CALLUM NEWMAN S small cap alpha Ahead of the news, in front of the market THE 25 CENT CATAPULT THAT COULD TAKE EVERYONE BY SURPRISE (EXCEPT YOU )
CALLUM NEWMAN S small cap alpha Ahead of the news, in front of the market The 25 Cent Catapult That Could Take Everyone by Surprise (Except You ) Dear Reader, Today I m going to share with you a way you could make fast gains in the stock market. This is a way to find shares that could jump up by 10 50% or higher in a single day... and sometimes 100 500% in a single week. Usually with these stocks, it looks like they don t do much for a while then suddenly, out of nowhere, they spring to life. That s why I call these types of plays catapult stocks. The trick is to find them and get in BEFORE the crucial liftoff moment. Now these kinds of stocks aren t without risk nothing in the market ever is. But today you ll learn what I look for to identify these potential winners ahead of time. Then we ll get to the stock I think is imminently primed for another one of these fast catapult moves and why I believe you should buy it right now. It is one of the most compelling small cap stock opportunities I see on the market today. This opportunity is flying under the radar for now. And that gives you a huge advantage. Even more exciting, it will be the first of many such opportunities you ll learn about in the weeks and months ahead, as a charter Small Cap Alpha member. So let s begin! First, I must give you the background Stocks that leap 10 50% in a single day There s a reason why some shares as if from nowhere rocket up on the day. It s not from economic data. It s not from technical trends or oil prices, either. No, the only thing that always makes stocks go shooting up is a big, positive market announcement that the vast majority investors don t expect. For example, when a company comes out and says it s actually going to make even more money than it previously thought, investors tend to pile in and buy up the stock to get at those extra profits. These announcements are usually something that the market can t price properly, or doesn t expect at all. The best catapult moments in the market happen when an announcement comes completely out of left field. It might be a takeover offer, an earnings upgrade or a new gold deposit. Look at some of these recent catapult moments and you ll see what I mean. One example earlier this year was a small mining stock called Cradle Resources Ltd [ASX:CXX]. I wrote about this stock in February, actually. Cradle got an unexpected takeover offer on 10 March. www.agor afinancial.com.au
The shares rocketed 39% on the day. You see these moves all the time once you start watching for them. In July last year, mining exploration company S2 Resources Ltd released a bullish and totally unexpected announcement on one of their gold deposits. The stock went up 49.15% in one day Now ask yourself this If this is what can happen to a company like A2M with a market cap of more than $2 billion what gains are possible when a company is a mere fraction of that size? This is why I love small caps. It s a lot quicker for a 50 cent stock to catapult to $1, $2 or more, than it is for a $50 stock to go to $100. Let me show you 8,246% gains in two days One of the craziest in fact, totally insane catapults I have ever seen happened earlier this year. It was from a company called Stemcell United Ltd [ASX:SCU]. Right now SCU trades for around 9 cents. Its market cap is around $24 million. This doesn t just happen in resources, either Here s a chart of the A2 Milk Company Ltd. On 16 June it released a second earnings upgrade in the space of six months. Take a look at how this stock jumped to life It s a TINY stock, and very thinly traded, still. It was even smaller earlier in the year. Now look what happened to it On 14 March, SCU announced a strategic advisor was joining the company to help it target the medicinal marijuana market. In the space of 24 hours the stock shot from the last traded price of 0.013 cents to 50 cents. That was a rise of 3,746%. By the same time the next day it was up to $1.08 cents. At one point it was showing 8,000% gains. 3
Take a look: My point is These sort of announcements are part of what we ll be hunting for at Small Cap Alpha. By their nature, they re difficult to predict. But you CAN put the odds in your favour with good research. This is what I hope to do with your first Small Cap Alpha catapult stock play Your first catapult play is here: Pantoro Ltd [ASX:PNR] Considering the examples I showed you above, it should be obvious now that the best catapult plays usually come from mining stocks, especially the explorers. These are stocks that could shoot up in a day if they find something exciting. The opportunity comes from the fact that the market cannot price what it can t predict. And there s nothing predictable about exploration! That brings me to this stock idea. Fair warning though, only consider this if you re happy to take a risk, and be a little patient. I ve found a mining stock that has big potential upside from exploration but with existing cash flow to sustain its business while they look. It s called Pantoro Limited [ASX:PNR]. It s a gold producer operating in Western Australia. Pantoro trades for 24 cents and has a market cap of $184 million. Pantoro owns and operates the Halls Creek Project. This includes 100% of the producing Nicolsons mine in the Kimberly region, and some adjacent exploration leases. Here s why we want to get into the stock... Its an extremely simple premise. Pantoro is drilling aggressively right now to find more gold. Some of this is in and around the existing project, and some of it is exploring and drilling in nearby territory. The point is, any day it could release an announcement with positive drilling results that could send the share price racing up. Importantly, it s got the cash to get on with this drilling program. If you don t drill, you can t find anything. And that's not cheap. But the good news is that Pantoro is in a strong financial position. It has AU$11.5 million in cash and gold, positive cash flow, and little debt. The top 20 shareholders own 65% of the shares. That s actually increased from 61% in February. This cash flow means the company isn t dependant on the market to stay afloat, like many explorers as they run down their cash. Pantoro s Nicolsons mine is currently a small operation, producing 50,000 ounces a year, with a current base reserve life of four years. The company s target is to produce 80,000-100,000 ounces a year. Now, the gold price has been weak lately. But Aussie dollar gold is still around AU$1,575 an ounce. 4
The existing gold grades at Nicolsons are good, too. Grades like this are getting harder for the gold industry to find. But we re not buying Pantoro for the existing production. What s compelling for punters right now is the potential for the company to find more gold, and to do so close to its existing infrastructure and operations. This has the potential to turn Pantoro into a mine with a much larger lifespan and at low cost and if so, possibly a potential takeover target. Drilling results that the company has released already suggest a large extension to the mine life is highly feasible. We could get a true catapult moment if Pantoro releases a very bullish announcement indicating a major upgrade to its gold reserve base. Always know why you re buying Let me emphasise something at this point. I don t want to give you the wrong idea here. I m not a gold bug. I don t hold physical gold in my portfolio, and I don t think the monetary system should be based on gold. I ll happily leave that stuff to my colleague Jim Rickards. I m not predicting any massive rise in the US gold price from Fed money printing or some form of financial collapse. I do, however, think gold will trend up over the next 18 months, with the usual dips and rallies along the way. There are always gold bugs out there saying the next big bull market is around the corner. I ve see it so many times over the years that I ve become highly sceptical of these calls. So, our play here is that we re buying a producing miner with exploration upside. Regardless of the gold price, if Pantoro finds a lot more of the metal, there s every chance it will spike higher, as my previous catapult examples show is possible. If Pantoro doesn t do this, it won t spike unless gold goes into a major gold bull market and defies my expectations. That s always possible. But less likely, in my view, than Pantoro delivering great exploration results. I can t tell you exactly when this might happen, only that now is the most likely time for it to occur. That s what we re going for. We re speculating this can happen based off the results Pantoro s drilling has discovered already. That should hold Pantoro stock steady in the meantime, unless gold goes into a major bear market. The good news is that we do know that the demand for gold isn t going anywhere. It s been a valued resource for 5,000 years! On top of that, Pantoro is already producing gold, so it could take a lot for the market to get spooked out of this stock, if the share market itself comes under pressure. However, there are no guarantees You must look down before you look up There are multiple risks to this idea which you need to consider The first is any interruption to the existing Nicolson mine. Pantoro only has one producing project, so any breakdown say from weather or technical failure is a constant danger. There s also currency risk. Gold is priced in US dollars. Pantoro s expenses are in Australian dollars. That adds two variables the company has no control over. Ideally for Pantoro and us the US dollar gold price goes up, and the Australian dollar goes down. That would give Pantoro s current earnings two tailwinds. Of course, the reverse of that could double-down on the brakes, too. The US gold price could go down and the Aussie dollar up, becoming headwinds for the company. Or we may get a mix of the above two scenarios. This is important, because Pantoro s price will react to developments in these markets. However, remember what our aim is here. We're speculating that strong drilling results can overcome the short term trends that affect the gold market. 5
We ll be holding the stock while the drilling program continues. Another big risk, and the most pertinent for us, is that Pantoro releases an announcement that disappoints the market. The stock would sell off quickly under such a scenario. If you re happy to accept these risks, I believe the potential upside is worth it from Pantoro making a very bullish announcement. And this is the exciting opportunity behind the recommendation. Catapult moments are rare and beautiful things. It could turn a little money down into a whole lot, in a very short period of time. How much could this go up? In the meantime, I expect the stock to trend higher based off its current gold production continuing. And if anything changes, you ll be the first to know. Best wishes, ACTION TO TAKE: Buy Pantoro Limited [ASX:PNR]. It currently trades for 24 cents. Be aware that liquidity in this stock is not high. There is no need to rush in. I recommend putting no more than 5% of your risk capital into anyone stock. For now, should the stock trade above 27 cents, wait to enter the position at later date. 50 100% could be possible. That s a ballpark range for when a really strong announcement hits the market. Who doesn t want the chance to double their money? If you can accept all the risks I ve highlighted, give it a crack. Callum Newman, Editor, Small Cap Alpha All content is 2017 Agora Financial Australia Pty Ltd (ACN: 617 997 547. ABN: 14617 997 547). All Rights Reserved. The Reader acknowledges that the contents of this newsletter and all associated intellectual property rights of Agora Financial Australia Pty Ltd. No person is permitted to copy, forward or reproduce the newsletter and/or its contents without express consent of Agora Financial Australia. Agora Financial Australia Pty Ltd is an authorised representative (number 1255667) of Port Phillip Publishing Pty Ltd (Australian Financial Services Licence 323 988). All advice is general advice and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment. Calculating Your Future Returns: The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in this report are forecasts and may not be a reliable indicator of future results. Any potential gains in this letter do not include taxes, brokerage commissions, or associated fees. Please seek independent financial advice regarding your particular situation. Investments in foreign companies involve risk and may not be suitable for all investors. Specifically, changes in the rates of exchange between currencies may cause a divergence between your nominal gain and your currency-converted gain, making it possible to lose money once your total return is adjusted for currency. If you would like to contact us about your subscription please call us on 1300 029 501 or email customerservice@agorafinancial.com.au Agora Financial Australia Attn: Small Cap Alpha, PO Box 713, South Melbourne, Victoria, 3205 6