The BarkerLetter

October 29, 2007

Greetings investors

Shares of Crystallex International (KRY) have taken a stroll since I called the bottom last week at $2.60 per share. The stock is up better than 25% since last Thursday.

Today the company announced the findings of a government report which lauded its Las Cristinas gold project in Venezuela’s famed Kilometer 88 mining district. The report was prepared by an economic development commission which urged the government to issue the mining permits for Las Cristinas, and suggested that delays were hampering regional economic development.

I’ve seen these ‘dueling’ government reports emerging from Venezuela for 10 years. They’re part of the good news/bad news oscillator that has made Crystallex such a predictable stock. One level of government or department issues a positive report on a project, while the opposition organizes a negative one from another agency.

Crystallex has been on its best behaviour since President Chavez put the multinationals on notice that poor corporate citizens would have their projects nixed or nationalized outright.

Of course what I’m interested to see is the reserve data from a comprehensive drilling program at Las Cristinas last summer, ostensibly to support a feasibility for a mine!

If that data has been released, I haven’t  seen it.

Frankly, I don’t think we will see it until KRY gets what it deems to be the definitive green light on the project from the highest levels of government.

Meanwhile, I think we’ll see the stock travel to close to $4 per share in the coming weeks. It was hovering around $3.16 today.

Be careful out there.
Kb

October 25, 2007.

Greetings investors!

Well it’s easy to see who the big stars in mining have been this year: the majors.

Rio Tinto plc (FCX.NYSE) says its 3rd quarter earnings have more than doubled on sustained demand for metals. The stock price has gone from US$60 per share earlier this year (i.e. March) to over  $112 as of this morning.

Around this time last year I was predicting great things for mining juniors; those have yet to materialize but I believe they will.  I’m still waiting for stock prices to catch up to the rise in the physical prices of precious and base metals!

Rio tinto meanwhile is getting excited about aluminum, while BHP Billiton is high on iron. 

Alcan of Canada tendered 79.4% of its shares to London-based Rio today at $101 each. That makes Rio Tinto the world’s largest aluminum producer, ahead of Russia’s UC RUSAL.

BHP meanwhile has announced record 1st quarter iron output along with a strong rise in copper production. Both companies remain bullish on copper due to projected Chinese demand though the flagging housing market in the U.S. has softened demand somewhat.

Iron, aluminum, copper … it’s all looking good as we head into 2008.

Kb

October 23. 2007

Greetings investors!

Here’s another story I’ve been following forever: The Kumptor Mine in Kyrgyzstan.

Canadian uranium producer and former gold miner Cameco Corp. (CCO.TSX) got involved in that deal in the 1990s through an extremely shady arrangement with an ‘intermediary’, an entrepreneur who was discredited by the Kyrgyzstan government immediately after getting a commission.

Since then, the Kumptor Mine (proven and probable reserves of 4.7 million ounces) project has been kicked around like a football, as various parliaments and prime ministers tried to reach some kind of consensus on how the country’s mineral assets would be managed.

I’m not sure why Cameco is still involved in Kumptor, since it stated more than 10 years ago that it wanted out of the gold business. It is involved nevertheless by way of a 53% interest in Centerra Gold (CG.TSX), which has a binding agreement with the Kyrgystani government to operate the mine.

It’s been reported that the agreement reduces Cameco’s stake in Centerra to 41 per cent, and raises the government’s holding to 29 per cent. Public shareholders would own the remaining 30 per cent. The accord has also promised a “simplified, stable and predictable tax regime.”

All of this makes me extremely nervous. However, I am attracted to Centerra as a potential crisis play (i.e. cheap shares). The stock has been extremely volatile in recent months, dipping from over $15 Cdn per share last winter to almost $2 in August. It hit a post August high of $12 earlier this month.

In other words, the stock price has swung from a more than 600% loss - and back again - over the course of less than six months. Wow! Fortunes have been made and lost and made again on this one, and recently too.

I’m watching the stock very closely. Vancouver brokerage Canaccord recently reduced its buy of CG to a hold in anticipation of the fall out from the parliamentary elections in the former Soviet satellite state. The political climate there is quite unstable.

I’m hoping the good news/bad news oscillator swings back to the downside in the coming weeks, at least long enough to force Centerra’s stock price down to under $5 Cdn per share. I’d like to buy it for that on the next dip.

But hey … be careful with this one folks!

Kb
 

October 22, 2007

Greetings investors!

You’ve gotta love Crystallex International Corp. (KRY.TSX).

The Canadian miner got involved in Venezuela shortly after Robert Friedland began that huge-budget, ill-fated exploration venture in Kilometer 88 in the early 1990s (was it Venezuela Goldfields? Can’t remember now…)

Crystallex then fought a prolonged battle with the former Placer Dome for its current holdings there,  the Las Cristinas project,  in Bolivar State.

During that time I saw the stock price go from pennies to over $11 per share and back again. But I’ve learned one thing through it all: these guys thrive on adversity and controversy. I’ll put my money on them anytime.

The most recent chapter in the stock price occured last winter when Jim Cramer announced a `no confidence` vote in Venezuelan mining projects (or any foreign projects there in fact) due to the nuttiness of Hugo Chavez, the president of the republic. Shares of KRY dropped from $4.50 Cdn to $2.75 in a hearbeat, then rallied back to a 52 week high of almost $6 Cdn per share within four months.

Now the stock price is doing it again, testing its 52 week low on news of a `restatement`of the company`s exploration costs at Las Cristina.

I`m not sure what it would take to kill these guys: Placer Dome, Hugo Chavez, a prolonged bear market for gold, and now GAAT have all failed to put them under.

So with the stock at $2.50 Cdn per share, I`d say buy, and wait for the next round of good news.

That will hopefully come in the form of a reserve calculation at Las Christinas, which would be the final chapter in this long, long story.

I think…

Be careful out there.

October 19, 2007

Greetings investors!

Yesterday I wrote about a London AIM listed security with a new laser-based technology that is helping improve diamond recoveries from aluvial gravels.

While that’s exciting in and of itself, I’ve also seen some nice moves of late in more traditional service companies, including Cabo Drilling (CBE.TSX-V). I called that one at $0.35 Cdn or so last winter, and I’m taking some profits now as it pushes $0.80. 

Moreover, there’s a nice premium on those returns by virtue of the changing spread on the USD/CAN pair.  I bought the stock in U.S. funds when the Loonie was under US$0.91, so that’s a 12%  gain on the currency conversion alone.

Now, where to put those gains: Well one possibility is an oil and gas sector supplier (seismic imaging services) called First Growth Corp. (FGC: TSX-V. OTC BB:FGCDF). Currently the company has a backlog for services in South America;  they’ve been engaged by Carbones Del Caribe there to assist in the El Hatillo Coal Project in Colombia.

El Hatillo contains a probable 57 million metric tons of coal in an area of 10,000 hectares with a projected initial production capacity of 800,000 tons per year!

This looks big time to me ! FGC’s subsidiary there, Kinetex, has been working hard in S. America to establish a client base, and with a view to extending its primary services into second generation exploration and development opportunities.

If that occurs next year, the company will be looking at exponential growth as it leverages its existing contracts and clients going forward.

The other great thing about getting into plays like First Growth is the chance to get in on the next big mineral or oil and gas discovery.  It doesn’t hurt to be the first set of eyeballs on new exploration data!

FGC is trading near its 52 week low of $0.68 Cdn, at 3 times book value, so it’s certainly cheap enough. Though thinly traded, the company has pegged $2.2 million in revenues and claims to be on track for even higher growth in the coming quarters.

Looking good!

Kb

October 17, 2007

Greetings investors!

Matt wants to know if I follow companies on London’s AIM Exchange.

Yes I do!

I started doing that a few years ago when some of the boys at Mineras Andes Ltd (MAI.TSX) got involved in a start-up called Franconia Minerals, which had a base metals play in the Southwestern U.S. with Teck.  Franconia listed on AIM first, raised some capital, then came over here to the TSX venture exchange.

So the short answer is, yes I’m interested in those which are ultimately destined to list on a Canadian or U.S. exchange. It certainly worked with with Franconia, which had a nice run from $0.40 Cdn to almost $2 per share.

Matt is keen on AIM listed DiamondTech Inc. … ‘which  is involved in a diamond sorting technology known as Laser Recovery, and going into mine development joint ventures as a means of commercialization’.  He says the stock has crashed over the last couple of months - from 13 to 8 pounds sterling - and wonders if I have any knowledge of the company given my ’bullish position’ on diamond shares.

Frankly I had never thought about the ’supply and services’ side of the diamond industry.  I mean, you could always buy DeBeers I suppose, if you can afford it. Actually, truth be told, I was just conversing with someone the other day about how laser technology should be used to improve the recover of gems from ore and or aluvial gravels.

That’s what DiamondTech’s technology does.  Its Laser Recovery Unit technology is used to process diamond-bearing gravel, also called ’run of mine’. The process is reportedly faster, more accurate,  and more cost-effective than currently available sorting technologies.

DiamondTech is thinly traded, it did 50,000 shares today and closed under 9 pounds sterling.  The company’s goal is to commercialise the LRU technology, and it’s already entered into a revenue sharing agreement with some mineral rights holders in South Africa.

If I were looking to buy DiamondTech my due diligence would include looking over their shareholders and especially the companies they plan to joint venture with.  Interesting deal though. Drop me a line if you get the inside track on this LRU technology.

Be careful out there.

Kb

October 16, 2007

Greetings investors!

We’re reading the tea leaves on the $CDNX chart (Canada’s TSX venture exchange), and the signs are still pointing up. The relative strength index is particularly bullish, having crossed into mildly overbought territory yesterday. I think it still has a way to travel before ticking down.

The accumulation/distribution line has also behaved very well in recent sessions and is still marching consistently upwards.

You might think about taking profits in the coming days, depending on your risk tolerance.  Of course the biggest percentage gains always accrue to the aggressive investor, but so do the biggest losses.  A patient investor looking at the long term horizon would hold at this point. But for the rest of us, well let’s just say nobody has ever gone broke taking profits!

I have three investment portfolios, for the short, medium, and long term, so while I may take profits on spikes in the first two, I’ll leave the third for as long as it takes to get the maximum return.

Another strategy I use is to take a contrary position on a currency. For example if you’re long on your Canadian mining stocks you may look at shorting the Canadian dollar, as a hedge. It looks overbought right now anyway. Ditto for the Australian dollar.

More stock picks to come in upcoming editions. Watch this space!

Kb

October 15, 2007

Greetings investors!

I think we’ll see some restructuring in the gold sector as the bull market enters its second phase.

Companies who are producing or verging on it will be divesting themselves of non core assets, partly to sharpen their focus but also to finance ongoing projects as an alternative to increasing share capital or obtaining bank financing.

This is a good thing for the investors. It means the exploration juniors of yesterday will be more quickly achieving cash flow and profitability, in some cases without creating a lot of dilution. That sort of rapid exponential growth is always exciting for investors.

As you probably know, there is an optimum time to buy a stock. You can buy it early and wait for an ROI, or buy it later and wait less. Of course the early birds make the biggest gains if they’re patient enough to go the distance. But I’m not sure that makes a whole lot of a difference in this market. Exploration juniors are quite pricey, especially those who haven’t yet proven the value of what they have in the ground. In some cases their stock prices are rather close to those of the newly-producing companies, which have cash flow and earnings.

Of course there are advanced exploration projects with very justifiable pricing. Shares of Aurelian Resources Ltd. ARU.TSX) have moved from under $6 Cdn last August to almost $10 per share in recent sessions, without any production at all.  But the company has huge numbers at its Fruta del Norte project in southern Ecuador!  Earlier this month it announced an inferred mineral resource there of some 13.7 million ounces of gold.

I made a tactical error in not buying the stock last August when it was a no brainer, partly because I didn’t like the long term political risk of the project. This is a good example of bad investment timing on my part. The short term prognosis for the stock was excellent. I was merely thinking too far ahead.

Moreover, it probably won’t be Aurelian that assumes the political risk at all. It will be a major mining company like Newmont or Rio Tinto or Barrick.

It’s important to keep an eye trained firmly on your investment horizon. Hang the long term risk if you’re planning on getting out in three months (or in the case of ARU, after sixty days!).
 
It’s also worth keeping an eye on pending divestitures. I’ve noticed that Australian miner Newcrest Mining Ltd (trading on the Aussie exchange under the symbol NCM, recent price $27.85 Aus) has flagged the potential sale of its interest in the Cracow Mine in Queensland.

The underground mine has proven and probable reserves of 288,000 tonnes grading 10/11 gpt. The resource (unproven) category totals 850,000 ounces of gold.  In the year ending June 30 it produced over 116,000 ounces, and Newcrest clams the reserves and resources there will support operation to 2013.  Acquiring that project would elevate the purchaser to instant producer status!

Be careful out there