Combining Fundamental and Technical Analysis
The two disciplines of fundamental and technical analysis are often set
against each other and investors may think that they must make a choice.
This doesn't need to be the case and there is a middle ground. You can
consider combining the two approaches as part of your overall investment
plan. This is what I do. I look for certain chart patterns and try to
research the fundamental reasons behind why the chart patterns look either bullish
or bearish. Chart patterns have changed since the days of Robert Edwards and
John Mcgee's classic "Technical Analysis of Stock Trends," although
still very relevant, when they recognized recurring patterns that occurred
from the stock operator pools of the day. Today, we must deal with computer
algorithms and high-speed communications that have made the stock markets
much faster than in the past, so new and different patterns have emerged, and
that is what I focus on today in my work.
Fundamental analysis attempts to determine the value of a share by
analyzing a company's financials from its annual report and using qualitative
data about the environment in which it operates. This value is often called
intrinsic value. The simplest form of fundamental analysis is by using
fundamental ratios such as the P/E ratios, Price to Sales ratios, or the
dividend yield. However, in the case of junior explorers like Great Bear
Resources Ltd. (GBR:TSX.V) and other junior mining shares, we simply
don't have that luxury; the nature of these companies is that they are cash
burning machines and don't have much in the way of fundamentals.
However, there is help. Many people write about the sector, and one of
many I like is "J. Taylor's Gold, Energy and Tech Stocks Newsletter,"
and his radio show. Jay
does a great job of looking at the fundamentals behind the junior mining
companies: property assessment, drilling results and all-important management
interviews; he also highlighted Great Bear Resources (GBR.V) in his letter
starting in January of this year. Jay also highlights the famous "Momentum Structural
Analysis" of Michael Oliver every week, so he doesn't ignore
technical analysis either. If you are super keen, you can find the genetic
DNA on just about any junior miner at John Kaiser's Kaiser Research Online site.
Technical analysis offers a different view of a stock. It is based on the
belief that the combined minds of the world are making decisions about a
company on a moment-by-moment basis, and all that is known about a stock is
reflected in its price and volume. The market is made up of a very large
number of people who may have very different views on the market, making both
long- and short-term decisions on both long and short positions. The activity
of these very large numbers of investors and traders results in different
patterns emerging in the market. (An example could be as simple as a cook is
told to cook extra meals for more guests, a helicopter pilot is booked to
bring in banking analysts and investors, drillers see the core they are
drilling, and on and on. We can imagine that all these minds are at work
assessing a company.) Technical analysts attempt to recognize these patterns
and take advantage of them when making their investment decisions.
In the Shadow of Giants: Red Lake, Ontario, Canada
When looking for a mining company in today's markets, in a world where
majors must build up their ever-declining reserves, we start by looking for
projects with district-size potential or large land packages put together by
great management teams and geologists. Great Bear Resources is one of those
companies. Great Bear Resources is exploring in the famous Red Lake Mining
District in Ontario, a mining district in northern Ontario, Canada, where
about 30 million gold ounces have been recovered from the time it was first
discovered in the mid-1930s by approximately 15 companies. Great Bear
Resources' properties sit about 30 km from the famous Red Lake mine owned by
Goldcorp, in keeping with the old mining adage, "the best place to find
gold is next to where it already has been found." It's a strategy that
has already been paying off for Great Bear Resources with high-grade drill
results within an expanding mineralized gold system. The Red Lake area has
always proven to be geologically very fertile for important gold discoveries,
and mines that have a gift of keep on giving, the deeper you go.
About Great Bear Resources (GBR.V)
Great Bear Resources is a Canadian precious metals exploration company
engaged in advancing projects with special merit in leading mining regions,
currently working the famous Red Lake District in northwestern Ontario. Great
Bear Resources is earning a 100% royalty-free interest in the Dixie and
Madsen properties, which consist of a total of 10,000 hectares in the Red
Lake District. All Great Bear's Red Lake projects are accessible year-round
through existing roads. The company is led by Mr. Chris Taylor and a team of
experienced and proven mine finders in many mining districts, but they have
also been very successful in the Red Lake mining camp. See information about
the team here.
Shares Issued and Outstanding: 23,176,169
Stock Options: 1,936,000 various prices between $0.23 and $2.50 (weighted
average $0.33) expiring between July 17, 2017 and October 5, 2021
Warrants: 10,437,217 between $0.20 and $0.70
Fully Diluted: 35,549,386
It is believed that management, family and friends own about 30% of the
outstanding shares and warrants.
Special Note: On August 24, 2018, Great Bear issued ~7 million new shares
and warrants that increase the share and warrant count written above.
Further, the company announced that McEwen Mining and Mr. Rob McEwen will
participate in the private placement and will own ~18% of the shares of Great
Bear Resources.
See News Release here: McEwen Buys into Great Bear Resources.
Great Bear has enjoyed some early-stage success in validating its
geological model while "elephant hunting" among some of Canada's
richest gold fields, with a remarkable drill hit ratio and continuity of a
high-grade, near surface resource in a structurally controlled gold
mineralization system on its Dixie Lake property, which is currently the
focus of the company. There are three points we want to make that help us
build our thesis that Great Bear could be a dynamic investment in the months
and years ahead:
- The company controls 100% of more than 10,000 hectares
of highly prospective greenstone belts at Dixie Lake and Madsen, with no
royalties.
- Great Bear has a tight share structure with ~40 million
shares fully diluted and ~$12 million in cash (assuming the exercise of
current warrants) to continue to explore this highly prospective ground.
- Great Bear is finding the same success as its neighbor,
Pure Gold (PGM.V), and has a remarkable success ratio in its drill
results, as it follows the near-surface, high-grade resource in this
structurally controlled gold mineralization system.
I would point to two excellent recent interviews done by Jay Taylor and
Eric Coffin with Great Bear's CEO and president, Chris Taylor, that present
the investment case and outline the story for Great Bear Resources better
than I could do, as well as an Investing News Network video with Chris
Taylor.
Jay
Taylor Interview
Eric
Coffin Interview
Investing News Interview: Chris
Taylor's in his own words
The Map of Great Bear Resources Projects in the Red Lake District:
The graphic of the "Fold" that potentially makes a 10 km
system into a 20-km system:
Great Bear Resources (GBR.V) shocked the market on August 22, when
the company reported high-grade assay results from the Hinge Zone
(shown in table below, approximately 33 grams of gold = 1 oz) on its Dixie
Lake gold project in the Red Lake Gold District. Then on August 24, the
company announced a private placement that insures this frugal,
tightly knit, smart, experienced management team has all the funds needed to
advance the company forward. The table below shows the latest drilling
results that moved the share price.
The map below outlines approximately 2 km of the 10 km Dixie Lake Project:
A picture of Red Lake prize that all miners in this area hope for:
More than just the Dixie Lake Project
Great Bear also has two potential successes in the Red Lake Mining
District with its 2,725-hectare West Madsen Project comprising West Madison A
Block and West Madsen B Block as shown in the map below, which encompasses
the strike extension of the geology that Pure Gold Mining (PGM.V) controls
with its nearby Madsen gold discovery.
Great Bear is located about three kilometers from Pure Gold's (PCM.V)
discovery zone. West Madsen is also located in proximity to the historical
Starratt Olsen and Madsen mines, of which it shares very similar geological
characteristics. In the event of a major taking over Great Bear Resources,
this property could be a standalone company by itself, or included in the
merger, but this is pure speculation on my part. If Pure Gold's stellar drill
results are any indicator of things to come, then Great Bear can also look
forward to an exciting drill season at its West Madsen blocks when and if
that gets going.
West Madsen (100%) is an on-strike extension of Pure Gold's high-grade
Madsen project. Recent eastern expansion of Block A of 725 hectares; 2,725
hectares for all West Madsen. PGM's Wedge Zone (adjacent to GBR's West Madsen
Block A) drill results include: 33.3 g/t gold over 8.3m, 21.3 g/t gold over
10.3m, 22.5g/t gold over 2.0m, 15.1 g/t gold over 5.4m. Other PGM Zones: 28.2
g/t gold over 7m, 26.4 g/t gold over 12.7m, 27.1 g/t gold over 5.8m.
Geophysical survey shows two primary gold targets:
- A prominent northeast to southwest magnetic linear
- Strong evidence of large-scale folding
Plans for 2018 at West Madsen properties include geological mapping, rock
sampling, and prospecting and drill target generation.
The Technicals: "Déjà Vu All Over Again"
I was first introduced to Great Bear resources when a shareholder asked me
to do a chart on the company, concerned about the volatility, so I did my
first chart on Great Bear as shown below, in late November of 2017.
Chart from Interactive Brokers
Then, I did my second chart in January 2018 (not shown), as a follow up,
in which three targets emerged, as I was encouraged by Great Bear's
resilience in the face of an overall declining precious metal market. Now I
was intrigued, so I listened to and visited the company at the Metal
Investors Forum in Vancouver in May 2018, and the fundamental story began
to emerge. It was also a top pick for 2018 of "The Resource Maven,"
Gwen Preston, found here.
From the beginning of the year Great Bear Resources built—in technical
terms—a "triangle" until it announced the drill results and its
share price gapped higher, giving new investors little time to position
themselves at lower prices or holders to sell at the two additional higher
targets; the shares blasted through all the previous targets. Then on August
24, Rob McEwen, famed precious metal investor and CEO of McEwen Mining
(MUX.TO), bought an ~18% position in Great Bear Resources, divided between
himself and his company. And the shares proceeded to and exceeded my last
published target.
Stockcharts.com
Short back story:
As a rookie stockbroker in the mid-1980s, against the advice of the
management of my company and the brokers in the bullpen, all ready to carve
up my small but growing list of clients, because of my soon to be ill-fated
venture, the IPO of Goldcorp at $10.00 per share and an "A" and
"B" warrant attached. It started out as a closed-ended investment
fund that held physical gold on behalf of investors. I put in for and got
filled on $400,000 worth and had the weekend to sell it; problem was I had
only a handful of accounts. I was told by a chorus of brokers that
"closed-end funds always trade at a discount of 10%–15% percent of their
value and I was going to take a big loss right away, and that it was a stupid
thing to do."
I got scared with all the guys telling me I was doomed, so I telephoned
Goldcorp in Toronto in the afternoon Vancouver time hoping to talk to someone
to bolster my sagging spirits. To my surprise Mr. McEwen, Rob's father,
answered the telephone and I told him my sad story. I will never forget the
words he said, sensing the fear in my voice, "John, if gold goes
down, it's cash (Goldcorp had not yet invested the proceeds of its IPO),
and if gold goes up it's 'Goldcorp,' you have nothing to worry about."
I sheepishly responded "…err…what about the net asset
discount?" He said, "Why do think we attached the two
warrants to the offering!" I sold 19,600 units that weekend with
20,400 yet to go, Goldcorp opened with a premium on the Monday morning and
shortly thereafter went to $12 (the older brokers in the office split the
commission with me as they batted cleanup, on the balance unsold).
The purpose in telling that story is that the McEwens have a history of
good timing in precious metals. Also, we must remember Rob McEwen was the
former head of Goldcorp where as CEO he had the fortitude to change the
company from a closed-end fund to an operating gold company and found an
extension of its main asset in Red Lake under the existing, almost depleted
mine. Goldcorp, in 2001, traded for its cash value, as he faced many
investors and institutions that did not believe in his vision. The mine that
arguably built Goldcorp resides in Red Lake, so McEwen knows the ground, and
now he's back in Red Lake, and as they say, "timing is everything in
mining." As shareholder, I want a major shareholder that has guts,
vision, and belief in the product he produces, and knows the ground. Great
Bear Resources gets all that with McEwen Mining (MUX.TO) and Rob McEwen.
One of the benefits of age, or as I call it now, experience, is you have
lived to see a few cycles, and mining has a lot of cycles, but also I remember
the stock charts of precious metal companies for some strange reason, and
when I looked at the break out of GBR.V, two companies popped into my head,
but I thought Virginia Gold was the most similar, so I went back and looked
at the charts, and then I ask myself "Does this look like that?"
I say, "...err... yup. I can see that."
Now I realize I am getting ahead of myself comparing an exploration play
like Great Bear Resources to Virginia Gold, a company that built a resource
and later was bought out by Goldcorp, but the technical evidence is mounting
both fundamentally and technically that Great Bear is on to something
important. We can see that after Virginia broke out of its triangle it
corrected back to its break point and then some, so we have to be aware of
the tremendous volatility these companies can experience, but as a technical
person, I also have to look at the long-term potential of such an investment
and see the possibilities of the "what ifs" that are in the chart
pattern. Because Great Bear broke above the last stated target of $1.80 and
exceeded it, I can see the "possibility" of $4.50 in the chart, not
right away, and not straight up, but it's possible when rock that was
previously—only days ago—given little value, potentially becomes very valuable.
Charts above from Independent Survey Company
Charts above from John Kaiser's website
Investment Summary:
Great Bear Resources has made great progress in advancing exploration at
its leading Dixie Lake project and has the potential for one or more
world-class gold discoveries. This project sits just off the highway to Red
Lake and it is near all the infrastructure needed to advance. We are planning
to hold our position to see the results of the more than 5,000 meters of
drill results, yet to be announced. Virginia Gold put about 220 drill holes
into Éléonore before it was taken over by Goldcorp; Great Bear Resources has
about 160 historical holes drilled by Teck and others previously on this
ground and is planning 50 holes this year, so with future success it could
begin to define a resource at Dixie Lake as early as 2019. I am not
suggesting in this short article that speculators and investors jump into
this company immediately, a company whose share priced increased greater than
three times in less than a week and did a financing that historically would
move the share price lower, at least temporarily. Or that a significant
discovery is a valuable deposit yet, but I have successfully charted
discovery stories in the past, which does not guarantee I will do it in the
future, but Virginia Gold was one of them, and that was 14 years ago, and I
am still learning, and getting bounced around every day in precious metal
arena, called the stock market, and in my own way "hunting for
elephants."
John Newell is a portfolio manager at Fieldhouse Capital
Management. He has 38 years of experience in the investment industry acting
as an officer, director, portfolio manager and investment advisor with some
of the largest investment firms in Canada including Scotia McLeod, CIBC Wood
Gundy and Richardson Greenshields (RBC Capital Markets). Newell is a
specialist in precious metal equities and related commodities, and follows a
disciplined proprietary approach incorporating equity research, analytical
frameworks and risk controls to evaluate and select long and short stocks
primarily from the Canadian small and mid-cap coverage. Many large, midcap
and junior precious metal companies use his technical charts. Newell is a registered
portfolio manager in Canada (advising representative).
[NLINSERT]
Disclosures:
1) John Newell: I, or members of my immediate household or family and
friends, own shares of the following companies mentioned in this article:
Great Bear Resources. I personally am, or members of my immediate household
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None. My company currently has a financial relationship with the following
companies mentioned in this article: John Newell manages the Fieldhouse
Global Precious Fund Class G, and it is long the shares of Great Bear
Resources (GBR.V). I determined which companies would be included in this
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This document is not and should not be construed as an offer to sell or
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John Newell has based this document on information obtained from sources
he believes to be reliable, but which has not been independently verified.
John Newell makes no guarantee, representation or warranty and accepts no
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Friends and family of John Newell hold shares of Great Bear Resources
(GBR.V)
Additional Disclosures and Disclaimer from John Newell, Fieldhouse
Capital Management, September 5, 2018:
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