Although the junior mining sector began to unravel in May, savvy investor Mike Halvorson, president of Halcorp Capital, ended up having a busy summer. Welcome to the world of a major mining stock investor, who he enters early and then enjoys sizeable gains as, one by one, his companies become acquisition targets. “I’ve been lucky,” the humble Halvorson told us, “I’ve associated with the best scouts, the people who know a quality project.” And since they have credibility, quality projects come to these geologists. Halvorson says his wealth creation strategy comes from investing in the projects of these credible geologists.
On May 3, Glamis Gold acquired Western Silver. “I recognized the project and the lead geologist behind it, Tom Patton,” Halvorson explained. “I was a director of Western Silver. I wasn’t associated for the entire time, but I was there for most of it.” August has been his busiest month. As a director of NovaGold, Barrick Gold recently announced a hostile takeover of this company, which is now being challenged. In mid-August, Yamana Gold made an offer to acquire the shares of Viceroy Exploration, which has proven and probable gold reserves of more than seven million ounces in Argentina.
So how does anyone emulate Mike Halvorson’s success in picking top winners in the mining sector? “The average investor is going to have a hard time,” he promised himself during our phone conversation. “If I were an average investor, I would rely on some type of advisory service, or two or three, to help me choose my stocks.” We both agreed that some of the uranium projects were not going to work. “Many of these uranium projects will never see a shovel in the ground, never see anything close to production,” he warned.
But many advisory services care about themselves first and their subscribers second, if at all. He advised us to avoid the egoists. “I have a long history with a couple of guys who are honest and have good skills,” Halvorson said. Subscribe to Bob Bishop’s Gold Mining Stock Report. “I like Bob,” Halvorson told us. “He covers people. He knows a lot of people in the industry. One of the gifts a guy like Bishop has is that he doesn’t try to fit the same model to every company, like a lot of analysts do. He just tries to find out if stocks “They’re going up. What makes Bob Bishop a better stock pick than most guys is that he doesn’t walk with a model. He walks with instinct and the ability to judge the people involved. He has a great network for fact-checking.” .
“I guess for the average person, if they don’t rely on a counseling service, they should go to (resource) conferences,” Halvorson said. Such conferences occur throughout the year. A resource conference is taking place this week in Las Vegas. Another popular resource show will take place later in September in Toronto.
Valuation of uranium mining shares
“The (uranium) companies are so new,” Halvorson said. “Some of them aren’t really that familiar with their own assets, let alone the assets of other companies. It’s not like the oil and gas business where you have…in western Canada, there are a dozen or fifteen blue-chip engineering companies that provide reserve and reservoir evaluations. If you see one of those engineering reports, you can really put a market value on those assets.”
Not so in the uranium business. With the uranium assets, Halvorson explained, “A lot of it is historical work, some of it is National Instrument 43-101 and some of it is not.” But he cautioned that despite regulatory insistence that companies submit independent geological documents confirming their resources, “you have to be careful if you run out and buy a 43-101 resource.” He added: “I’m not sure one bases investment decisions solely on them.”
For example, he described how a company may only be able to mine (URANium recovery ISR) of the resource. What happens if after testing, the company discovers that solution mining will not work? “That’s something that will worry me,” she told us. “I think there are a lot of projects that the companies that have them call ‘good projects.’ And I don’t think these people have any idea what it takes to solution mining.”
If so, what should investors look for in uranium mining stocks? “At this stage, I would try to look for undervalued companies because that’s the minimum risk,” Halvorson advised. “I don’t think I would look at the market leaders per se. Companies like Cameco and Denison are terribly expensive. International Uranium is expensive in my opinion.” So where would Halvorson look today? “I would look at the undervalued ones, the ones that have projects, but for some reason maybe they don’t have as much traction in the market,” he suggested. “Ultimately, I think the market will recognize those securities or they will seize them at premiums.”
Two of Halvorson’s favorites came from his network. “I originally got involved with Strathmore Minerals because I knew they had good properties and very good consultants and contacts in the business,” he explained. “And they have David Miller, who really knows the business inside out. Talking to him, I felt comfortable with those US assets. So, I literally backed up the truck and bought a lot of stock.” Halvorson subsequently became a director of Strathmore Minerals.
Another Halvorson favor is Kilgore Minerals. “With Kilgore, it’s because Norm Burmeister had a good track record with Silver Standard and Bull Run,” Halvorson said. “Norm is the type of person who has great appreciation for an economic play. I got involved with Kilgore fairly early on and was semi-responsible for getting the stock out of the 30-50 cent range. Norm has a large gold holding. We both laughed of Kilgore’s big handicap, adding: “There’s a company that, if it were to be promoted aggressively, would probably trade for maybe three times what it is. Their gold property is probably worth what they sell for.”
Halvorson spoke about his other uranium holdings: “I was a pretty big shareholder in UR-Energy, but you can’t own all your shares all the time. They had a very good market, so I left.” He noted that those were his three substantial holdings and that he also has minor holdings elsewhere. One of those holdings, Santoy Resources, stems from his association with Ron Netolitzky, who is also a director of Viceroy. “There’s no one who has a better track record than Ron at early recognition of an economic deposit,” Halvorson said of his long-time acquaintance. “Ron worked in the uranium field in the 1970s and 1980s, as well as in the gold sector, so he knows all about uranium exploration.”
From the sector, Halvorson believes there is more consolidation ahead with quality uranium companies. “Some of these guys have pretty rich valuations, like SXR Uranium One with its expensive coin and extremely strong market support from Europe and Canada,” he told us. “Because of their market capitalization, they are big enough that they can use their currency and make acquisitions.” He spoke highly of SXR Uranium One: “I’ve been on their main project in South Africa. They’re building it. It’s happening. They’ll be mining. And they’re miners.”
And that’s the big difference, going back to your comment about some projects that will never see a shovel in the ground. “How does Denison compare to some of these other companies?” she asked. “That’s part of the difference. It looks like Denison is stratospherically priced, but they’re mining. I think if Strathmore Minerals, which is a little bit undervalued right now, if we could get Church Rock to produce, I think there would be huge evaluation. “
He sees a bright future for the mining sector and believes that investors can do well if they study the companies before investing in them and get the right advice. “For people new to the market, I would look for undervalued stocks,” Halvorson advised. “I’d probably take a portfolio approach. I wouldn’t buy just one. I’d buy several.”
Halvorson expects further consolidation in the uranium sector. “As companies get more comfortable with everyone else’s stock price, and also more comfortable with other people’s assets, you’ll see people say, ‘We can use our stock as currency because we trade at about our NAV, but this company is trading at a 30 percent discount to their NAV. So if we can do a transaction with them, it will be profitable.'”
However, that is not the case at this time. “You’ll hear companies talk about this wonderful asset that they have,” he said. “So, I’ll ask someone I know in the business about the play, and he might say, ‘Oh, God, I don’t like that.’ Right now, I don’t think people have any way of judging many of these properties. If you remember the analogy I used in the oil and gas business, where you have companies trading property all the time, it’s because people can trust an engineer.”
Right now, a lot depends on the underlying commodity. Rising uranium spot prices have helped a large number of uranium “development” companies, such as Strathmore Minerals, UR-Energy, Uranerz Energy and Energy Metals, rise. More recently, according to TradeTech LLC, the uranium spot price hit a new high of $52 a pound. Many of the US uranium projects turned economical above $30 and $40/pound, giving investors more opportunities to profit. “I think I’m going to make a lot of money in the resources sector in the next few years,” Halvorson said with emotion in his voice. “But you have to be nimble. If you buy high and just hold, you might get your money back at the end of the day. If you like the sector and trade core positions, I think you’ll be one of the best.” most attractive sectors that exist”.
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