StockBullz.com

Stockbullz.com Weekly Stock Newsletter #12

June 2, 2006 

 

Dear Canadian Stock Investor,

The overall Venture market for the past week has been quite flat. The volume has also been very low overall. Volumes are hovering around 100 million shares whereas 2-3 weeks ago we were easily passing 250 million every day.

I think the summer doldrums are coming, maybe even a little early. I think a lot of speculators have taken their speculative positions off the table and collected their profits. Now they are going to invest those profits in vacations and toys.

I think there will be some little breakouts in some stocks but overall I think in 2 months time we will be at similar levels as we are right now.

However, don’t think I am bearish. No…I’d say I am in hold mode right now. Actually I have started to put a bit of my cash in selected stocks I am researching. These are just small positions to test the waters. I want to get a feel of how they trade. And if they trend lower, I will probably cut my loses. However, if they begin to move up, I will think about buying more.

I think the summer time is generally a good time to buy as long as you buy on the dips and are looking at a several month perspective or longer. Short term it’s hard to say as always.

It has been taking longer than expected for Capstone to roll out the Silverstone dividend spin off.

Being of the curious type, I decided to phone IR today to see what is going on.

Mark told me that the reason for delay was an issue with American investors getting the new shares.

Apparently there are some laws preventing this type of transaction in the U.S. so Capstone had to fill out extra forms with those shareholders.

But he did say that the shares should show up in our trading accounts around Wednesday and hopefully the shares will start trading Friday.

The price is unknown right now because it will be decided by the market of course. I actually would love to see the stock trade as low as possible the first 5 days because if you remember this is how the value of the warrants will be determined. So the lower the better because there will be more upside.

The number of shares for Silverstone should be around 26 million. Comparing it to some other silver companies on latestsilver.com, I don't think it should be valued less than $20 million, or about $0.76 per share. This is a guestimate but it will be very interesting to see how trading determines the price. A ton of volatility is to be expected.

With Capstone, the mine is fully built and commissioning is happening right now, that is fixing all the little glitches and bugs before production takes off in July or August.

The next resource estimate should be released in 2 weeks time. This could be a catalyst to bring us back over $2.00.

Mark also mentioned that he thinks that development companies all over are being undervalued right now. He thinks that the market wants the companies to prove that they have the goods and they start making money.

In his opinion, it takes up to a second quarter of profits for the market to fully recognize the value these companies really have.

I totally agree and I am focusing my company searches on near term producers or new producers like Silvercorp, Capstone, Paladin, Urasia etc. 

I don’t usually do this but I will tell you about 2 new companies that I have begun researching just this week.

The first is Adriana Resources (ADI.V). This is still a tiny company and must be considered extremely speculative. However, the management has a track record that I think is one of the best in the business. Check this out:

On December 23, 2004, two respected, successful mining industry veterans, Michael Beley and Richard Barclay, joined forces again to create Adriana Resources Inc. The goal? To build their third, billion-dollar mining company.

Over the past three decades,Michael Beley and Richard Barclay have each achieved widespread recognition as company builders in the mining industry. They have worked as a team for more than 30 years, first as co-founders of Bema Gold Corporation and later as co-founders of Eldorado Gold Corporation. Today, both these companies have a market capitalization of more than $1 billion.

As founding officers and directors of Eldorado Gold,Michael and Richard used their expertise to guide its growth and development during a critical period. Under their guidance from 1991 to 2001 the company

• developed two open-pit gold mines in Mexico
• defeated an attempted hostile takeover
• gained control of an Australian junior gold producer
• negotiated a ground-breaking share-asset swap with South Africa-based Gencor
• amalgamated with HRC Development Corporation
• redeveloped the Sao Bento Gold Mine in Brazil, which now produces approximately 80,000 ounces of gold annually
• acquired significant gold assets in Turkey, which today have a combined resource base of more than nine million ounces

If their goal is to be realized, Adriana will have to appreciate by approximately 50 times their current market value. Judging by their track record, I actually think they have a good chance of making it happen.

The thing with this company though is that you will need to have a lot of patience. In the best case, production from the Lac Otelnuk property could still be 5 years away in the best case. But if it lives up to its potential it could be a cash cow will potential sales of $700 million for 20 years.

For curiosity’s sake, if Adriana can make it to a $1 billion market cap by 5 years, your average return will be in the 120% per year range. Even if it takes then 10 years, your average rate of return per year will be 50%.

Putting a little money in this baby and not touching for 5 years minimum could be a thing worth doing.

So put that on your watch list but I still have to do more research and a proper write up before it goes on my list.

The second company is Liberty Mines (LBE.V). This is a new Nickel producer in Ontario. If you start calculating cash flows and profits, you will discover they are laughably under priced. I have seen some calculations give them almost $80 million in profits whereas their market cap is in the $40 million range. That’s a 0.5x forward P/E. I have to do my own calculations to verify those claims but if Silvercorp is a good deal and Capstone is cheap, then Liberty is dirt cheap.

Expect more research in the coming weeks on those companies because they both seem to have great chances of being homeruns over the coming years.

That’s about it for this week. Thank you for taking the time to read this and I wish you luck in your investing decisions,

Mike

Stock	Date Recommended*	Price Then ($)	Price Now ($)	Return (%)
Top 2 Picks
SVM	Jan. 26, 2006	5.82	15.35	+164
NUC	Dec. 23, 2005	1.60	2.31	+44
Solid Growth
SLW	Jan. 3, 2006	6.85	9.49	+39
Speculation
MSV	Mar. 5, 2006	3.84	3.80	-1
SQI	Apr. 14, 2006	0.59	0.54	-8
WEE	May 10, 2006	2.60	2.11	-19
Ideas
PDN	Dec. 8, 2005	1.70	3.79	+123
UUU	Dec. 22, 2005	1.93	2.86	+48
ABG	Jan. 4, 2006	1.73	3.05	+76
POE	Dec. 17, 2005	2.22	4.05	+82
American Ideas
USGL	Apr. 14, 2006	8.19	8.78	+

*Note: Many of these picks were recommended on my old blog first.

Disclaimer: This letter is merely someone’s opinion. It should not be taken as investment advice. Through viewing this publication or accessing our site, you agree to hold Stockbullz.com, its operators, owners and employees harmless and to completely release them from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. It’s your money, so you are ultimately responsible for any gains/losses you may incur. Do your own due diligence! Writer may own positions in some of the mentioned stocks.