Small Cap Picks from the Calgary Resource Show

The Calgary Resource Show had lots of interesting small-cap companies that I met with but a few caught my attention. I thought I would share these companies as ones to add to your watch list. I am still of the belief that we are in need of a correction to cool the market off and when this occurs, it may be the right time to load up on some of the these small cap gems.

The first company that caught my eye at the conference was Compliance Energy (CEC-V). Compliance is essentially a coal company that has access to 75,000 hectares of freehold coal and mineral interests and 2,046 hectares of Crown Coal licences in the Comox Coal Basin on Vancouver Island, B.C. Through the Comox Joint Venture agreement, Compliance owns 60% of these interests and Itochu International and LG International own 20% respectively. The company is well positioned to take advantage of the Asian demand for metalurgic coal. They are located in a distressed lumber camp area and thus have access to motivated and experienced workers. The government is also behind compliance's efforts as it is good for the local economy. On the resource front, they have increased their measured and indicated resources to 71 000 000 tons on their Raven Deposit. Another advantage for compliance is an experienced management team that has brought other mining projects into production. One analyst (Fundamental Research) is following the company and has a target price of $1.32. Based on the chart below, you can see that over the next two years as the company moves toward production, there should be some very good upside in this stock. Finally, the company is now in the process of receiving environmental approvals from the Federal and Provincial governments. This is a positive next step in the mine development plan and shows that the management team is serious about sticking to its production schedule.



Another company that caught my attention at the conference was a Junior Rare Earth Metals exploration company called Commerce Resources (CCE). Commerce Resources Corp. is an exploration and development company with a particular focus on tantalum, niobium and rare metal deposits with a potential for economic grades and large tonnages. The Company is specifically focused on the development of its Upper Fir tantalum and niobium deposit in British Columbia, Canada. Commerce is well positioned with sufficient capital to advance the commercialization of a prospectively lucrative mining operation for tantalum and niobium. The company is led by an experienced management team that has just added two key people, Dr. Axel Hoppe and Ian Graham. Both bring experience in the mining industry that will assist Commerce in moving their exploration to development. Tantalum is a rare metal that has the highest capacity for electricity out of all metals. It is used in cell phones, electronics, nuclear power plants, jet engines and wind turbines. The global supply of tantalum is currently 4 million pounds behind the global demand which is having a positive impact on the price of tantalum. Niobium is used as an alloy for the production of harder and stronger load bearing steel. This steel would be used for bridges, buildings,and oil pipelines. Considering the fact that infrastructure around the world is in need of upgrading, demand for Niobium will continue to increase.


Keeping in mind that Tantalum and Niobium are fairly unknown to the investing public, you would be investing at the front end of what I think will be a long term trend.



Finally, for those that are interested in Gold and Silver, I have two companies that came across my radar at the conference that may be of interest to you. The first is called Geologix Explorations (GIX-V). Geologix is primarily a Gold and Copper explorer focused on projects in Mexico and Nevada. What attracted me most to this company is the management team which is loaded with experience and connections. The board has connections to Silver Wheaton who have already committed some financing to the company. Their main exploration property is the TEPAL project in Mexico. It was purchased from Arian Silver last year and already has over 1.5 million ounces of gold proven and 413 pounds of copper. This property has great infrastructure and property that could be put into production very easily. The management team is now focused on developing their properties in Mexico and is anticipating lots of positive news in 2010.



Another Gold and Silver company that I didn't get a chance to meet but who was being talked about by many of the newsletter writers at the conference was Explor Resources (EXS-V). Explor is a junior gold company that is drilling in the Abiti Greenstone Belt (West Timmons Area). They have a huge land position there and there management team has experience working in the area. There has been a renewed interest in the West Timmons area after Lake Shore Gold discovered a large deposit on their property right next to Explor's. What Lake Shore discovered is that the Gold bearing zones are much deeper on the West Timmons side than the East Timmons side. All of the previous drilling in that area went only 300 m deep but the Lake Shore discovery occurred at 900 m. The Explor management team thinks that they can follow the model set by Lake Shore and drill deeper in the efforts of uncovering another huge gold discovery. This stock ran up to $1.60 a share on anticipation of an Elephant discovery on there first 10000 meter drill program. The results from that program were positive but not what the speculators were after and thus a sell-off occurred in the stock. Explore has announced a larger drill program focused on the same area and I predict that once again, investors will push the stock higher with anticipation of a huge discovery. This is definitely a drill bit play but has some pretty major upside potential. The chart below shows the spike that occurred prior to March's announcement.




Overall, there is a lot of excitement in the Junior Resource Sector. Many companies have weathered the financial storm of last year and are now doing what they love to do...find new deposits and develop them. Money is also flowing back into the sector which will allow the scientists behind these companies to do their magic. With commodity prices continuing their bull trend, many junior exploration companies will benefit from the great land positions and drilling that they have begun. There were many other companies that I liked at the conference including: Strathmore Metals (Uranium), Copper Fox (Gold and Copper), Farallon (Base Metals and Silver), Phillipine Metals (Gold) and Orex Silver. One thing to keep in mind is that if you miss one bus, there will always be another. Due your due diligence, research, ask questions and have confidence once you have made your choice.

Calgary Resource Show: The Good, The Bad and the Ugly

This weekend, I spent some time at the Calgary Resource Show. My goal was to get a sense of what people were thinking in terms of where the investment world was heading while at the same time learn about a few small cap companies that might have some potential for big returns down the road.

This post will focus on the Macro-Economic ideas that were presented by speakers at the conference. I will follow up with a post latter on in the week focusing more on particular companies we should be watching this year.

The first speaker I attended was Dr. Michael Berry who was speaking about "The New Currency Regime". He began by stating that Gold and Silver are now being traded as currencies. As indicated by the chart below, the US dollar has been in a 10 year bear market and has lost much of its purchasing power.




This drop has ignited the price of commodities which have all hit new highs in the last couple of years. Dr. Berry went as far as saying that copper is now being held as money by countries like China. He believes that there will continue to be a wave of takeovers in the base metal area and favors projects that are in good locations (Peru, Argentina, Chile and West Africa) and have access to gold as well.

The second speaker I attended was John Lee from Mau Capital. He has spent lots of time working in Asia and truly believes that they have the capital to continue to fuel commodity prices for years to come. Investing in commodities is part of a hedge strategy that they are employing to protect themselves from a continual devaluation of the US Dollar and US Treasury Bills (which they are the biggest holder of). On the investment front, he is really bullish on Moly which is a base metal used to strengthen metals in pipelines, nuclear reactors, etc. His favorite company in this sector was Roca Mines (ROK-V). He also is thinking that this is a good time to start looking at Natural Gas. He thinks that the market is putting too much faith in shale gas plays and that they are now finding that production out of these areas is less and offer shorter reserve lives than traditional gas production. He mentioned Anderson Energy (AXL-V) and Prophecy Resources (PCY-V) as two of his favorite small caps in this space.

On Sunday, I attended a presentation by Danielle Park who is the best selling author of the book, Juggling Dynamite. She started her presentation by asking the audience how many people were bullish on the American Economy. Only a few hands went up but everyone admitted to being bullish on the Canadian economy. Her contention was that export economies like Canada, Australia and China suffer the most when the US Economy is struggling. She then went on to discuss interest rates and how low interest rates have created an abuse of debt by individuals, companies and even countries. Currently, we have a 398 percent debt to GDP ratio in the US which will create a big drag on the economy. Banks are keeping the money that they received from TARP to protect against default on their obligations and are not using it to stimulate small business. She believes that we have excess capacity around the world. This includes having too many houses, too many cars and other products. You can see from the Baltic Dry Index chart below that world shipping rates have recovered from their lows but have a long way to go to reach their highs. She sees this as one of the biggest indicators of an "economic" recovery.




Overall, she believes that we are once again caught in a speculation thesis not an investment thesis in the last year of our stock market rally. This has been fueled by the US Dollar Carry trade and overall US dollar weakness. With the US dollar starting to strengthen again, there is a high probability that the market will correct. She ended by stating that Canadians will not be left unimpacted by this coming correction. Canadian Real Estate is some of the most expensive in the world and we have followed our american cousins by taking on too much debt. Currently, the average canadian has a debt to income ratio of 145 percent. We owe way more than we make which does not leave us in a good position if the economy turns. Overall, Danielle's main point was that we need to be realists as investors and not try to think that we are immune to what is happening in the world. She sees modest growth for Canada down the road but nothing like we have had recently.




I also got a chance to listen to Mark Leibovit who is a stock market timer...and a very good one at that. He credits alot of his success to the book Stock Market Almanac written by Yale Hirsh. His strategy for timing the market is called "Volume Reversal Analysis" which essentially looks at changes in volume in the stock market and how this can be a leading indicator for what might be occurring. He also likes to look at what the media is saying and invest contrarian to their opinion. From his analysis...he sees a correction or change in direction coming in the market in late spring...early summer. This recent video provides insight on his current thoughts on the market.



As per usual, there was lots of enthusiasm at the conference for the small cap sector. It was mentioned many times that the venture exchange outperformed all markets in 2009. This is the good of the story and the fact that there are some very good juniors out there that are creating value for shareholders. The bad is the fact that we have been in a huge bear market rally fueled more by speculation and cheap credit than by a recovering economy. The Ugly is the fact that as Canadians we still haven't bought into the new Economic Reality that we are faced with and could get burnt like our American cousins unless we change our thinking. I will be adding another post shortly with a few of my specific picks from the conference.