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Markets keep falling but extreme value is starting to appear in stocks such as Los Cerros
We have seen the market hit a low in June, followed by a
healthy rally that ran out of steam as many shares hit
resistance levels. The subsequent falls have snuffed out
any hope of a quick turnaround in fortunes, so it is still
necessary to be careful. You can buy stocks that are hit
particularly hard, hoping to trade out on a bounce, but the
lower volumes often limit the opportunities. So, you still
have to be careful in this bear market while many stocks
are searching for the baseline.
When companies approach cash backing …
One indictor that a company’s share price is approaching
its nadir is when it starts to approach its cash backing. Now
that is not a guarantee that you will make money as an
investor, as that company’s funds may already be
committed, but it can be a useful indicator of how much
further the share price could fall in the near term. You then
need to look at whether its assets are any good, and
whether the shares have been
too heavily discounted in the
market of the day.
… as seems to be happening with Los Cerros
At one point, when the share price was 15¢ in November
2021, the market capitalisation was nudging $100m. Now,
with the share price at 2.7¢ on Friday, the market
capitalisation of $17.5m. That is an 82% fall.
The 2.6 Moz gold resource at Quinchia, in Colombia, is a
very valuable asset that must be worth more than the $5m
that the market is placing on it today. Being gold it may be
out of favour for the time being with the gold price falling,
and the geopolitical pendulum in Colombia having swung to
the left with the recently elected President, but these
factors are working together to present us with a great
counter-cyclical buying opportunity either now, or in the
near future.(Disclosure: I averaged down and bought a few
more last week).
The current cash balance is around $12.5m and won’t last
forever, but the Company has reduced spending in recent
months in recognition that you should not spend money just
because you have it, if the market is not in the mood to
acknowledge success.
The news flow has been positive
Recall that the Quinchia Project contains multiple targets at
various levels of investigation within a 3 km radius. While it
has announced 2.6 Moz at 1 gpt in JORC resources, there
is nothing to suggest that there isn’t much more in the total
gold endowment. It is quite possible that LCL will continue
to prove up more gold for a number of years and eventually
end up with a multiple of this figure.
Without going into too much detail, the latest hole released
last week continued to demonstrate the expanding horizons
(at depth). This was drilled in the area between Tesorito
and Miraflores, beneath the existing resource shell. While
the market didn’t react favourably, it nevertheless pointed to
a higher grade shoot 70-100m below previously known
mineralisation. The system continues with some good
grade. It also hit a breccia zone, several hundred metres
lower down, that also carried grade.
It is not necessary, or wise, to become too concerned about
individual holes in what has amounted to an 80 hole,
37,000m program undertaken over the last three years.
There is a bigger picture. We know there is a substantial
and growing gold resource that could arguably support a
long life, 100-200,000 oz p.a. gold mine. That means it is
big enough to attract the majors and the Company is in
danger of being taken over when it is selling so cheaply.
Thus there is some downside protection. However, an
international gold producer may be a little coy while the
geological situation is sorting itself out.
Mine development requires both national and
local government support
The politics involved in the development of new mines
anywhere in the world involves dealing with many speed
bumps. Sometimes mining companies are confronted by
left leaning governments who seek votes in bashing mining
companies, but then replacement politicians seek to
reverse the damage done by their predecessors. That is
what we are seeing happen in the Philippines today on a
national level.
Whatever a national government says, the need for a social
licence from local populations is essential … and it is
becoming more so. It is difficult for any individual
exploration or mining company to influence national politics,
but their behaviour can have a significant impact on the
support from local communities. Getting the locals on side
is both useful and essential.
With this in mind it is worth looking at a press release made
by LCL last week concerning community awards made to
the Company. Strangely, the ASX didn’t believe that it was
sufficiently noteworthy to have it released on the ASX
platform, so ASX watchers might not have seen it. (Hasn’t
anyone told the ASX about how important matters like this
are to mine developments?)
In a televised event Quinchia Mayor, Mr Absalón Trejos
Arias spoke of the economic and social benefits of having
Los Cerros within the community and stressed the
consultative, open and trustworthy behaviour the Company
has demonstrated time and time again. He complimented
the Company on its dedication to hiring and training locals.
Further, Mr Jaime López, President of the Artisanal Mining
Association of Quinchia also spoke of the trust in Los
Cerros earned by the Company consistently delivering on
commitments and engaging with the local artisanal
workforce and families.
Israel Londoño, the Deputy Governor (Deputy State
Premier) of Risaralda State, said “The Company’s
Miraflores/Quinchia project has had the greatest positive
impact on the region due to the generation of local
employment, socio-economic and productive development
and ultimately the tax benefits that would be generated
from production.”
So, it seems that Los Cerros has strong advocates that will
speak in its favour when negotiations take place with the
national government. It is all part of the political process
involved in getting a mine going.
SINCE THE RESEARCH OMPANY RECEIVED THE EIA - ENVIROMENT LICENCE
THEN THE COMPANY MADE NO COMMENTS OF FURTHER PATH TO DEVELOPMENT.
IS IT TIME FOR ALL SHAREHOLDERS TO CONTACT MANAGMENT AND ASK ABOUT THEIR FUTURE PLANS FOR QUINCHIA 2.6MOZ DEPOSITS?
(20min delay)