The Mining Report: The top catalysts Sagient Research follows tend to move resource stock prices 6–10%. What are the top three catalysts in precious metals equities?
Jocelyn August: The top three catalysts for absolute movements—either up or down—in precious metals are the ones that help investors determine the potential success of a project, so we're looking at preliminary economic assessments (PEA), government approvals or permits—that's when a company actually receives the decision—and resource estimates. The PEA is on top, with about an 8% movement, either up or down. When we look at only positive movements, the PEA remains on top, with a move of more than 12%. A positive PEA has a big effect on the stock price. Feasibility study results and the start of drilling round out the top three for positive movements.
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For negative catalysts, government approvals or permitting decisions are highest. When a government doesn't approve a permit, that's obviously going to hurt the share price. That will send a stock down more than 9%. Also in the top three are construction and prefeasibility study completion. We see this particularly when construction has been delayed from its original timeframe. A prefeasibility study may let investors know that the project isn't as robust as expected, which definitely results in a negative stock movement for the company as a whole.
TMR: Are the catalysts similar for base metals?
JA: We see similar large catalyst movements here. Government approvals/permitting is a large mover, as well as the start of drill testing and feasibility study results. A lot of these are where we see whether the project is going to be successful.
TMR: And uranium equities?
"FX Energy Inc. successfully completed production testing on the Lisewo-2K well in Poland."
JA: In the uranium space, the highest absolute move comes from a resource estimate. That's about 7.7%. Production starts and feasibility study completion complete the top three.
TMR: Which three catalysts typically move stock prices the most in the oil and gas space?
JA: In the oil and gas space, we've noted that for absolute catalysts, the top three that move stock prices are drilling- and testing-related. Testing completion, testing starts and testing results are all part of the development pipeline for exploration and production companies, and tend to move share prices around 6–7% in either direction.
When we look at just the positive stock movements, the same three are on top. A testing start is the highest, at about 7.85%. Testing completion and testing results follow, at just over 7%.
For negative stock movements, test completion and testing results catalysts remain in the top three but are joined by regulatory filings, usually a filing for a permit or government approval. That's the filing phase, not the approval stage.
TMR: Given your experience tracking investment catalysts, when is the best time to buy a resource company pre-catalyst?
JA: If you expect that it's going to be a positive catalyst for the company, the best time would be at least a month before the catalyst, so you can get the stock run-up. Any less than a month and you will probably miss it. But it can be difficult to precisely predict when those catalysts are going to occur. Some companies keep delaying their results or announcements.
TMR: Do these catalysts move large companies in the same manner they move small-cap equities?
JA: We obviously see higher percentage movements with small-cap companies than with large caps. Small caps tend to have fewer assets, so if something happens with one of those, it has a greater impact than it would with a larger company.
TMR: If companies are late with announcements for feasibility studies, environmental assessments, production starts or well testing, does that lessen the impact of those catalysts?
JA: It definitely does. When these companies are late with their announcements it becomes much more difficult to anticipate when the event is actually going to happen. And if a company frequently misses deadlines and does not make timely announcements, then obviously it becomes much less credible. When the company finally makes that announcement, it's already been factored into the stock price, and the impact of that one specific catalyst is going to be far less.
TMR: Your subscriber-supported CatalystTracker monitors stock-moving events. What are you seeing in the different commodities?
JA: I was looking at some catalysts that occurred over the last six months, and base metals look pretty hot, especially copper. Over the last six months, we've seen 28 copper-related catalysts, which had an absolute average change in the stock of 7.81%, plus or minus. In the precious metals space, we see an average for all the catalysts we follow of closer to 5%. For all the base metals, we recorded 47 catalysts and saw an absolute average change of 7.5%.
TMR: What's happening with the catalysts in the energy space over the same timeframe?
JA: The percentage moves were a lot smaller, in general, for the last six months or so for energy. Gas drilling catalysts were 5–5.5% on average, whereas oil drilling catalysts were more like 4.5%.
TMR: Let's get to some catalysts that investors can zero in on. What are some near-term catalysts in the precious metals space?
JA: We're looking at a construction decision at the Cerro del Gallo silver-gold project operated by Primero Mining Corp. (PPP:NYSE; P:TSX) in Mexico. That should occur between now and the end of August.
TMR: Is a construction decision one of the bigger catalysts?
JA: We consider it a go/no go decision. That is definitely a larger mover, probably about 5.6–6%. That's obviously going to depend more on the size of the company and the project. But if Primero decides to proceed with construction, then commercial production is expected in 2015.
TMR: How about some others?
JA: We're looking for a commercial production start at Banro Corporation's (BAA:TSX; BAA:NYSE) Namoya gold project in the Democratic Republic of the Congo (DRC). That one is imminent. Banro has been doing a lot of updates on that project, so it should be before the end of Q3/14.
TMR: When that's up and running, it's projected to produce 124,000 ounces a year, isn't it?
JA: That's correct. And that's Banro's second asset. The first is Twangiza, a gold mine that's also in the DRC.
TMR: Are there any other precious metals companies with catalysts?
JA: We're also looking for some catalysts from Augusta Resource Corp. (AZC:TSX; AZC:NYSE.MKT). It has a lot of things going on at the Rosemont gold-silver-copper-molybdenum project in Arizona. Augusta is the subject of a takeover bid from HudBay Minerals Inc. (HBM:TSX; HBM:NYSE), but we're looking for a couple things. First is a Section 404 permit for clean water, as well as the record of decision for its environmental impact study. Both of those should occur by the end of Q3/14.
Another one we're following is Alamos Gold Inc. (AGI:TSX). We're waiting for environmental impact assessment approval for its Aği Daği project in Turkey. It's currently under review by the Turkish Ministry of the Environment and Urbanization. Alamos submitted the final environmental impact in February, so we're hoping that it is going to give us an update when it publishes its Q2/14 earnings in August. The company had its first project in Turkey approved—the Kirazli gold project.
TMR: What else is on your list?
JA: There is Bullfrog Gold Corp. (BFGC:OTCBB). We are waiting for some metallurgical testing results at Bullfrog Gold's Klondike silver project in Nevada. The company just released some results on July 15th, but we expect to see the final results in mid-September 2014.
TMR: How about the catalysts in the junior base metals equities space?
JA: In base metals, we're waiting for the completion of a feasibility study at Taseko Mines Ltd.'s (TKO:TSX; TGB:NYSE.MKT) Aley niobium project in British Columbia. The company is working to upgrade the previously announced resource for Aley so that it's compliant with NI 43-101 guidelines. Taseko is also expecting to have a metallurgical flow sheet finalized shortly. We're waiting for an update in its next earnings announcement, likely in August.
Another is Twin Metals polymetallic project in Minnesota, a joint-venture between Duluth Metals Ltd. (DM:TSX) and Antofagasta Plc (ANTO:LSE). We're looking for an updated resource estimate for that project, the completion of which is expected imminently, probably by mid-August.
TMR: Do you notice a difference in catalyst performance between an initial resource estimate and an updated resource estimate?
JA: We definitely do. Initial resource estimates will usually give you a much larger movement than updated resources.
TMR: Feasibility studies are sometimes updated, too.
JA: Yes. If a company has a feasibility study and it updates that study, investors probably won't see as large a move as they did from the initial feasibility. But if there is a big surprise—the numbers were a lot better or worse than expected—that can definitely move the stock more than a typical update.
TMR: What are some junior oil and gas companies with near-term catalysts that you can share with us?
JA: We're tracking a production start catalyst for FX Energy Inc.'s (FXEN:NASDAQ) Lisewo-2K well in Poland. The company successfully completed production testing on that well and we're expecting production to begin in Q3/14. If you go to CatalystTracker.com, there is a section where you can look at the top 10 positive and negative catalysts for the year. FX Energy has a couple of entries in both the positive and the negative. There's a lot of volatility with FX Energy.
TMR: What are some others in the oil and gas space?
JA: We're also watching for an initial production response from a project that's being developed by Zargon Oil & Gas Ltd. (ZAR:TSX). It's the Little Bow alkaline surfactant polymer (ASP) project in Alberta. Based on its current construction schedule, the company is forecasting 140 barrels of oil per day incremental production in 2014. That's production response, and we're looking for the occurrence in Q3/14.
TMR: What about some uranium companies with catalysts?
JA: We're watching for a couple of catalysts in the uranium space. One is the production start of Uranium Energy Corp.'s (UEC:NYSE.MKT) Goliad in situ recovery project in Texas. The company expects to bring the project on-line in 2014. It's fully permitted for production and ready to go, but it's waiting for stronger uranium prices.
Another is a resource estimate and technical report for Uranium Resources Inc.'s (URRE:NASDAQ) Roca Honda project in New Mexico. We're expecting completion of that report by the middle of 2014. That could happen any time between now and the end of August.
TMR: How much do technical reports move these types of equities?
JA: We usually place them in the same category as resource estimates. Again, for a resource estimate, we're likely going to see an average move of 6–7%.
TMR: Do you have research that shows how shareholders use your service? Do they typically sell post-catalyst, or do they take more of a buy-and-hold tack, given that the catalyst movement probably indicates a well-run company?
JA: It depends on the shareholder's investment strategy. A trading firm would probably be buying and deciding how these catalysts will affect the stock in the short term. But long-term investors, like maybe a pension fund, are going to look for these catalysts to add value to these companies to help their portfolio grow in the short and long term. Moreover, they're going to look for the companies with good management teams that meet their milestones, and that have more of a balanced portfolio.
TMR: Parting thoughts?
JA: These kinds of event milestones are important. Whether you're investing in the short term or you're investing in the long term, the way that you invest based on these events might be different. But understanding those events and following these types of catalysts, especially those with the largest potential impact, can help you determine the companies in which you want to invest.
TMR: Thank you for your insights, Jocelyn.
Jocelyn August is the senior analyst and product manager for CatalystTracker, a proprietary research product focused on identifying and analyzing the future events that will materially impact publicly traded companies. In her five years at Sagient Research, she has developed expertise in the highly event-driven medical device and diagnostic sector. In addition, she spearheaded the development of a new Natural Resource Industry product within the CatalystTracker product line with the publication of the Catalyst Impact Study: Natural Resources Sector. Outside of Sagient, August was named the director of communications for the San Diego Professional Chapter of MBA Women International. August received a Master of Business Administration from the Rady School of Management at University of California, San Diego, and graduated cum laude from the University of California, San Diego, with a Bachelor of Arts degree in sociology.
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1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
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