The Silver Bullet
Sunday, March 04, 2007
A few months ago we recommended moving some money into the
Central Mineral Belt (CMB) players because we thought this emerging geologic
area in Labrador was poised for further uranium deposit discoveries. It was hard
for us to believe that Aurora had the only deposits on their land, and after
seeing how they grew the deposits through drilling, knew that there was more out
there. There was also another deposit further inland of the CMB, and this is the
area we targeted for our picks. One of which was Silver Spruce Resources which
had a very large land package in the area and their properties Joint-Ventured
with Universal Uranium.
This past week we saw the stock jump over 128% in one day!
This was the result of positive drill results found throughout many drill holes
and over long intervals. If you read the press release, you will realize what a
big event this is for all of the CMB players. This now indicates that we were
correct in our assumption that uranium mineralization is actually scattered
throughout the region and will allow for a mill to eventually be built. Aurora
may now have the incentive to build a larger mill than needed to process their
ore, which would make even marginal deposits developable as there would not be
the large capital requirements needed to construct a necessary mill.
With this huge run-up in the share price of Silver Spruce
their share structure shall change dramatically. Now all of their warrants and
options will be in the money, so it is conceivable that their shares outstanding
will catapult from ~22 million to ~41 million. This will most likely bog the
share price down for a while, but it is also very conceivable that some
newsletter writers shall come out and recommend this stock sometime in the
future. So we shall keep our holdings in our portfolio at the time, perfectly
understanding that the stock may be stuck in a perpetual trading range (or even
that it declines) for a certain time frame, because we would rather hold onto
anything uranium that cash out and miss out on something special (such as a
recommendation from those far more influential than us).
Many (more like all) uranium portfolios are down
considerably as the market has been hammered with the global sell-off of this
past week. We do not view this as an exit point for our uranium assets, as “bull
markets never end in a day.” Those are the words that echo in our head from our
mentor, as our Canadian Index stood at an all-time high on one day and then got
nailed the next. Maybe we go into a hibernation for a period of time, but the
bull market is not over. This is a downturn that shakes out “the hot money” and
allows the real players to double down and stabilize the market for another run.
We are believe that this next run could occur very shortly as Cameco will be
reporting news on Cigar Lake in the following weeks.
The most important thing to realize during a broad market
downturn is that non-marginable securities fall the hardest, quickest. When
uraniums do hit their bottom, it is our opinion that at that exact moment they
will be oversold by about 10%. This is usually how sell-offs play out in hot
markets, and it is due to those margin calls. Right now uraniums as a group are
falling due to getting slammed last week, but what is more is that people were
forced to cover their margin by selling them all the way to this point. Is it
over, well we are closer than yesterday, and the day before that, but it will
not all be over with until people have more money to speculate with once again.
For those of us that have been keeping some gunpowder dry for a rainy day, we
should take full advantage of this downturn right when things look as if they
couldn't get any worse. As the weak hands have been forced out of the market,
those of us with more muscle are adding to existing positions as well as taking
up new ones at great discounts! It is one of the rules of markets, and what
preserves bull markets over the long haul. So if you don't have any extra
gunpowder stored up, get some...if you do, let us keep it high and dry for now
but very ready to deploy it at any time.