Convincingly, he comes to the conclusion that the most crucial criteria for success of publicly traded companies is not the product itself, or the team, or the financings, but the timing. Or as Victor Hugo, widely esteemed as one of the greatest French writers and poets, announced long ago in the 19th century:
Nothing is more powerful than an idea whose time has come.
Hence, one must really ask: Is the time right for this corporate idea and vision? Does a market exist already or in the future? Are investors already lining up, or are they waiting to see if milestones are reached?
Grosss thoughts appear to be applicable to the current resource markets: No matter how good resource projects may look, investors may not make the expected returns if the overall sentiment of the market is negative. This negativism for resource investments has existed since 2011. Since then, the TSX Venture index nosedived from more than 2,400 to 650 points. Thus, the dominant question inebriating resource investors, standing on the sidelines ready to jump in, is:
When will the market turn?
Sound arguments exist for a bottom already behind us or to be reached shortly. Lately, liquidity has returned to some resource stocks, which is a first indicator for a general trend change. Yet investors should not wait bullheaded for The Great Turnaround but, in the meantime, seize individual opportunities and moments of truth. As the Oracle of Omaha has often opined, it is fundamentally difficult to hit the exact bottom, and so lets take this opportunity to look at the publicly traded investment issuer, Zimtu Capital Corp. and their equity holdings:
1.) With 13.5 million shares issued, Zimtu Capital has a current market cap of 3.9 million CAD (-3% YTD), which is almost the same market value as its 16 core holdings combined. However, Zimtu has investments in a total of 33 publicly traded companies holding some 74 million shares (with a current market value 4.9 million CAD) besides stakes in private companies potentially to be listed in the future, such as Nickel One Inc. for example, in which Zimtu owns some 800,000 shares.
2.) Obviously, Zimtu Capitals core holdings are diversified through a variety of different commodity classes (gold, zinc, copper, nickel, strategic metals, uranium, magnesium, diamonds, jade, potash, hemp, and oil & gas). Most investments have been positive year-to-date, showing in general how strong a rebound can be if material developments are made.
3.) Zimtu Capital has proven over time that new companies or projects are brought into the portfolio. One of the latest additions is Electra Stone, of which Zimtu holds around 12 million shares.
4.) If any of the 16 core holdings (trading at 12 cents on average) makes a discovery, starts generating cash-flow, or secures a strategic partner, this could be a significant event for Zimtu.
Another important factor to consider is the free-float for these companies. In most cases as management holds significant positions, and most companies are dual listed, the potential positive reaction from news may have a greater effect from a low free-float available. Building up a following and a shareholder base in Europe is strongly beneficial (as can be seen on the pie charts on the following pages), in that the more a Canadian stock trades in Germany, the more it can be protected against macro issues on the home exchange; the natural arbitrage between the two exchanges lends to stability.
As a matter of fact, there are resource stocks decoupling from the general market downturn and rising already. I believe this could be what Bill Gross and Victor Hugo were talking about. Let us use this statement as an introduction to several of Zimtus core holdings:
In May, the stock of Electra Stone Ltd. (TSX.V: ELT) traded at 5 cents and had a market cap of 2 million CAD. After management announced recently its new focus on the jade market and having found an investor who shares managements vision of becoming a major player in BCs jade market, the market cap has grown to 5 million CAD. Electra plans to start mining and selling jade this summer. The mining/quarrying of natural stones like jade is much less complicated than other commodities (e.g. metals), because the rocks do not require immediate processing (crushing, grinding, concentration, refining, etc.). This translates into less capital requirements and less time to go into production. Rockstone is closely following the developments of Electra Stone and the jade market.
Zimtu owns 12 million shares of ELT, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 862 shares of ELT.
This company owns the advanced-staged Milestone Potash Project in Saskatchewan which has robust economics in a Bankable Feasibility Study released December 6, 2012. Currently, Western Potash and its partners are investigating alternative mining scenarios with a lower capital expenditure and shorter time to production.
Zimtu owns 2.5 million shares of WPX, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 186 shares of WPX.
The year 2014 showed that stocks like Pasinex (CSE: PSE) can increase its market value even in times of collapsing commodity prices, when it announced going straight into production with the underground mining of its very high-grade zinc deposit in Turkey. Initiating Coverage, Update #1 and Update #2 elaborate on the positive outlook for Pasinex and its well-established and experienced joint venture partner, Akmetal Mining. Truly spectacular grades averaging more than 25% zinc put these companies into a position to develop the project. Furthermore, Pasinex and Akmetal are confident that they will be able to prove that more high-grade zinc deposits are in the region which they both control.
Zimtu owns 6.3 million shares of PSE, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 463 shares of PSE.
While this company had a market cap of 2 million CAD in late 2014, today it has grown to almost twice as much. But what happened fundamentally during that time and what comes next? Our Initiating Coverage and Update #1 answers both questions in more detail. Recently, Equitas has identified multiple VTEM anomalies indicating nickel sulphide mineralization in depths exceeding 50 meters. Improvements to VTEM now have the ability to investigate depths which were previously beyond the technical limit. Equitas Garland Property was one of the top exploration targets for Vale SA, the multi-billion dollar mining giant operating the nearby Voiseys Bay Nickel Mine (the most important nickel mine for the western world). This summer, Equitas intends to drill some of these newly identified targets.
Zimtu owns 5.1 million shares of EQT, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 379 shares of EQT.
If I have not said this before, let me make it abundantly clear, there are 2 key times that provide the absolute best opportunity for investors in the junior mining sector: 1) before a discovery, and then 2) before commercialization, and in this second category, I would strongly suggest Commerce Resources as this advanced-staged rare earth elements and strategic metals company could be on the verge of a breakthrough. The completion of the pilot plant for its Ashram REE Deposit in Quebec is scheduled for this summer/fall, which intends to prove that a saleable mineral concentrate can be produced on a commercial scale. If successful, a strategic partner from Asia may show up faster than many may think. Read our interview and research updates #9, #8, #7, and especially #3 to learn more.
Zimtu owns 3.6 million shares of CCE, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 266 shares of CCE.
This explorer (TSX.V: KAP), not listed in Germany, owns 6 gold properties located along extensions of the Destor-Porcupine or Borden Gold Project in northern Ontario. All of the properties (except Rollo), are situated within the Kapuskasing structural zones and have potential similarities to Goldcorps Borden Gold Project. Kapuskasing has a strong technical team and advisory board with a history of gold discoveries in the region. The company is in the process of raising capital to fund exploration on these assets identified by management located in what is considered a new gold camp. This summer, Rockstone will initiate coverage.
Zimtu owns 3.8 million shares of KAP, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 279 shares of KAP.
For a few years now, this junior has been taking advantage of the general uranium price depression to acquire one of the largest land packages in the prolific Athabasca Basin. The uranium price has recovered to $35 USD (from the $28 USD low 12 months ago), and we expect the markets appreciation may follow. The company has management with significant experience exploring the Basin and the capital required to drill a new set of targets this fall. Read the Rockstone reports and interviews why Lakeland appears to be on the verge of becoming one of the most promising explorers in the Athabasca Basin: Update #5 and #4.
Zimtu owns 5.1 million shares of LK, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 378 shares of LK.
Zimtu is strong believer of an upward trending demand and diminishing supply of diamonds in the future as many of the major mines are coming to the end of their life. Zimtus current leader in the diamond exploration space is Arctic Star Exploration Corp. Zimtu has a second entry that is in the make-over stage as the president abdicated his position leaving Zimtu in charge. This is however one of the risk reducing aspects of a stock (or company) that is part of the Zimtu Family: Zimtu will step in when the chips are down and make it right. Watch for this opportunity: Prima and Zimtu will find a new team to lead. Zimtu has a third entry in diamonds, it is not listed yet but will be soon and Rockstone will keep you informed of this new opportunity.
This diamond explorer (TSX.V: ADD) benefits from a management team that has discovered economic mines, including diamonds, in the past. There are only a handful of teams in the world that can say that. Arctics team is active on three 100% owned diamond projects in Canada, the Stein Project (Nunavut), and the T-Rex and Triceratops Properties (Northwest Territories). Both T-Rex and Triceratops are adjacent to 2 multi-billion dollar diamond mines. Rockstone looks forward to Arctic utilizing new geophysics on these properties to discover new kimberlites. This has proven very successful for neighboring companies. A drill program is planned to test numerous kimberlite-like targets on the Stein Project as well. With proven management, properties located in diamond producing areas, and a growing world appetite for diamonds, Arctic must be very excited about its upcoming Summer 2015 exploration program.
Zimtu owns 5 million shares of ADD, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 370 shares of ADD.
Currently being re-organized with a new team, financing and maybe some new exploration opportunities.
Zimtu owns 7.4 million shares of PMD, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 547 shares of PMD.
A medical marijuana company (CSE: MJ) carving a niche in the 58 billion USD pet industry by marketing a line of hemp-based chews and supplements in the natural pet food category. Production start is planned for autum 2015 (size of US pet food market: 58 billion USD; market for natural pet foods, treats and supplements: 3 Billion USD; all pet medications: 14 billion USD). True Leafs experienced management team has a proven history of execution and leadership in production and distribution in the booming pet food industry. Chairman is former BC Premier and Mayor of Vancouver, Mike Harcourt. True Leaf is currently awaiting Health Canadas approval to become a licensed producer of medicinal cannabis in Lumby, BC.
Zimtu owns 2.3 million shares of MJ, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 170 shares of MJ.
This stock (TSX.V: CRS) is rebounding strongly since May, however from a relatively low price level at 8 cents respectively a market cap of 3 million CAD. Until today, the stock has more than doubled trading above 20 cents (market cap now 9 million CAD). Apparently, the stock appreciates because material developments developments are made project-wise. Cardiff plans to bring into production a horizontal oil and gas well in Texas/USA in the next 3-4 weeks. This undertaking translates into costs of around 1.3 million CAD, for which the company recently closed an appropriate financing. The big question: Are the funds invested smartly? Obviously, the market thinks yes. Read our latest Initiating Coverage on Cardiff and the oil markets. When a company starts producing cash-flow basically from nothing, the prefix is positive for the market to honor such substantial development no matter how bad the overall sentiment in the oil and gas markets may be (as long as production is profitable and sustainable; yet with production costs estimated below 10 USD/barrel, Cardiff would be positioned outstandingly well even if oil drops to 40 USD again).
Zimtu owns 0.7 million shares of CRS, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 48 shares of CRS.
This company (TSX.V: WPQ) shows that even some large projects can be interesting in times like today. As will be presented shortly with an initiating coverage, WPC has taken advantage of the depressed gold markets and appears to have made a truly sensational bargain typical for bear markets. WPC is in the process of taking over the Lupin Mine (on care and maintenance since 2005; still fully permitted) from Mandalay Resources Corp. (380 million CAD market cap). The deal gives Mandalay a reasonable stake in WPC. The business plan shows yearly cash-flows of around 60 million CAD, for what preinvestments of at least 35 million are required. If WPC joins the 100,000 oz gold producers club, a market cap exceeding 200 million CAD would not be unusual even during today`s negative market sentiment. Its the depressed precious metals markets which have facilitated such a feat of acquiring a past operating large-scale gold mine for 3 million CAD. WPC currently has a market cap of 4 Million CAD. Time will tell if and when the Lupin Mine will be put back into operation.
Zimtu owns 2.2 million shares of WPQ, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 163 shares of WPQ.
This exploration company (TSX.V: GTA) owns 3 gold and base metals projects in Canada. Ivanhoe is a prospective and large land package of claims near Folyet in northern Ontario. The 95 km2 property is located between Probe Mines Ltd.s new gold discovery at Borden Lake and the prolific Timmins Camp, and contains the historic Joburke Gold Mine. GTA owns 51% and is also the operator of the Northshore Property, 70 km west of Hemlo in Ontario. The most recent results included a high-grade interval of 9.47 g/t gold over 9 meters (the Gino Vein, in hole WB-13-51). The known surface area of mineralization is roughly 500 x 350 meters, with the deepest intercept at more than 300 meters, including numerous high-grade intercepts and multiple occurrences of visible gold near surface. Previous results from Northshore included an intersection of 12.5 g/t gold over 33 meters within a zone assaying 3.21 g/t gold (1.2 g/t gold cut-off) over 152 meters in hole WB-11-11. GTAs 100% owned Auden Property in northern Ontario is adjacent to Zenyatta Ventures Ltd.s Albany Graphite Project. GTA is the largest land-owner in the area, and is the only company (besides Zenyatta) to have known electromagnetic/conductive targets.
Zimtu owns 2.2 million shares of GTA, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 163 shares of GTA.
This newly listed company is an explorer and developer (CSE: XMG) owning magnesium claims throughout British Columbia. Its flagship deposit, Driftwood Creek, has historical resource estimates of 22 million tonnes and 29 million tonnes of magnesite, which reduces to approximately 50% by weight saleable magnesium oxide (MgO) at $375 USD per tonne or approximately 75% by weight magnesium metal (Mg) at 4,400 USD per tonne in the US market. The development of an MgO plant to produce 100,000 tonnes per annum is underway (estimated 100 year mine life). The project is in the engineering and permitting phases with strategic partner Eaton Corp. (NYSE: ETN) currently completing a scoping study of the project for the purpose of developing and providing financing for Driftwood Creek. Collectively, MGX and Eaton are working with Highbury Energy to provide a biomass energy solution based on waste wood from the nearby sawmills. MGX gains the benefit of substantial preferentially investment and operating tax credits for utilization of an alternative energy solution. MGX is under agreement with Eaton and Highbury to build 10 mines and is conducting ongoing exploration on its properties and continues to acquire industrial minerals properties with immediate development potential. The stock appears tighly held with a low freefloat. Rockstone will initiate coverage on this near-term production story this summer.
Zimtu owns 0.34 million shares of XMG, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 25 shares of XMG.
This junior, not listed in Germany yet, is engaged in the acquisition and evaluation of gold and base metal properties in Canada. Besides the Ballard Lake Gold Property, RT holds 100% of the Golden Stock Gold Property in Matachewan, Ontario, and the Bazooka and McWatters Gold Properties near Rouyn Noranda, Quebec. Ballard Lake consists of 2 unpatented mining claims encompassing 17 claim units (272 hectares) located in Echum and Dolson Townships within the Michipicoten Greenstone Belt, Sault Ste. Marie Mining Division. The property is road accessible and covers the Ballard Lake Shear Zone (BLSZ) and the main Ballard Lake Showing. The BLSZ has been exposed for over 1 km and reportedly returned assays from grab samples as high as 17.6 g/t gold from historic trenches. Past work by previous operators (Noranda Mines in 1980 and Anglo Porcupine in 1988) have established the presence of gold mineralization at least intermittently along the BLSZ as well as numerous other gold and base metal occurrences from surface sampling within the property boundary. The main Ballard Lake Showing has been described as a sulphide bearing quartz vein that is commonly 30-40 cm wide with grab samples ranging from trace to over 4.4 oz/t Au and 12 oz/t silver. Rockstone will initiate coverage on RTM in due course as new exploration programs or property acquisitions may materialize.
Zimtu owns 2.9 million shares of RTM, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 212 shares of RTM.
When this junior (TSX.V: CMB) announced in early 2015 to start mining gold in California/USA, the stock traded at less than 4 cents and had a market cap of around $4 million CAD. Since then, the stock appreciated. As a couple thousand tons of rock have been mined and stockpiled already, the company is about to generate sales and cash-flow. As the rocks are of such high-grade (more than 30 g/t gold), production costs should be below $700 USD/ounce, which means that the company can make money profitable even if gold trades at $1,000 USD/oz. Our Initiating Coverage and Update #1 illustrate this potential success story in the making. As per our reports, neither Pasinex, Cardiff, nor CMC have large resources and deposits, but focus on small-scale mining which can be profitable and less risky than larger scaled projects. This can be seen as an advantage as large projects typically require large upfront capital expenditures and lengthy economic evaluations, which are even more daunting in times of a general market depression. Besides the Radcliff Mine, CMC owns 100% of the nearby Bishop Mill, which is in its final stages of receiving all permits to start processing high-grade material from Radcliff. Until then, a nearby smelter may come into play.
Zimtu owns 1.2 million shares of CMB, i.e. if you buy 1,000 shares of Zimtu, it gives you exposure to 89 shares of CMB.
In terms of perpetually looking at the opposing issues of risk and reward, Zimtu Capital offers, on the one hand, significant exposure to the greatest reward (upside) in the mineral exploration sector, but also on the other hand, a buffer against the risk (downside) by the diversification of its portfolio with dozens of companies; there is an amount of insurance in this diversification if any one company or one commodity performs less well than expected.
Concludingly, Zimtu Capital with its equity portfolio of pre-discovery stage projects, early stage developers, near-production projects as well as advanced staged/large projects is well diversified and thus well positioned for a turnaround in the resource markets. With Zimtus 16 core holdings, material corporate developments in the upcoming weeks and months are expected to affect individual stock valuations positively and as a consequence Zimtus own market value no matter what the underlying commodity prices may do or how negative the general sentiment remains. Not many publicly traded companies in the resource space can claim such.
As Zimtus 16 core holdings trade at 12 cents on average, further upside potential is provided, whereas 10 out of 16 stocks have been performing positively this year. The best time to seize an opportunity is when prices are low (otherwise it wouldnt be a bargain). No Guts No Glory, or as Sir John Templeton used to tout:
Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.
Zimtu Capitals share price on the TSX Venture exchange has been consolidating within the red-green boundaries of a triangular price formation. Recently, the price succeeded in breaking above the resistive (red) triangle leg and as such generating a buy signal.
Link to above chart (15 min. delayed): http://schrts.co/LNxTsY
When comparing Zimtus performance with the HUI mining index, a new upward trend is likely, i.e. Zimtu will perform better than the HUI (in case the ratio continues its upward trend from the green support to the red resistance). The MACD has also reached the end of a year-long triangular formation and has already started to break out to the upside (see yellow circle). The On-Balance Volume shows quite plainly that large investors have been holding their positions as the indicator has been trending sideways. A breakout to the upside (i.e. large investors accumulating more shares) may occur anytime now as a breakout appears to materialize.
Disclaimer: Please read the full disclaimer within the full research report (available here as a PDF) as conflicts of interests exist.