Categories: Precious Metals
Topics: General Precious Metals

Predator or Prey?

Dear Reader:

The junior resource markets have been getting hammered in recent weeks, with the benchmark index, the TSX Venture, down 45% in the past year.

Of course, this is an index that's quite comfortable being squeezed in the vice...

It's as volatile as any class of stocks trading anywhere. And it can be equally as nauseating.

While it's human nature to feel cheated when stocks turn down, it is precisely at these times when seasoned players take advantage of their fellow reactive stock owners.

To us, quality junior stocks at these levels are an atavistic emotion — a rush of exhilaration with a powerful shot of good old-fashioned greed...

A piranha in a salmon hatchery; a Kennedy during cheerleader tryouts: Time to feed.

In the past two months alone, the index is down 22%.

The sellers over that time frame — whether raising money for taxes, or just joining the bandwagon for the ride down — are setting us up with an interesting opportunity.

It's at times like these, when your gut tells you to run, that you absolutely must stand firm and get ready to buy.

You're either going to use the market or the market is going to use you...

You're predator or prey.

We’ve literally made some of our biggest money during times like these.

So get your mind right... and remember our wish list from the holidays last year.

One of the prominent companies on that list is Ethos Gold (ECC: TSXV).

Ethos hasn't been spared by the downdraft in the market, but it has held up better than most companies.

You remember the Yukon rush last summer...

There was a massive amount of money spent in the Yukon (about $350 million), and the majority of the companies that spent that money came away with nothing to show for it — besides a gaping hole in their bank accounts.

As a result, most of those companies — the ones that poured their money into a rathole — are either gone or are not spending any money on their projects.

Instead, they're hoping the continued success in the region lifts their share price along with the successful companies.

This year we'll see perhaps 10% or 15% of the spending we saw last year, and it will be among only a handful of companies...

You'd think this might means the Yukon story was overblown, and maybe it was as a whole.

But for us, the story has gotten better.

Again, it shows just how important it is to find the right companies, with the best people, operating on the best ground.

So now there is only a small group of companies actively working in the Yukon: those with existing discoveries and those with developing properties — and hopefully, emerging discoveries.

Among those companies is Kaminak, which is already under way with its 50,000 meter drill program, and Ethos, just now starting to roll on a $7.3 million exploration program.

In fact, the Kaminak-Ethos-Casino corridor will account for at least half of the money spent on exploration in the Yukon this year.

The Coffee Fault, which has already been proven to host millions of ounces of gold, is front and center in this quest.

It's the bull's-eye.

Western Copper's Casino property hosts 8.5 million ounces. Kaminak has, at a minimum, 2 million ounces.

So in this small area, there are over 10 million ounces of gold.

And we already know the Ethos property hosts gold as well...

The key for us as investors is that we're about to find out if the near-perfect correlation among soil samples, trench results, and drill holes continues on through the Ethos property.

And since mineral deposits don't begin and end with the lines on a prospector's map, we believe the odds are high that Ethos will come back with a discovery drill hole.

To get an idea of what this would mean, consider that when Underworld drilled the soil anomaly that lead to its discovery, the market cap doubled.

Kaminak grew from a $40 million company to an $80 million company on its discovery hole.

Here's how things looked for Kaminak:

  • July 7, 2009 — Kaminak commences trenching program... share price: $0.37
  • Aug. 13, 2009 — Kaminak reports 2.3 g/t gold over 21 meters... share price: $0.43
  • Oct. 27, 2009 — Kaminak reports high-grade trenching results of 11.72 g/t over 10 meters... share price: $0.50
  • May 3, 2010 — Kaminak begins drilling Coffee gold project... share price: $0.73
  • May 26, 2010 — Kaminak drills new Yukon gold discovery... share price: $1.32
  • July 12, 2010 — Kaminak raises $10 million... share price: $1.70
  • Sept. 7, 2010 — Kaminak identified 5 new gold-bearing zones... share price: $3.59

     

In a sense, it's like stepping back in time...

ECC is in the same place Kaminak was two years ago.

And now, because there are fewer companies active in the Yukon, I expect the story to get even more attention.

The fact is some of Ethos' results thus far — like the Mascot Creek trench, which graded 7 grams over 50 meters — are some of the best in the Yukon.

So overall, the odds are high the company is going to be successful.

Will we see a double on good results? Only time will tell.

Another point we should consider is that bull's-eye we talked about...

The Casino deposit is moving toward production in 2015. That means infrastructure. And it means a big chunk of uncertainty is being moved out of the way.

The deposit is right next door to Ethos and the road in will ultimately be within 2 kilometers of Ethos. 

Infrastructure removes uncertainty and improves economics — not only for ECC, but also for KAM and the immediate area in general.

There's no question that the area still has the interest of the industry, the investing public, and perhaps most important, the major producers looking to add ounces to their bottom line by way of acquisition...

Yes, the market is in the tank. But there's a reason ECC has been doing so well.

This company is the premier play in the Yukon, and it truly is the best drill play to come along in a while.

There's money, solid results, infrastructure, discoveries, and excellent correlation between results and drill holes.

A month and a half from drilling, shares are on sale...

Predator, not prey.

 

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