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XMFSinchiruna (28.01)

Your Inside Track to the Next Potential Runaway Stock

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January 04, 2011 – Comments (30)

This is an exclusive pick for the CAPS blogs. I am hopeful that CAPS admins may elect to add Copper Fox Metals (CPFXF.PK) as a pickable stock within CAPS, such as was conveniently done for Great Panther when I highlighted that opportunity 200% ago.

I am reposting below (lightly modified) from a comment I just made in response to a question within a prior blog post.

What's not to love about Copper Fox? Seriously ... I should have picked that as my #1 stock (lack of a U.S. listing barred it from the running). It certainly should have been on my top-ten list, though (an oversight). I added a fair bit of Copper Fox during 2009 beneath $0.10, and I could easily see it giving SLW a run for its money as the top-performing stock of the sector from a 2008 low. 

I can speculate as to what may be behind that amazing stock move today ... where Copper Fox stood out like a green thumb as the only significant counterpoint to systematic and broadbased selling in the sector. It's all about the updated resource estimate and the imminent feasibility study for Schaft Creek, among the top-three sweetest properties in British Columbia (alongside Mt. Milligan and Prosperity). Also, the company had initially intented to release an updated resource estimate for Schaft Creek during Octiber 2010, but delayed the release until Q12011 due to consistent success in identifying new discoveries and developing further strategic targets within the property. That's the sort of delay a Fool doesn't mind waiting for. I think the market is moving shares in anticipation of a strong resource expansion from 2010 exploration.

This company has TCK in a very unusual earn-in option agreement at Schaft Creek, by which Teck could earn a 75% stake by covering essentially all construction costs and providing for project financing. With copper prices strengthening and this gem sitting in Teck's back yard, furthermore, perhaps some are speculating that buyout interest may follow (or even precede) the release. Teck may just be keen to consolidate that stake. The resources remain severely undervalued, in my opinion, despite the run-up of late (see the long-term chart for context!).

Copper Fox still trades at 12.3% of the NPV at Schaft Creek. I see plenty of room for sustained buying interest.

Disclosure: I own shares of Copper Fox Metals.

30 Comments – Post Your Own

#1) On January 04, 2011 at 8:42 PM, StockMillionare (< 20) wrote:

Where do you see Copper Fox say 6 months from now, do you have a possible price targer 6 months out? What will be the catalyst to move this stock to say a 2 or 3 dollar stock?

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#2) On January 04, 2011 at 8:45 PM, StockMillionare (< 20) wrote:

Price targer lol, price target.

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#3) On January 04, 2011 at 9:18 PM, silverminer (31.61) wrote:

StockMillionare

Catalysts, in no particular order:

Catalyst #1:

Copper prices are going substantially higher in 2011, based upon an acute supply shortfall amid increasing global demand (even as conservatively estimated).

http://www.fool.com/investing/general/2010/12/07/the-worlds-copper-cauldron-boils-over.aspx

http://www.fool.com/investing/general/2010/12/17/come-prospecting-for-a-golden-nugget-of-truth.aspx

Catalyst #2:

Schaft Creek feasibility study will model a highly profitable operation with a very long mine life (20+ years). Resource update will bring abrupt resource expansion forcing a revaluation of shares.

Catalyst #3:

Gold prices are going higher in 2011. Really, they are.

Catalyst #4:

Major buyout potential for the shares. Teck likely to exercise 75% earn-in option, making it a key candidate. if not Teck, than perhaps Thompson Creek might want a 25% stake. This is a speculative catalyst, but as a one-project darling Copper Fox does present a compelling target.

Catalyst #5:

Positive construction decision or permitting landmarks following Q1 release of feasibility study is a potential catalyst of its own, independent from Teck's decision of whether to take the earn-in.

Catalyst: #6:

Exploration is ongoing for 2011 in highly prospective zones, with potential for further resource expansion during mine construction.

Catalyst #7:

Market will not anticipate 2 consecutive negative permit determinations from Ontario for consecutive high-profile projects in British Columbia. What's more, officials may be inclined to streamline the process. In other words, barriers to production may be viewed as minimal.

Catalyst #8:

7.7 billion pounds of copper, 8.1 million ounces of gold, 584 million pounds of molybdenum, and 69.4 million ounces of silver. And that's before the looming resource expansion from highly successful 2010 exploration. Any project of that scale is a catalyst for share appreciation in its own right within the ongoing bull market for precious and base metals.

I won't chain my price targets to precise timetables, since too many factors are at play with respect to permitting, metal price volatility, etc. But I will say I fully expect to hold my shares (whether as a standalone company or subsequent to any potential dealmaking), to a target of at least $4 by, roughly, the end of 2012. That is a very conservative projection, in my view. I'd be guessing at a high price for 2011, since it's shorter than the timeframes I normally consider, but I could throw $2.50 as a cozy target for the year. 

There are risks, not unlike those facing any pre-production resource company. But weighed against potential reward, and especially given the persistently low valuation of Schaft Creek reflected in the shares, I view Copper Fox in a very favorable light.

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#4) On January 04, 2011 at 9:22 PM, silverminer (31.61) wrote:

A comment I posted to TMFSmashy's blog:

http://caps.fool.com/Blogs/mineral-exploration-primer/54511?&mrr=1.00

#3) On May 29, 2008 at 7:00 PM, TMFSinchiruna (99.10) wrote:

Ditto!!!  :)

I've got a primer for you:

Great Panther, Osisko, ECU Silver, Impact Silver, and Copper Fox.

Not exactly penny stocks, but the best of the juniors, IMHO.

Fool on!

 

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#5) On January 04, 2011 at 9:26 PM, silverminer (31.61) wrote:

 

From my blog, more recently:

http://caps.fool.com/Blogs/gold-and-silver-investing-made/479854?&mrr=0.17

#12) On December 06, 2010 at 7:30 AM, silverminer (99.87) wrote:

verymildbill

My microcap holdings fulfill my most growth-focused portion of my holdings, and it is from the smaller names that the most outsized moves are yet to come IMO. Great Panther remains one of those "small names", though perhaps is now transitioning to a better-known junior miner.

I see great fortune ahead from the likes of Copper Fox Metals, Alexandria Minerals, and Tyhee Development. I am invested in all three. Further up the food chain, I think Brigus Gold is beginning to look primed for some growth, and Eric Sprott added a position last quarter. Still, it is hard for me to fathom a company as solid as Great Panther ... that stock's ride has only just begun, IMO.

 

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#6) On January 04, 2011 at 9:51 PM, silverminer (31.61) wrote:

By the way, those five names I listed, from the date of the comment (May 28, 2008) through today (rough estimates from a quick comparative chart):

Great Panther - up >500%

Osisko - up >150%

ECU Silver - the laggard, at about 100%

Impact Silver - up more than 250%

Copper Fox - up about 1500%

Which gives that line-up a 500% average nominal return in just over 2.5 years

Here's hoping that many of you entered these stocks back then, while ensuring those that did not of the substantial upside which remains for them all.

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#7) On January 04, 2011 at 11:30 PM, PickThatBooger (28.41) wrote:

Sinch, I'm kicking myself right now as last Thursday I was looking to add another copper or silver miner. I narrowed it down to CPFXF and AUNFF. I couldn't decide so I flipped a coin (literally) and chose AUNFF last Friday. I watched that Copper Fox move today and felt like throwing up after reading this post.

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#8) On January 05, 2011 at 12:18 AM, Option1307 (29.96) wrote:

+0.10 for charity! :)

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#9) On January 05, 2011 at 3:26 AM, silvermind (< 20) wrote:

Sinch,

Another great post (recced)!

What happened with the trading halt on Copper Fox?

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#10) On January 05, 2011 at 4:43 AM, StockMillionare (< 20) wrote:

#3 You make some compelling points, but I will have to check into it further.

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#11) On January 05, 2011 at 7:17 AM, silverminer (31.61) wrote:

StockMillionare

I would hope for nothing less. It is never my aim to have people make investment decisions directly on the basis of my work, but rather I seek to provide ideas that fuel targeted independent research.

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#12) On January 05, 2011 at 9:03 AM, Jbay76 (< 20) wrote:

Chris,

 

Who do you think has more potential, Sandstorm Resources or Copper Fox?

 

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#13) On January 05, 2011 at 9:20 AM, silverminer (31.61) wrote:

Jbay76

They are totally different companies, so that makes for a tough comparison. I would say if Sandstorm can generate momentum with a couple of high-profile streams in 2011, I will start to treat it more seriously as an incredible prospect. Right now it's still just a great idea led by experienced people, but lacking the execution momentum I would like to see to get more fully behind it. Please understand, I am not discounting the possibility that Sandstorm could blossom into the next great royalty play, but aside from a minute personal investment, my own royalty investment remains with SLW and RGLD.

Copper Fox is not merely an idea for garnering resources, but a massive trove of the metals I seek to own in a politically safe jurisdiction with a well capitalized partner in the wings and multiple prospective suitors active in the region. It is a far more straightforward valuation play than is Sandstorm, which is more a speculative play on future transactions.

Based on those considerations, Copper Fox gets my nod over Sandstorm ... but the caveat there is that I also passed on the Gold Wheaton opportunity. :P  Choosing the "best" opportunity can be tough, which is why I own a broad basket of 80+ metals equities. I tweak the allocations according to relative confidence, whilst keeping a pot on every warm flame.

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#14) On January 05, 2011 at 10:32 AM, Jbay76 (< 20) wrote:

After accessing their website, they do seem like a good all around play with their hands in the gold, copper, silver and molybdenum jars, with the majority of it being copper.  So, do you see copper prices raising faster than gold, or is there something else behind passing up on Gold Wheaton?  I have had Sandstorm, Gold Wheaton and a throng of other miners in my radar thanks to you, and am intrgiued as to your dismissal of Gold Wheaton over Copper Fox.

 

Thanks for all you insights :)

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#15) On January 05, 2011 at 11:14 AM, leohaas (37.60) wrote:

Thanks for this tip. In particular Comment #3 provides valuable (potentially postive) insight.

But the market for this security is thin. Let's see if my order gets filled...

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#16) On January 05, 2011 at 11:23 AM, Valyooo (99.67) wrote:

I am buying this because I think you have the power to move penny mining stocks...which is pretty cool.

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#17) On January 05, 2011 at 2:28 PM, Pennyperson (< 20) wrote:

Me to Valyoo..right down my penny lane.

Nice post and thanks

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#18) On January 05, 2011 at 3:27 PM, silverminer (31.61) wrote:

Valyooo

That's a flattering sentiment, but I doubt whether that's true. In any event, it certainly doesn't constitute a sound investment thesis. If you share my bullishness on the fundamentals and valuation, that's one thing, but I hope you were joking about your reasons for buying.

Just because are portfolios are soaring with these stocks, doesn't mean our imaginations have to. :P

Fool on!

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#19) On January 05, 2011 at 4:00 PM, Pennyperson (< 20) wrote:

silverminer

Your thesis was prutty compelling and gave me 8 reasons to take a second look.

I recently sold TGB - I was in the stock at 2 and change so it was a good pay day. What's your take on TGB?

Everyone talks about gold. But, they have tons of moly and copper too. I'm not sure I should have sold it (all). Over thinking (again)...   =)

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#20) On January 05, 2011 at 4:07 PM, silverminer (31.61) wrote:

Pennyperson

http://www.fool.com/investing/general/2010/12/22/the-top-10-gold-and-silver-stocks-for-2011.aspx

10. Taseko Mines (AMEX: TGB)
After losing its bid to gain regulatory approval for the Prosperity copper and gold project, Taseko is essentially a pure-play on copper [and molybdenum] at the moment (it could be worse!). I can't shake the feeling, however, that Taseko will be given a second chance at prosperity.

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#21) On January 05, 2011 at 5:08 PM, silverminer (31.61) wrote:

Jbay76

I doubt you honed in on Gold Wheaton and Sandstorm because of me. I don't think I've discussed Gold Wheaton in any detail on this site, and I only recently discovered Sandstorm myself (and am still conducting my due diligence over time). I like Sandstorm's growth prospects, but thus far I am nowhere near as bullish on it as some others on these blogs seem to be.

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#22) On January 05, 2011 at 5:13 PM, silverminer (31.61) wrote:

Jbay76

BTW, Gold Wheaton is being acquired by Franco Nevada, so it's no longer an investment target that I'm interested in. Gold Wheaton has already had its run-up, which is why I referred to it as a missed opportunity on my part. Thankfully, my gains on SLW were more than sufficient to cancel out any regret with respect to having passed on the shares years ago.

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#23) On January 05, 2011 at 9:55 PM, Valyooo (99.67) wrote:

I wasnt kidding.  I am bullish on copper, and whenever you blog about a new penny stock (great panther comes to mind) it starts to take off....after years of doing nothing.  I cant imagine thats pure coincidence. I dont really know how to evaluate miners to be honest, usually what i do is identify which commodity I am bullish on and check which company has the best track record.

But if 1) I am bullish on copper 2) I think you can move the stock 3) I trust your judgement on miners (you are right almost all of the time) 4)I am bearish on the dollar (not short term though) 5) Penny stocks have the best upside

You dont think thats a good thesis for a trade (not neccessarily an investment...I consider mining companies a trade more than an investment...not because I dont believe in commodities, but because to me its a lot easier to watch the price action than to delve through reports- I save that for other industries)

BTW, if you get a second, could you please tell me what ratios / things on balance sheets / income statement items / others you use to evaluate a miner?  I am trying to get a list of these things for every field from the person I consider most knowledgable in that field (in this case, you).  So far I have banking, utilities, railroads, and retail pretty much pat down.  Next up is mining, insurance, oil and gas

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#24) On January 05, 2011 at 9:56 PM, Valyooo (99.67) wrote:

The only stock I think you are wrong on is TGB...the insiders dominate that stock.

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#25) On January 06, 2011 at 2:41 AM, Valyooo (99.67) wrote:

BTW I just bought "The Skinny on Silver Investing" on ebay, hopefully it will come soon...does it apply to other metals?

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#26) On January 06, 2011 at 9:54 AM, silverminer (31.61) wrote:

Valyooo

That book is dated, but some of the market dynamics David discusses still apply.

On TGB, I care not who controls the shares. The market will assign value where it needs to eventually. Actually I think TGB is fairly valued here under the circumstances, the upside is in A.) copper prices rising, and B.) Prosperity getting a second chance. Great Panther's shares were kept under wraps for years, but that didn't deter me. It just meant that the stored up value was bound to produce a more dramatic breakout. 

Speaking of Great Panther, I assure you its breakout had zero to do with me. I merely recognized the coiled spring gaining tension as silver rose another 50%, and then the move came as expected.

Fortunately, the other reasons you cited for wanting to own Copper Fox look more defensible. :) 

As for metrics, I use EV/MVPPR (enterprise value to market value of proven and probable reserves) as a handy relative valuation tool among sets of similar peers. For smaller, less established companies, the same can be done with M&I or inferred resources as well.

I pay a lot of attention to ore grades, vein thicknesses, depths, strip ratios, and other geological factors, as they bolster my confidence that a particular mine will find a way into production, and they are correlated with mining cost structures. I have some background in geology from my former career as an Anthropologist, and I feel that has aided me greatly in my performance as a mining investor.

Finally, with metal prices changing quickly, one must pay close attention to price assumptions. Often, mines are working off plans devised when gold sold for $800 or less, and analysts frequently assign NPVs then on dated assumptions. To a point, (you don't want to rely on this too heavily) that discrepancy can open up investment opportunity where the market can lag in properly updating mine valuations.

Oh yeah, and I ignore P/E ratios completely. :)

I'm looking for strong and rising free cash flow, non-existent to moderate derivative exposures on currency exchange rates, and a discipline against over-paying for acquisitive pipeline growth.

I hope this gets you started. Speedybure (hyperinflation at Seeking Alpha) has a nice multi-tiered approach to valuation that is worth a close look. Check his work on Brigus Gold for a good example.

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#27) On January 06, 2011 at 2:07 PM, Valyooo (99.67) wrote:

What are good numbers for those ratios? And do you have any books/articles in mind for learning all of the terms I need to know and their importance?

A few smaller questions 1) How can you tell if they are overpaying for growth 2) Why is free cash flow important, don't some mines not mine until the commodity itself goes up? 3) How many quarters (what reports? 10-k's) do you look at

 

Thank you very much, sorry to bother you, I know you are busy.  I am trying to learn like 10 different sectors at once so it is going to take me years before I finally understand all of this.

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#28) On January 07, 2011 at 4:35 AM, silvermind (< 20) wrote:

Chris,

What protocol do you use to come up with EV (compared to market cap)?

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#29) On February 16, 2011 at 9:31 PM, EnigmaDude (98.11) wrote:

February 14, 2011
Milestone In Environmental Assessment Of Schaft Creek Achieved
 

February 16, 2011
Copper Fox Listed As Top Ranked Company In 2010 By TSX Venture Exchange

Things are getting interesting with this miner.  How come I cannot rate them in CAPS?  Do I need special dispensation?  Would it help if I say that I am thinking of picking up shares in real life?

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#30) On February 17, 2011 at 3:26 PM, XMFSinchiruna (28.01) wrote:

EnigmaDude

I'm not sure. I requested that the stock be added some weeks back, and it was. Perhaps volume was insufficient to protect it from getting swiped by the CAPS computer? I'm not sure.

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