I think it is a sentence that shouldn’t be forgotten. Even with mining stocks where I have the honest intention of holding through the duration of development (ala Atna), it is important to remember that numbers are just that, numbers, if things appear to be going wrong, it is always better to sell first and ask questions later.
Since that brief run I haven’t followed Barkerville very closely. I took a quick look again about 6 months ago but was turned off by what looked like the high costs of maintaining a mill that couldn’t be delivered enough ore. They seemed forever doomed to struggle with the high costs that come from a mill running at partial capacity. Their eventual savior was another deposit that was unfortunately a number of miles away and that had some long-lead time permitting to be done before it could be brought to production.
I started following Barkerville again after beginning to lurk on a junior mining message board over on Silicon Investor called Microcap Kitchen Canadian Stocks. What drew me to the board was that one of the posters, diddlysquatz, was listing companies that were trading at a price below or equal to their net cash position, and I’m always a sucker for cash on hand.
The folks on that board have been pointing to Barkerville for some time, and they have done an excellent job of picking out the run before it happened. I saw the stock going up but I didn’t know why so I didn’t make any plunge myself. But I was intrigued when I saw that Barkerville Gold was halted for trading Thursday morning. I wondered if there might be some sort of merger, or maybe a drill hole, and the more cynical part of me wondered if a diluted offering was in the works.
Well today at lunch I saw the stock trading up some 50% and it was pretty clear this wasn’t a dilutive offering. I did a quick scan for news and almost didn’t believe what I saw.
The indicated resources, between the elevations 3,550 feet and 4,550 feet above sea level (town elevation 4,000 feet), estimated by Geoex for the Gold Quartz open pit model on Cow Mountain are 69,039,000 tons with an average grade of 0.154 ounces gold per ton (5.28 grams/T) and 10,626,100 ounces of contained gold as summarised in the following table.
In fact, I didn’t believe what I saw. I wrote the following on twitter:
$BGM:CA Barkville resource at 10Moz? Is this for real? If it is the stock is suddenly very cheap
And while Jekyll has difficulty swallowing the thought of buying JC Penney up 2% on an up day, Hyde does not even consider that Barkerville Gold is up some 50% in the last hour when evaluating his potential purchase of the stock. So I jumped in, albeit with a small position.
Honestly however, I’m still skeptical. It just seems too good. 10Moz at over 5g/t of open-pittable indicated resource? I put indicated in italics because this isn’t an inferred resource estimate. Indicated ounces generally have some substance (I would ignore the geologic potential that the company provided, if anything it makes me wonder what they are doing here, building a resource or promoting a stock). And at what looks like a strip ratio of a little over 1? It seems extremely low for a pit that will contain 5 g/t gold. I keep thinking I must be missing something, because even with the stock up some 50% on the day, it does not appear to be up nearly enough.
This is purely a speculation that there is not something here I am missing, and that the basic points of resource size, grade and strip are all legitimate estimates. There’s no report available on Sedar yet, so I really can’t evaluate this on anything more than the numbers from the news release, which are the basic figures and not much more. We’ll have to see what the stock does on Tuesday when it opens; if I am not missing anything, we should see it move higher. If it doesn’t than I am probably best to assume someone knows something and that I would be better off leaving the speculation for someone else.
Nevertheless, Hyde felt it was worth a couple of bucks to speculate that the resource is indeed without a hitch. If it is, then this stock is going much higher.