by Zubin Driver
March 18, 2010
Positive U.S. manufacturing numbers were announced last Friday, leading the NASDAQ, S&P 500, and TSX to new highs for 2010. Despite the widely accepted notion that sovereign risk, which refers to potential government defaults due to excessive debt levels, could potentially lead to another crisis, markets continue to ride the wave of liquidity higher. For now the belief appears to be that these problems are contained and isolated, and therefore do not threaten the global financial system as a whole.
Yet the liquidity tsunami can't last forever. Soon interest rates will rise, and stimulus measures will be curtailed. Subsequent waves of mortgage payments and debt issues shall come due, testing the ability of markets and governments to roll these over. For instance Greece, recently in the spotlight as a nation in debt crisis, has 20 billion euros in debt coming due in April and May, and has been working to restructure this debt with creditors. Europe's central bank has stated that it intends to return to non-crisis lending standards by October of 2010. Yet this week the U.S. Fed gave no indication of when interest rates will move up, instead keeping to its line that 'exceptionally low' interest rates will remain in place 'for an extended period.' The market moved higher on this statement; how will it react when the statement finally changes?
For now, though, as markets have broken out to new highs, a quiet spring rally appears to be in motion. If it proves to be too exuberant, investors know what conventional wisdom advises them to do in May.
Underworld Bid promises a busy arctic summer
While the 'sell in May and go away' adage may apply to many sectors this summer, gold exploration will be going full tilt in the Yukon. Last Thursday, Kinross Gold (K-TO), one of Canada's largest bullion producers, made a bid for Underworld Resources (UW-V), a small cap explorer with a current resource of about 1.5 million ounces. The bid comes mostly in the form of Kinross stock, and is valued at about $140 million.
Since last summer, northern BC, the Yukon, and Alaska have won the market's attention, achieving premium valuations for these areas' perceived potential to host significant deposits. Due to the cold temperatures for most of the year, the exploration season is small, running from around May to September. Those companies viewed by the market as being the most highly prospective, have been cashing up in recent months, and will be well financed to cram as much drilling, trenching, and other groundwork as they possibly can into their short work seasons.
One small company that has flown largely under the radar until now is called Aldrin Resources (ALN-V). Aldrin may prove to be one of this summer's most interesting speculations, as it holds four properties which, although they have undergone extensive geochemical soil sampling to assess their potential, have never been drilled before. Which therefore puts them squarely into the 'high risk / high reward' category. Drilling success should reward investors generously, while failure could inflict pain.
What makes Aldrin particularly exciting is the fact that the company's acquired its four properties from a noteworthy prospector, Shawn Ryan. Mr. Ryan sold Underworld its White Gold property, which is the reason for Kinross's $140 million takeover bid. He also sold another junior, Kaminak Gold, its Coffee Property. Kaminak's trenching results on the Coffee, have made it a play that has attracted significant market anticipation for its upcoming drill program this year.
Given the knack of Mr. Ryan's properties to achieve exploration success, Aldrin's first summer exploring in the Yukon should catch the market's eye. Aldrin is just completing a $7 million financing that is highly sought after. For most junior companies, it isn't easy to raise capital; most can only carry out modest programs on tight budgets. Not the case for Aldrin, who will have ample funds to conduct comprehensive exploration in a summer that promises to deliver investors a prolific stream of news flow.
Disclosure: Canaccord has a buy rating on Kinross Gold Corp and Underworld Resources, and has participated in financings for Aldrin, Kaminak, and Underworld.
The Big Show
Many who work in the industry have 'been there and done that' countless times before. Yet for one or two of us it was the first time going to the PDAC (Prospectors and Developers Association of Canada) conference, the biggest mining convention of its kind in Canada. No different than any other trade show except perhaps in scale, this year's PDAC was said to host more than 20,000 people. For 4 days the Metro Toronto Convention Center was packed with all sizes of companies, hospitality suites, and receptions.
The trick was to expand one's horizons, looking for new opportunities and to meet people outside of one's usual circles. With attendees in from all five continents, this task was not difficult to achieve, and to all of you who are receiving this commentary for the first time, it was a pleasure. Keep in touch!
Best regards,
Zubin
Zubin Driver
Investment Advisor
(W) 604 643-7608 / (F) 604 643-7606
Email: zubin_driver@canaccord.com
Canaccord Wealth Management
Attention: Zubin Driver
P.O. Box 10337 Pacific Centre
2200 - 609 Granville St.
Vancouver, B.C. V7Y 1H2
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