Following up on our initial 2 research reports on Vancouver-based prospect generator Zimtu Capital Corp., we herewith provide an update on material developments during the last 3 months.
Gold currently trades at around the same level of $1,280/oz as 3 months ago, whereas there were ups ($1,340) and downs ($1,240). According to the following chart, gold must rise above the red resistance (currently at $1,330) in order to generate a strong buy-signal, whereas a sell-signal is generated when breaching the yellow ($1,265) and green ($1,180) support-trendlines:
As per below gold chart since 1999, a strong sell-signal is generated when breaching the green support until that does not happen, a buy-signal is active as current prices represent lowest possible support and hence highly attractive entry points, especially if the price succeeds in rising above the red resistance currently at $1,330:
No matter if the gold price starts a new uptrend (when breaking above $1,330) or if it continues its yearlong downtrend (when breaking below $1,180), we know of a vehicle that has best potential to master both scenarios in an unparalled fashion, whereas its stock has already outperformed the HUI gold mining index by 148% since 2013:
Zimtu Capital holds an outstandingly well-diversified equity portfolio of a variety of commodity classes, many of which already decoupled from the ongoing gold price correction and are poised to take off no matter where the gold price may head to.
In commodity markets, to make money in a sure fashion you find a commodity for which there is certain, on-going demand, where the cost structure of the industry exceeds the sale price of the product and where the industry is losing money on every unit of the product they produce. That sounds counterintuitive. But the truth is that in that situation either the commodity price rises or there is no availability of that commodity again.
(Rick Rule in The Motley Fool Interview)
Gold? Go Diamonds!
Diamond prices are on the rise again; since 2 years already and thanks to increased global demand, first and foremost from the US, China, India and other developing countries. However, diamond equities have been correcting hand in hand with gold equities in the last years until recently, when some diamond equities started to decouple and rise. Dominion Diamond rose 17% in the last 3 months, while Kennady Diamond is up more than 50%.
As laid out in our latest research report A Diamond in the Rough, our current top pick in the diamond space is Arctic Star Exploration Corp., which has increased its market value by more than 50% in the last 3 months thanks to a long-awaited, highly prospective drill program starting at their Redemption Project in NWT (Canada), which is less than 50 km away from the productive Ekati and Diavik Diamond Mines owned by Rio Tinto and Dominion. Should Arctic report on having drilled through a diamondiferous kimberlite pipe anytime now, we are certain that its current market value of C$10 million will be history and strongly appreciate virtually over night, which would be typical for diamond explorers announcing a discovery.
Yesterday, Zimtus analyst Derek Hamill published a research report on the diamond market with its glamorous price outlooks along with remarkable background information on Arctic Star and another diamond exploration company, in which Zimtu is heavily involved owning 8 million shares:
Prima Diamond Corp., which company recently changed its focus (and name) from fluorspar to diamonds as a merger with a senior fluorspar producer was cancelled by Prima and the prospective Godsped Lake Diamond Property in NWT was acquired from DG Resource Management Ltd. for 4.5 million shares on July 3, which borders the Gahcho Kue Diamond Deposit owned by De Beers and Mountain Province projected for production in 2016.
Yesterday (August 5), Prima acquired from DG Resource and Zimtu the highly prospective Munn Lake Diamond Property (35 km east of the Snap Lake Diamond Mine and 40 km northwest of Gahcho Kue) for 4.5 million shares, which will add 2.25 million shares to the actual 8 million shares of Prima that Zimtu already owns. We expect Primas share price to reach its recent high of C$0.19 rather quickly (+217% from its current price of C$0.06):
In A Diamond in the Rough, we presented the fundamentals of the diamond market which indicate that prices will continue its upward trend, no matter what the gold price may do. Economies worldwide are improving, not only in developed countries but as well in developing nations. Concurrently, global diamond supplies are projected to decline strongly, because major mines are being depleted and too few new mines are being developed these days to close the widening gap. Such fundamentals of a coming market deficit will dominate prices for the long haul.
Gold? Go Zinc!
Another market where a supply-demand deficit is widely anticipated in the next years is zinc. The zinc price increased 40% since mid-2013, whereas 15% was gained in the last 8 weeks alone. Obviously, zinc has decoupled from the weaking gold price:
Unfortunately, there are not many pure zinc equities around anymore to take (leveraged) advantage of rising zinc prices, as it is a highly consolidated market dominated by few major mining giant, such as Teck Resources, Freeport, Zijin Mining Group, Nyrstar, and Hindustan Zinc.
On the other hand, there exist very few prospective zinc development projects worldwide, whereas it is even more difficult to find high-grade zinc deposits averaging more than 10% (active zinc mines currently produce with grades between 7-12%).
So when you learn about a a publicly listed company advancing a zinc development project averaging more than 25% zinc, it must be the desire of any forward-looking investor, as such a strongly mineralized rock would immediately qualify as highly sought-after DSO (Direct Shipping Ore, also known as natural ore), which can be shipped/sold directly after mining (without any costly processing facility required on-site or near-by) to worldwide smelters (or zinc traders who will resell the material to smelters with a handsome profit).
On June 19, Pasinex Resources Ltd. (TSX.V: ADD) announced having drilled 39% zinc over 17 m.
A few days later, we published a research report entitled Pasinex & Akmetal: The Right Stuff highlighting the significance of high-grade zinc development projects with DSO-quality and the positive outlook for zinc prices in the foreseeable future making Pasinex our top-pick in the zinc market.
Pasinexs share price has been moving in tandem with the underlying zinc price in the last years, whereas positive corporate developments have started to fuel its share price recently. As the share price has started to break out of a year-long (green) triangle, we anticipate that the thrust will gain traction once the resistive C$0.17 level acts supportive, in which event we expect the price to reach its old high of C$0.40 rather quickly.
Pasinex is currently drilling underground from modernized, historic mining shafts and we eagerly await the next round of assay results from the lab, which we expect to be published shortly. If step-out drilling can repeat grades of more than 25% zinc, we are confident that the infill drillings will confirm a complete system of more than 1 million pounds zinc that can be mined quickly with estimated CAPEX of around $5 million only.
During the modernization and expansion of historic mining shafts at Pinargozu, many tons of rocks have been removed and stockpiled as it may qualify as DSO. A recent valuation report from CHF Capital Markets estimates that cash-flow can be generated shortly by selling this material as DSO, which would make Pasinex an official producer. As per this valuation report, analyst Yuri Belinsky sees Pasinexs fair value currently at C$0.30/share.
Gold? Go Uranium!
With the recent uranium price drop from $35 to $29/lb U3O8 within a few weeks, the 7 year-long correction may have come to an end, if the price can recover and hold above the crucial $30 level.
Denison lost 36% between March and May, however gained 20% lately, similar to how Cameco has been trading. Uranium equities seem to be ahead of an uranium price recovery that we anticipate to start anytime now. This would mean that uranium equities are to rise strongly again.
Our top-pick in the uranium space remains Lakeland Resources Inc. which holds numerous exploration projects in the prolific Athabasca Basin. One of its many properties, Gibbons Creek in the northern part of the basin, showed one of the highest radon values ever recorded in the entire basin, with ready-to-drill targets already identified.
In January 2014, the Gibbons Creek Project was optioned to Declan Resources Inc. which committed to spend $6.5 million in exploration over 4 years and pay Lakeland $1.5 million in cash and issue 11 million shares, which means that Lakeland does not have to dilute itself to fund Gibbons Creeks advancement and will benefit handsomely from a share price appreciation of Declan while receiving cash payments of $1.5 million to be used to acquire or explore other uranium properties in the prolific Athabasca Uranium Basin.
On July 24, Declan finally announced the closing of a long-awaited $2 million financing issueing 29 million shares, which means that the long-awaited drill program must start shortly at Gibbons Creek. The sole announcement of a drill start is expected to lift Lakelands market value to old highs of early 2014 when the drill program was thought to start and delayed since then yet on the other hand providing attractive entry points at the moment as Lakeland currently trades on relatively low support:
We expect Lakelands share price to increase substantially, the latest when Declan announces the start of the drilling program. Hence, we are optimistic that Lakelands share price has hit rock-bottom prices a few days ago at C$0.09 and that a new upward-trend has started, which is expected to be fueled once the (red) resistance at C$0.12 is broken at which event we anticipate a sharp move up to the old highs of around C$0.30.
Our latest research reports on Lakeland and the fundamentals of the uranium market (including an interview with the Athabasca Basin expert and geologist Neil McCallum from Dahrouge Geological Consulting Ltd.) can be downloaded by clicking here and here. Analyst Derek Hamill published timeless research reports on the uranium market, along with a mention of Lakeland, in April 2014 and November 2013.
Considering that all equity holdings in the Zimtu portfolio have a current market value of around C$7.3 million while Zimtu itself has a market value of C$7.2 million, we are optimistic that at least 4 core holdings (Arctic Star, Prima Diamond, Pasinex and Lakeland) are on the right track at the very moment to deliver higher share prices in the upcoming weeks and months, which is expected to have a leveraged effect on the Zimtu stock. As laid out, those 4 companies are expected to reach certain price levels in the upcoming weeks.
Today, those 4 core holdings make up 37% of Zimtus total portfolio value. The Top-6 holdings contribute 59% of the total portfolio value:
Zimtu holds around 2.8 million shares of Arctic Star Exploration Corp., currently valued at C$450,000, plus 1.7 million warrants (most exercisable at C$0.37 until April 2015). When Arctic reaches its old high of C$0.45 (+181% from current price C$0.16; which we expect to occur within the next few weeks or months), those 4.5 million shares will be worth C$2 million (+300% from current value in the books). Thus, Zimtu would benefit much more (+119%) from a price appreciation than Arctics shareholders themselves.
Zimtu holds around 8 million shares of Prima Diamond Corp., currently valued at C$480,000, and no warrants. However, Zimtu was involved in the most recent Munn Lake Property transaction, which will add 2.3 million shares of Prima. When Prima reaches its recent high of C$0.19 (+217% from current price C$0.06; which we expect to occur within the next few weeks or months), those 10.3 million shares will be worth C$2 million (+317% from current value in the books). Thus, Zimtu would benefit much more (+100%) from a price appreciation than Primas shareholders themselves.
Zimtu holds around 9 million shares of Pasinex Resources Ltd., currently valued at C$1.3 million, plus 3.3 million warrants (exercisable between C$0.10-0.16 until 2016/2017). When Pasinex reaches its old high of C$0.40 (+186% from current price C$0.14; which we expect to occur within the few next weeks or months), those 12.3 million shares will be worth C$4.9 million (+279% from current value in the books). Thus, Zimtu would benefit much more (+93%) from a price appreciation than Primas shareholders themselves.
Zimtu holds around 5 million shares of Lakeland Resources Inc., currently valued at C$500,000, plus 2.8 million warrants (exercizable at C$0.15 until August 2014 and at C$0.30 until March 2015). When Lakeland reaches its old highs of C$0.30 (+200% from its current price C$0.10; which we expect to occur within the next few weeks or months), those 7.8 million shares would be worth C$2.3 million (+360% from its current value in the books). Thus, Zimtu would benefit much more (+160%) from a price appreciation than Lakelands shareholders themselves.
Zimtu holds around 2.5 million shares of Western Potash Corp., currently valued at C$900,000, plus 2.7 million warrants (exercisable at C$0.52). When Western Potash reaches its recent high of C$0.70 (+94% from current price C$0.36; which we expect to occur within the next months when announcing a strategic partnership to develop the Milestone Deposit into a mine), those 5.2 million shares would be worth C$3.6 million (+300% from its current value in the books). Thus, Zimtu would benefit much more (+206%) from a price appreciation than Western Potashs shareholders themselves. If Western Potash succeeds in securing a strategic partner, we are confident that the alltime-high (C$2.10) can be reached, which would mean that those 5.2 million shares would be worth C$11 million (+1,122% from its current value in the books).
Zimtu holds 3.6 million shares of Commerce Resources Corp., currently valued at C$756,000, plus 150,000 warrants (exercisable at C$0.35). When Commerce reaches its recent high of C$0.35 (+59% from current price C$0.22; which we expect to occur within the next months when announcing a strategic partnership to develop the Ashram Rare Earths Deposit into a mine), those 3.8 million shares would be worth C$1.3 million (+72% from its current value in the books). Thus, Zimtu would benefit slightly more (+14%) from a price appreciation than Commerces shareholders themselves. If Commerce succeeds in securing a strategic partner, we are confident that the alltime-high (C$1.80) can be reached, which would mean that those 3.8 million shares would be worth C$7 million (+718% from its current value in the books).
Bottom-line: As Zimtus current top-6 most valued holdings make up 59% of the total portfolio value, the remaining >40 equity holdings make up 41% of the total and represent some 34 million shares and 7 million warrants from publicly traded companies active in many different commodities. Hence, there may be many more companies in the portfolio to perform well over the next months and lift Zimtus market value accordingly, on which we will report with future research updates. Zimtu also owns around 10 million shares of private companies on their way going public.
The current top-6 holdings represent exploration and development companies active in a wide spectrum of 5 different commodity classes: Diamonds, zinc, uranium, potash as well as strategic metals and rare earth elements. Regardless of where gold may trend in the upcoming weeks and months, we are bullish for all of these 5 commodities as their respective prices appear to have reached rock-bottom prices or have started a new uptrend already. Hence, Zimtu is well-positioned to profit from an appreciation of the underlying commodity prices along with material corporate developments to be achieved in the foreseeable future. Who cares about gold? Zimtu doesnt!
The author, Stephan Bogner (Dipl. Kfm., FH), owns shares of Zimtu Capital Corp. and thus would profit from a share price appreciation, whereas the author may sell those any time without notice. Please read the full disclaimer within the full research report (available as a PDF below) as a conflict of interest exists with Zimtu Capital Corp. and none of this content is to be construed as a "financial analysis" or "investment advice".