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||A Management Play
Some of my ideas are based on company fundamentals. With others, I focus on the story. However, in the 23 years I’ve been in the small cap world, the best ideas often come when you’re betting on highly experienced management. The guys that have proven track records are the ones that get you to the huge profits.
No one can predict the future with any degree of certainty. We can only look at the past, and make an educated guess about the future.
While there are no guarantees, one of the best indicators of past performance is future performance. That’s why management can be so critical when you’re betting on a younger company. When you can find management that has been there and done that, you increase your odds of making the kind of fortune other investors can only dream about.
That’s why I was so excited when I started studying today’s candidate for a nice short term move, and a much more impressive long term move. I’ve read one report on this company that suggests this stock could be $7 in the coming months ($.62 yesterday’s closing price), and then find its way to $14 if analysts are making accurate forecasts on silver prices over the next 2 years.
Seem unrealistic? Not to me, and the chart you are looking at provides the evidence this is indeed possible.
This is a chart of First Majestic Silver Corp (TSX: FR) which trades in Canada on the Toronto Venture Exchange.
As you can see from the chart, FR was a $2 stock back in mid 2009. Today, the stock is $22- that’s 11 times your money!!!!
FR is a company that has developed silver mines in Mexico. The company currently harvests about 7.5 million ounces of silver annually in Mexico. Do you know who the driving force was behind this company’s development? Glad you asked- it was Juan Miguel Rios Guiterrez.
In 2000, Mr. Gutierrez was the 4th employee hired by the company in the role of General Manager, then evolved up to manager of new business and strategic initiatives. He was one of the driving forces behind the company’s growth.
So, when someone says to me 11 times your money seems absurd, all I have to do is look at this chart and consider the contribution of Juan Miguel Rios Gutierrez.
By the way- did I mention this yet? Mr. Gutierrez left FR to take on the role of President and CEO of Sonora Resources- the subject of today’s edition.
Have I got your attention now? Yes- 10 baggers really do happen, and Sonora Resources (OTC BB: SURE) might be the next silver resource developer in Mexico to bring one home. After all, the management has proven its formula once- why not just replicate the process with a new project?
||The Gold/Silver Diversion
Gold has been on a tear of late, but Silver has not followed suit. Gold is being acquired as an alternative to keeping your money in either a savings account or in currency.
This is known as a “divergence” in technical parlance. Do you know what happened the last time Silver and Gold diverged from each other price wise? From November 2008 to April 2011, Gold appreciated 90%- that’s would be considered a darn good move by any standard.
However, over that same time frame, Silver rocketed 390% as it had been left a bit behind gold the year before.
Many analysts see Silver headed to $100 per ounce over the next two years- more than double the current level. And, since the last time Silver lagged gold it rocketed up 390%, the forecast is certainly believable.
Many analysts see Silver out performing Gold over the next two years for the very simple reason Silver is consumed in electronics equipment- Gold is not. Silver will be in greater demand for many years as it is used in Solar Panels, RFID tags, silver-zinc batteries, and GPS systems.
When the current Silver/Gold diversion corrects itself, silver will put in a repeat performance of the 390% ’10-’11 run.
Silver is a strong place to look for profits right now.
||Sonora Resources (OTC BB: SURE): Deja Vu All Over Again
It’s not a complicated recipe. It can be repeated many times over with the right cook in the kitchen.
Bring in the guys with the right mining expertise. Identify the right local properties in the right place. Guide the company along by rasing the capital to mine the acreage, and make your early investors a 1300% profit. Simple stuff.
Sounds easy, especially when the CEO has done it before. So, where’s it going to happen with SURE?
Let’s start with the Jalisco Claims.
SURE’s Jalisco properties include 6 prospects located in Central Mexico covering a total of 5240 hectares.
Exploration crews first started work there in 2007. More advanced stage exploration was completed in 2008. Several drill sites have been identified after having completed a survey of 90% of the property.
The company has locked up another 3590 hectares of potential mining sites.
The Los Amoles claims show great promise. Located in the Northwest corner of Mexico’s mainland, the Los Amoles claim has samples showing very high grade ore. Samples show .63g/t of gold, and 226.6 g/t of silver.
At 1 meter grading, samples show .33 g/t of gold, and 496.8 g/t of silver. G/t is “Grams per ton”.
If you’re not familiar with mining jargon, lets just say it’s pretty high grade stuff. The kind of stuff possible 1300% returns are made of.
Oh- and there’s one more development with this junior miner. Last week SURE signed an LOI to acquire another group of claims surrounding a 49 hectare claim SURE already has.
CEO Rios believes there are silver and gold veins already being mined that continue into their new prospect. So far, it’s only a Letter of Intent, but based on the company’s history, it is likely to close.
What’s all this property add up to? One report I’ve read estimates the value of the claims and the precious metals on them in the $800 million range. The nearly $1 billion worth of silver and gold that can be brought out of the ground- and that’s based on today’s prices.
||Where to From Here?
This is a great chart if you’re looking for a low risk entry point.
This chart goes back to early 2011, and as you can see, this stock has been in a nice uptrend for the entire year.
It’s been a no brainer to accumulate the stock every time it dropped back to its uptrend line. As you can see, every time the price has approached the green uptrend line, it has headed higher.
This is the classic chart where the highs are getting higher, and the lows are getting higher.
So, if you like the story, when do you start accumulating the stock? Well, obviously when the stock drops back to the green line. You pick it up at the higher low!
So, now you know why I wanted you to get this idea now. Because the stock corrected a bit yesterday, and is now perfectly poised to rebound and start moving higher again.
So- where to from here?
Here’s my thinking on this one. Each time it’s moved up, it’s made about a $.25 move. No reason why that can’t be repeated here.
A measured move of $.25 would put a logical upside target of $.87 from Tuesday’s close, and represent about a 40% return on investment. There’s your short term upside.
Longer term- looking a year or two down the road- this could be the kind of winner you tell your grandchildren about.
So- if we have a 40% short term upside, you can probably accumulate right up to a limit of $.70. Use the last low- $.52 as your SSL. If it goes lower than the last low, it’s likely going to have a change of character.
Last week I got you 40% on mining in Mexico. No reason we can repeat the experience on SURE, or even better. This one has a better trading history, making it more predictable. Big breakouts will come in this stock as the company announces the results of the mining samples. Once they actually put in the infrastructure and break ground, it will be long gone.
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