"Breakout!" Revisited (AGC.V)...

In November, I posted a long-term chart of Amarillo Gold (AGC.V), that depicted a cup and handle formation that stretched out for almost three years. The observation at the time was that Amarillo appeared ready to break out of this formation and confirm it. It subsequently did that and achieved the anticipated price target (TA does not always work, but sometimes it does). In that post, I also referred to some of the fundamentals that could help drive Amarillo, going forwards.

I began buying Amarillo Gold in January of 2004 when it was first recommended by Claude Cormier and added to my position on Friday. I believe that the consolidation occuring since the stock has moved to the new price level is close to completion. While the charts do not yet indicate that a turn is in progress, my sense is that there has been enough time to digest the previous move and the stock is ready for the fundamental news which is now anticipated (drill results from Lavras do Sul).

So, I think it's worthwhile to contemplate what might be in store for Amarillo. Their main deposit at Mara Rosa puts a fundamental floor under the stock. They have 700K+ ounces of gold with a high probability that the deposit will be expanded. Recent exploration of the Mara Rosa area lead to the staking of adjacent property and the identification of additional resources on the existing property.

The Lavras do Sul property was drilled previously by Rio Tinto and yielded mineralized cores of over 100M in length at 1 gram/tonne. Current drilling by Amarillo intends to confirm the historical drill results and start moving the property into 43-101 standards. Based on what I have heard from industry professionals, there is a high probability that Amarillo's current drilling will confirm previous results. Rio Tinto was seeking 5-10MM ounces of gold. It appears that Lavras do Sul may contain up to 3MM ounces. So, less than what Rio was seeking, but still respectable. When the drill program was announced, it was stated that initial results were expected in January.

The company has also made some personnel changes recently. Robert Landis was appointed as Chairman of the Board of Directors. Mr. Landis is a Boston-based investor that has served as a Director for several gold companies and is a consultant to GATA. His essays are available at The Golden Sextant.

I also noticed that the web page now identifies Sarah Vaughn-Jackson as the companys Communications Manager. If you Google around, you will find that Ms. Vaughn-Jackson provides similar services for Aquiline Resources and Laramide Resources. What Amarillo, Aquiline and Laramide all have in common is that they are creatures of the Iron Bark group. This group includes guys like Marc Henderson and Martin Walter who have spun out a number of companies in the mining exploration sector. The two I have mentioned are particularly successful examples. So this is another reason why I think Amarillo has a good chance of being a multi-bagger. There are people backing the company who have a track record of doing just that.

Here are some family photos:

"Ready to Run?" Revisited

Back on October 28th, I posted a chart of Chesapeake Gold and posed the question: Ready to Run? Since that time, Chesapeake broke back down into the triangle. This week ended with Chesapeake blasting out of the triangle and on up to the $6 level. The acquisition of American Gold by Chesapeake has been accepted by shareholders and the BC Supreme Court. Approval from the TSX is the final step towards completing the transaction.

The new Chesapeake Gold will have about $40MM in cash, a huge portfolio of properties, two active joint venture projects (Christopher James Gold/La Cucaracha and Pinnacle Mines/La Calavera), the largest undeveloped gold project in Mexico (Metates, at 10MM+ ounces) and a project close to Reno that is attracting interest (Talapoosa).



Notice the resemblance to the XAU daily chart. Bizarre!

Lose some, win some...

This past week has been a mixed bag for my uranium juniors and I was reminded of the risks endemic to that species and the merits of having companies with defined assets at the core of the portfolio. Exploration is a difficult business and it is statistically true that failure is the norm. Most exploration programs do not result in a discovery. Even if they do, most discoveries do not become mines, for one reason or another.

First up was Nova Uranium. They announced disappointing results from their Mont Laurier property in Quebec. This is the second time that the company has come up short of expectations and the market responded accordingly. I took the opportunity to incur a loss and reduce my exposure to exploration spec plays by one position.

Next up was Universal Uranium. These guys finally announced long-awaited results from their drilling program in Lisbon Valley, Utah. Apparently, the assays were not worth detailing as they were not included with the release. They simply referred to 50PPM of uranium at the bottom of the holes. Universal has a respectable property position and an active work program in the Central Mineral Belt in Labrador, property in Colorado that has been JV'ed and a property in Arizona, so I will continue to hold this position.

Luckily, Strathmore has been more than compensating for these two. Because of position-sizing with the more "conservative" (i.e. companies with defined resources) plays given heavier-weighting, the advance in Strathmore has overshadowed the drawdowns from the others. The price and volume action were very encouraging towards the end of the week, with Strathmore hitting price levels it has not seen since 1998. The stock is moving towards overbought on the daily chart but still has room to run on the weekly and monthly charts. I have targets in mind for taking profits on my trading shares.

Even more on Stathmore...

A post on StockHouse pointed out an interview with David Miller of Strathmore Minerals. I have included an excerpt below. Note the lead time involved to build a new uranium mill. Six years, just to get all the permits. I also recommend taking a look at Ralph Kettell's article from June 2004 that got me started on the sector and Strathmore in particular. It is interesting to compare his insights on what would happen over the next few years and how they have actually played out. So far, Ralph's call has been extremely good.

-theinvestar: Currently Strathmore is planning to build a mill near Grants, New Mexico. What is the timetable on the permitting process and what would construction time look like

David Miller: The real issue is getting the permit. We believe it will take 6 years to obtain an NRC and all related permits. With that, last fall we purchased a section of land in the center of the Grants Mineral Belt. Its on a paved highway, infrastructure is in place, and it even has a heavy gauge railroad nearby that comes out of one of the coal mines in the same region, so we’ve positioned it to take advantage of infrastructure and the location in the center of the Grants Mineral Belt. Right now utilities have their uranium supplies for the next 2 or 3 years. It’s that period from 2012 and beyond when new power plants around the world are going to need their initial feeds and then are going to start consuming more and more uranium. 2012 and beyond is when the consumption of uranium is going to start growing dramatically. The mill should receive a license and can be constructed when the big shortages are going to occur.

-theinvestar: What projects are your most advanced, and when are you expecting to open your first mine?

David Miller: Our most advanced is probably Roca Honda in New Mexico. It was permitted and even had a shaft sunk on a nearby property in the late 70s, early 80s. It was Kerr McGee’s next mine they were developing to feed the largest mill in the world in Ambrosia Lake, which BHP Billiton tore down 3 years ago. In the Gas Hills of Wyoming, we own 3 projects that are probably capable of being fully permitted in 24 months, but these would be smaller open-pit mining operations, and it would be the $Sweetwater Mill that we would need a toll milling agreement with. We are also permitting several ISR projects in Wyoming and we are starting a number of other initiatives on some of our other advanced resources in Wyoming.

-theinvestar: When you look at Strathmore, what part of the company would you say sets you apart from other uranium companies?

David Miller: The acquisition of the Kerr McGee properties in New Mexico along with the Kerr McGee data base is the biggest thing. They made an early decision to abandon the sector because of its collapsed due to the cancellation of so many nuclear power plants in the 1980s. We recognized from day one that the sector had been abandoned and there were no big companies out there waiting around to pick up uranium projects that companies can be successful with. We recognized this early on and were the first company to open a permit office in New Mexico, the first to start the permitting process on a mill in New Mexico, and we realized that we have to help reinvent the industry. We staffed up early and have over 200 years of uranium experience in our management team. Few companies have that expertise available.

The Investar blog

More on Strathmore...

There are a few reasons I posted the monthly chart on Strathmore. First, I think it's an interesting chart and while events don't always develop as charts would lead you to suspect, it does at least inform you of a potential near-term outcome. Secondly, since it is a monthly chart, we should be seeing a picture with relatively little short-term noise that enables the dominant trend to clearly emerge. Third, this uranium stock is the first one that I bought in the sector, beginning in June of 2004 and continues to form the core of my uranium portfolio.

I started researching the sector after I read a couple of articles on 321Gold and other sites that really opened my eyes. Ralph Kettell wrote a piece on uranium and looked at Strathmore specifically. I realized that if all these articles were correct, then the timing to get into Strathmore after it had finished a major pullback was optimal and I got positioned accordingly.

Here is an excerpt from a recent interview, by Tom Jeffries of Market Matters Radio with Kevin Bambrough of Sprott Asset Management. Sprott is one of the top natural resources oriented funds in Canada.

KB: Well I think, for a few of the key uranium stocks that are out there that you know, people will be able to read that we’ve recommended many times over the last few years, I think they’re going to have another run. I think that the uranium price is poised to start moving higher again. It hasn’t really paused much, but just over the Christmas break, I’m just seeing that more and more people seem to be committed to the fact that uranium is definitely going to go to a hundred dollars this year. And once people see it start ticking up again I think there’ll be a rush back into these stocks because they’ll be viewed to be quite cheap. And probably the best of the bunch for this year is, I think, is going to be Strathmore Minerals.

TJ: Tell everybody the symbol, refresh our memory, what does that trade under Strathmore?

KB: It’s S…T…M, as in Mary.

TJ: Is that on the Venture or in Toronto:

KB: That’s Venture.

TJ: Okay, Strathmore, what’s it trading at now and what kind of growth are you at Sprott thinking this could do for us in the next couple of quarters?

KB: Well, I’m just putting it down as sort of my top uranium pick. It’s really hard to say where things are going to go but there’s many stocks out there that are trading at, you know, five, ten and producers trading at twenty dollars a pound in resources and most of the analysts out there seem to be showing Strathmore around a buck a pound.

TJ: Wow.

KB: We think they have some very high quality pounds and some great opportunities to do joint ventures and move things forward, we think this is going to be their year, after being in a relative holding pattern for a couple of years. The stock hasn’t really moved much and the other ones have and I think that this is going to be a big year for Strathmore.

Market Matters Radio

Strathmore Minerals

The Bull Resumes...

Aurelian was an exceptional performer in 2006, actually doing what most explorers only dream about, namely, finding the mother lode. But even Aurelian wasn't immune to a sector correction and the chart shows a 30% pullback in the fall of 2006. The 25 week EMA has been tested a few times and continues to hold. The metals are possibly turning here, if that move continues, then another leg up for Aurelian seems probable. This should be supported by fundamentals with a total of five rigs now drilling continuously.