New trade for November 30th, 2010.
After two and a half years of utter carnage in the junior market, it is nice to see so much value once again. So continuing on the theme set forth in our 1st two weeks of Q3'10 report, we have found yet another junior resource name that looks to be trading at dirt cheap levels.
This brings us to CRI's latest acquisition: WER.V (Weststar Resource Corp.).
Image 1.
Image 2.
This company came to CRI's attention a couple of months ago when it announced that it was consolidating its stock (12 old for 1 new share). That left a grand total of 6.8 million shares outstanding and a total market cap at a little over $1.5 million dollars. Additionally, the company announced that they were going to do a financing after the rollback (October 13th) to raise working capital. The company still retained a large portion of their previous asset base [including a recently acquired interest in the Rainy River Gold Claims (tsx news link)] and as a result of the rollback (and subsequent financing) was both trading at a huge discount to its' book value per share and now in a position to go explore. Indeed, upon the roll back announcement the stock broke out of a tight trading channel at $.24 and quickly ran up to on the closing of the financing. While I was not participating in the story yet, I was watching closely.
If one were to look at the price history of this company over the past few years (Image 1. above) we see that anyone who invested in this company over this period has been hurt. Indeed, a 50% retracement of this monster down move would bring prices back up into the $1 dollar area. We also see (in typical venture capital fashion) the final insult to old investors came in October '10 when all old shareholders were required to surrender their already depressed stock for even less. It is only after this final shock that the stock starts to move higher. Whatever previous sellers existed before the roll back now have had their positions reduced materially. This is probably the hardest part of the game for new investors to understand. Yes, stock prices move up and down but it only the shares outstanding that govern weather a company can raise capital for prospective ventures. Now, in the light of only 10 million shares outstanding, one can understand how this company's stock price can work its way back up to 50% levels.
That brings us to today. Currently (11/30) there are about 10.5 million shares outstanding of which about 4 million are 'locked up' until the hold period comes off (four months after closing of financing October 28th) or until the end of February. As previously mentioned, the company has retained a large portion of their previous asset base which means that even after the substantial run of the past two months, the stock is still trading at a substantial discount to its book value. Indeed, at $.355 the current book value per share is a paltry .68.Considering the very active mining market, the juicy gold property they picked up this summer and a substantial amount of cash on hand to do field work it would not surprise CRI to see this stock not only through the highs seen recently but well on its way towards the two year 50% level in the coming quarters.
If we look at the short term chart (Image 2 above) we can see the impressive double bottom breakout in price (through $.24) and the quick run up to $.54. Very slick traders bought the stock at $.25 and have already seen a double. Patient investors (who missed the original breakout) ought to have open orders working at $.24. More realistically, a 50% retracement of the most recent move would bring price back into the $.32 area [(.12+.54)/2 = .32]. It is with these two prices in mind that we will start to try and accumulate this stock. It is super thin so be patient and work your open orders. In case these recent lows are THE LOW, CRI has taken a small position at $.37 but will continue to add to the trade on weakness down to $.24. Should we get lucky and get all that we want. I will look to sell half the position on a double. Assuming we only get our stock in the mid to high .30's then I will be looking to sell half the position at or near $.75...
That's all for this post,
Brian Beamish FCSI
The Canadian Rational Investor
the_rational_investor@yahoo.com
the-rational-investor.com
