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TSX
Venture-listed Newstrike Capital Inc. halted its
stock on Monday this week to announce another stellar intercept from its ongoing
drill program at its 100%-controlled Ana Paula project in Guerrero State,
Mexico. The most recent drill intercept measured 112
metres in length and assayed 2.51 grams per tonne gold. This is in addition to prior intercpets from the same program such as 230.95 metres grading 7.51 grams per tonne,
and 316 .95 metres grading 5.8 grams per tonne gold.
When the shares started trading again yesterday, the
stock dropped from its close before the halt of $2.15 to close yesterday at
$1.93. The whack-a-mole market is here again.
The carnival game where you whack the mole on the
head to win a stuffed animal is a perfect analogy for whats
going on today. As soon as bids appear on any TSX Venture-listed stock, they
get whacked. Doesn’t matter if its
a fantastic discovery shaping up, or a cure for cancer, the bids will get
whacked an no money is being made. Going into summer, its enough to make an investor depressed and
suicidal.
But take heart. This is where the sheep get eaten by
wolves. “The market is always right” is just as vapid a saying as
“sell in May and go away.” Neither one has any relationship
whatsoever to truth.
The main factor driving a stake into the heart of
resource company shares on the TSX Venture is the massive share overhang in
the market as a result of elephantine financings done earlier this year in
January.
 
Wlecom to the TSX Venture ‘whack-a-mole’
market.
Newstrike Capital was no exception, with a$17 million dollar financing
that closed on February 16 at $1.10 per share, which means…you guessed
it! 16 million shares that cost $1.10 in February can be sold today for
$1.93. That’s a 75% profit, and who, I ask you, woudn’t
take that off the table with the global economic tempest thats brewing out there?
The answer is nobody. So guess where the share price
of Newstrike Capital is going by the 17th of June?
Well if the pattern we’re seeing in this whack-a-mole market is
anything to go by, its going to be a lot closer to
$1.10 than to where a deposit of this calibre
should, and will ultimately be valued, when risk appetite returns and the
cheap share tsunami has petered out.
The same pattern is visible in a full range of TSX
Venture gold exploration companies, all of whom have outstanding drill
results and clearly economic deposits under development, but massive share
and warrant overhangs that are going to keep the prices down –
especially as long as risk appetite is negatively impacted by the
geopolitical/economic negativity.
James West
MidasLetter Premium
Edition identifies 5 stocks on the first Sunday of each month from the TSX
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