Posts from the ‘Atna Resources (ATN)’ Category

May 15

Was this why Atna was down yesterday?

In the last few months I have sold off most of my gold holdings, but I decided to stick it out with Atna Resources. That hasn’t looked like a terribly good decision these last couple of days, as the stock has been clobbered down to well below a buck.

Yesterday I looked at the stock thirty minutes before the market closed. It was at 94 cents. I was rather shocked to see later on that it had closed at 84 cents.

It being an earnings release day, I had already scoured the news release and determined it looked mostly benign. However I also know that Canadian regulations call for a filing of the Management Discussion and Analysis report on Sedar. The thing about Sedar is that these reports become available to paying subscribers a little bit before they do for the general public. When I saw the stock drop I wondered whether there was something in the MD&A that insited it.

This morning the MD&A was made publically available. Though I don’t think it is worthy of a 10% drop, I suspect that the following may have contributed to the drop:

The principal requirement within the next 12 months is expected to be funding development of the Pinson underground mine at a cost of $18 to $22 million. This range of costs is likely to increase when a new Technical Report is completed. Atna is considering additional sources of financing to address any potential contingent risk of having inadequate capital to complete the Pinson underground development in 2012, possibly to accelerate the development of Reward, and to ensure funding for the aforementioned projects.

Normally this might be seen as being fairly benign. In the current environment, where even good news is sold and investors are skittish that all gold stocks will soon be worthless, it carries a particular bite.

I always have known that Atna is skating on relatively thin ice with respect to the development costs of Pinson and the available cash on hand. The current report merely confirms that. I have to suspect that the reason the company has not released the technical report on Pinson (that they had originally said would be released at the beginning of May) is because they are trying to line up some financing to give the wiggle room they need. With the current share price depressed, I hope the financing is of the debt sort.

However before I concede yesterdays losses to this buried nugget of coal, it must be said that most gold stocks were down significantly. In fact it looked like a day where the larger institutions were throwing in the towel, with companies like Detour Gold and Osisko Mining down more than 10%.

It simply is a terribly time to own any gold stock. I had thought that the growth profile of Atna might overcome that gravity. Unfortunately that has not been the case.

The good news is that Atna is back to a level where it has completely unpriced Pinson from the share price. In other words, how much lower could it possibly go? You also have to wonder whether there are intermediates looking at the company. A company like Aurizon for example, with $200M in cash, could buy Atna, develop Pinson and have a growth platform for the future, all of which could likely be had for less than what they have in the bank.

I remain committed to my shares. The company has the potential to generate cash flow from Reward and Pinson next year that will match or exceed the current share price. Its too bad that the company hasn’t been a bit more prudent in managing cash levels and taking advantage of the $1.50 share price to raise a buffer of cash but that is what it is. The stock, like so many gold stocks, remains deeply depressed and it seems foolish to me to sell my shares at these levels.

May 10

Gold Stock Reversal

I am not a technician or a chartist and as a general rule I don’t pay much attention to that sort of thing. However I have learned to respect intraday reversals, and I have especially learned to respect them for gold stocks.

For whatever reason, I have seen more gold stock rallies fail after an intra-day reversal to the downside, and I likewise have seen more gold stock pummellings end after one to the upside.

Yesterday we had a very nice reversal in the price of many gold stocks. Morevoer, the reversal was led by the leader of the gold stocks, Newmont Mining. Newmont traded almost as low as $44 before breaking out to the upside and closing at $46.50.

Newmont was not the only gold stock to reverse. Of particular note for me was that Atna Resources had a hue reversal on the day, getting as low as $0.95 cents before closing at $1.10. Another stock that has shown the resilience of a leader, Argonaut Gold reversed from a low of $6.80 to close at $7.52.

It still remains to be seen whether this reversal holds. If it cannot hold through today and tomorrow its nothing more than a fake out. But given the level of selling that has overwhelmed the sector, it feels right to me for a change. Investors who have remained heavily into gold stocks have been absolutely pummelled, and yesterday, with the price of gold breaking down below $1600 per oz and with gold stocks opening down big in most cases, it feels a like a capitulation moment to me.

I have owned Atna Resources through the slaughter and ithas held up relatively well. I added to that position yesterday after it became clear it was reversing from its lows. I also added a position in Newmont. This could be considered to be a trade. Newmont at $44 does not seem like a terribly risky endeavour to me. Finally I added to my position in Golden Minerals and I added a position in Lydian International. Of interest, Lydian did not reverse higher as strongly as many of the other juniors. I suspect this is just a short term anomoly. At any rate I will be monitoring all of these positions closely and if the reversal fails I will likely be bailing out of Newmont, Lydian and probably Golden Minerals (though at $5.30 its hard to see this stock getting very much cheaper).

Mar 27

Atna Resources: Why I haven’t sold a share

A couple of weeks ago Gecko Research (which seems to be, oddly enough, a Swedish based, Canadian Gold junior company research firm) put out a report on Atna Resources. The report is available here.

Most of the report is full of your typical fare. These are their properties, this is their management, yada, yada, yada.

Then I got to this table:

I did a double take when I looked at the 2013-2016 cash flow numbers. $1 per share in 2013? Is that possible? Could Atna really generate that much cash flow that quickly?

The work I have done

When I looked at the table and contemplated the numbers it occured to me that I had never actually looked at the year by year cash flow that the company might generate once Pinson is up and running. What I spent quite a long time looking at was the net asset value of the company. I did that analysis right before Christmas.

What I found out was this:

After I came up with the NAV estimates I basically wrapped up my analysis and put it under the Christmas tree.

See, I don’t have oodles of time to do miscellaneous research. When I get a set of numbers like the one’s in the table above, where the only conclusion that can be drawn is table pounding buy, I don’t tend to spend too much more time splicing out the details. Atna is going to make a lot of money and that is not baked into the price of the stock. End of story. Go buy the stock.

Anyways that was my thinking at the time. So I never really looked at the year by year cash flow in any detail. Until I read the Gecko report and that made me curious. Could it really be that high?

Looking at cash flow

The best way to check the numbers is to run them yourself. I took the inputs Gecko provided and created my own little cash flow spreadsheet.

The first thing that should be pointed out is that Gecko is using, to put it mildly, optimistic gold prices. I don’t think there are any analysts out there using $2600 per ounce gold for 2016.

Second, I had to make some assumptions. For D&A I assumed a constant $200/oz produced which I think is likely going to be on the high side. For G&A I used $8M per year, which was based off of the average of what I saw from some other companies (Argonaut, Aurizon, Allied-Nevada, Alamos), and no I did not intend to only compare the company against other companies that started with the letter A.

Exploration was assumed to $10M per year, which may be on the high side but Atna has a lot of other properties so I wouldn’t be surprised if they start working on them once they have the cash.

Taxes are based on the nominal rate provided by the company.

The results I came up with were not too far off what Gecko did.

And using the BMO price deck…

Since I had the spreadsheet built I started to look at other scenarios. Probably the most illustrative was to look at what Atna might be generating based on the BMO price deck. The BMO price deck could be considered to be a “realistic” price deck, with the term realistic being defined as generally accepted until it is proven to be horribly wrong.

But that is for another rant.

BMO is predicting the following gold price going forward:

You still get some pretty gaudy cash flow numbers:

Financing?

Another point that was brought up in the Gecko report was the chance of a financing. Gecko thinks this is going to happen. I hadn’t really thought about the possibility too much until they brought it up, but I can see the logic.

Even though Atna has the possibility to grow only from internal cash flow, we think that Atna will raise money through an equity financing some time during H1/12, likely during Q1. We believe C$20 million will be sufficient to take Atna through 2012 with the development of Pinson and to fast track the studies of Pinson Open pit. This will also assure that long lead-time equipment for the Reward Mine will be ordered in time. We assume an equity raise will be done at C$1.50 by issuing 13.33 million shares.

It’s a fair point. While they can probably squeeze by without one, they don’t have much cushion. As long as its done at a high enough price, I have no problem with it

Haven’t sold a share

Over the past month Atna has gotten its butt kicked along with the rest of the gold sector. It probably went too high too fast and now its come back to earth.

I don’t love gold right now. With the economy improving I can imagine that selling pressure will remain on the metal. My favorite sector right now, the regional banks, are the antithesis of gold. Its hard to imagine both going up together.

Yet I haven’t sold a single share of Atna. I bought more shares when it dropped into the $1.12-$1.15 range late last week. I don’t really expect much upward pressure on the shares until they begin to announce more news about Pinson. In particular I think the full permitting of the project would be big news.

Feb 26

Atna Resources, Coastal Energy and the 80-20 rule

I do not know if an 80-20 rule has ever been expressly stated for a portfolio. However I do feel that such a rule exists. Anecdotally, I am pretty sure my portfolio follows an 80-20 rule of sorts. 20% of the stocks I own are responsible for 80% of the gains. Or thereabouts anyways.

If you take a look at the gains in my current online portfolio you will notice the following:

Atna and Coastal make up a massive amount of my current gains.

Albeit this is far from scientific but it is not the first time that I have noticed that I make all my outperformance from a couple of stocks. In 2010, I’m pretty sure that most of my gains were due to Tembec, Mercer and Avion Gold, all of which tripled or better. In 2009, it was Western Canadian Coal, Grande Cache Coal Mirasol Resources and Teck Resources (call options), all of which rather insanely increased some 5x to 10x during the year. 2007 and the first half of 2008 was all Potash and Agrium (in the second half of 2008 nothing went up but puts and the dollar).

A couple of points come to mind:

1. Do more of what’s working

First of all, you have to know when you’ve got a winner and when you have a winner you have to add to it. I have done this of late with Atna. I bought more Atna this week at $1.30 after having bought more at $1.15 after having bought more at $1 after having bought more at 90 cents. I have bought it all the way up. I did the same thing with Coastal (though that acccumulation was unfortunately interrupted by the European fiasco) during the first half of last year, as it ran from $4 to $10.

Of course the obvious question is: Why not just buy more of the position at the start? It’s a great idea if you know the winners in advance. Unfortunately you don’t. At least I don’t.

I come up with lots of ideas. Some turn out to be really good ideas. Some turn out to be so-so. I’ve gotten better at it over the years, so less turn out to be full-on stinkers. Yet I still get a majority of so-so ideas that do nothing, and a couple winners that go to the moon. And I generally have very little idea at the beginning which one an idea is going to be.

Take for example PHH right now. This one feels to me like it could be the next big winner. It’s worked out so far. I have been adding some on the way up. But do I know whether the stock is going to be $25 or $12 6 months from now? Nope. It could go either way. Nevertheless when it hits $16 I will add more. And when it hits $18 I will add more again. If then, it gets to $25 it will be a big winner and I will be talking about PHH like I am talking about Atna and Coastal. On the other hand, if PHH goes back to $12, I will likely carry a much reduced position in the stock, if I am not out entirely.

2. Don’t give stock tips

This leads me to my second point. Giving advice on an individual stock, such sharing a stock pick with a friend or relative, or putting the name up on an investment board, is dangerous when taken out of the context of the portfolio as a whole. My portfolio has had between 12 and 20 stocks in it over the last 8 months. Unless I know which two or three are going to be the big winners (I don’t) then trying to give someone a tip is a losers game. There is an 80% chance (give or take a few percent) that I am going to give them a loser (or at least not the big winner)