By James West
MidasLetter.com
June 8, 2011
TSX Venture-listed Newstrike Capital Inc. halted its stock on Monday this week to announce another stellar intercept from its ongoing drill program at its 100%-controlled Ana Paula project in Guerrero State, Mexico. The most recent drill intercept measured 112 metres in length and assayed 2.51 grams per tonne gold. This is in addition to prior intercpets from the same program such as 230.95 metres grading 7.51 grams per tonne, and 316 .95 metres grading 5.8 grams per tonne gold.
When the shares started trading again yesterday, the stock dropped from its close before the halt of $2.15 to close yesterday at $1.93. The whack-a-mole market is here again.
The carnival game where you whack the mole on the head to win a stuffed animal is a perfect analogy for whats going on today. As soon as bids appear on any TSX Venture-listed stock, they get whacked. Doesn’t matter if its a fantastic discovery shaping up, or a cure for cancer, the bids will get whacked an no money is being made. Going into summer, its enough to make an investor depressed and suicidal.
But take heart. This is where the sheep get eaten by wolves. “The market is always right” is just as vapid a saying as “sell in May and go away.” Neither one has any relationship whatsoever to truth.
The main factor driving a stake into the heart of resource company shares on the TSX Venture is the massive share overhang in the market as a result of elephantine financings done earlier this year in January.
Wlecom to the TSX Venture ‘whack-a-mole’ market.
Newstrike Capital was no exception, with a$17 million dollar financing that closed on February 16 at $1.10 per share, which means…you guessed it! 16 million shares that cost $1.10 in February can be sold today for $1.93. That’s a 75% profit, and who, I ask you, woudn’t take that off the table with the global economic tempest thats brewing out there?
The answer is nobody. So guess where the share price of Newstrike Capital is going by the 17th of June? Well if the pattern we’re seeing in this whack-a-mole market is anything to go by, its going to be a lot closer to $1.10 than to where a deposit of this calibre should, and will ultimately be valued, when risk appetite returns and the cheap share tsunami has petered out.
The same pattern is visible in a full range of TSX Venture gold exploration companies, all of whom have outstanding drill results and clearly economic deposits under development, but massive share and warrant overhangs that are going to keep the prices down – especially as long as risk appetite is negatively impacted by the geopolitical/economic negativity.
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Every Sunday, James West’s MidasLetter Premium Edition summarizes the past week’s action and upcoming week’s opportunities on the TSX Venture Exchange. He picks, on average, 3 stocks every month that he feels represent the best chances for rapid, near term share price appreciation. Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.
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But, as I said, this where the wolves eat the sheep. The smartest, most patient investors are biding their time, waiting for prices in these bloated pigs to bottom, and then, there will be a feeding frenzy, and all those who sold their shares in a panic will look back, dumbfounded and remorseful, and wish they hadn’t been so fast to pick up the hammer and whack the little mole on the head.
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