Readers Questions Answered: From Fireweed Zinc To Royal Nickel And Uranium Stocks
Gwen Preston | Sep 25, 2018 13:32
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Question: Fireweed Zinc has been under increasing pressure. Do you still say hold? Looks more like a buy to me, but WDIK...
-- HD
Answer: In my last comments on Fireweed Zinc Ltd (V:FWZ) I attributed the stock’s slide largely to the price of zinc. With zinc now stabilizing, perhaps even starting to rise again, but FWZ is still sideways-to-down, something else is happening.
Here’s my take. Fireweed started fieldwork at MacMillan Pass in early June and was drilling by the end of June. From all of that we have yet to see any results.
I do not think the lack of news stems from anything significant. Rather, if something can go wrong and slow you down when you’re pushing to complete a big field program in a short summer season, it will. That’s just how exploration goes. From backups at assay labs to weather, Fireweed has faced a good number of slowdowns this season.
I know management is anxious about the lack of news. They had expected to be issuing the third set of drill results by now, not working to send out the first. And the delay has the market worried.
I think the concern is unwarranted and that a few good drill results will re-ignite at least some of the earlier FWZ excitement. As such, I think the current price represents a good buying opportunity for anyone who is not yet positioned or wants to add to his holdings.
A similar setup played out last summer. FWZ declined significantly from June to October, largely, I would say, because of a lack of news. Once news started flowing, the price went vertical.
I’m not suggesting the price will go vertical this time around – last year FWZ was a new story, whereas this year the market has a much better idea of what Mac Pass is and could be. That said, the decline from the $1.50 level to its current price just below $0.90 could well reverse if Fireweed reports good drill hits from its work to add high grade tonnes that would feed early into the mine plan. The End zone is one area that I think could provide exactly that.
I think drill results will arrive soon, so if you want to take advantage of this price point, I would act quickly.
Question: Any more feelings on RNX? Fulp seems to think this is a one-off but the webcast implies there is more.
-- RE
Answer: Thanks for asking, RE, as I should have commented on the stock last week when I wrote about the discovery.
The nuggets at the Beta Hunt mine are outstanding, no doubt about that. The question is: Does the discovery make owner Royal Nickel (TO:RNX) a buy?
To me, the answer is: No.
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There are layers of reasons. First, while these are the largest nuggets to date from Beta Hunt, they are not the first. The mine has produced flashy rocks before and despite those rocks, RNC has not been able to find anyone to buy the mine, despite hanging a 'For Sale' sign outside almost a year ago. That suggests potential buyers looked at the geology and decided it wasn’t all that impressive.
The webcast RE references is the conference call that RNC held after announcing its big find. It was an interesting call, but if anything, I was left thinking less of the geologic opportunity – just like those potential buyers.
The graphic below shows the Lunnon Basalt (green) and the Kambalda Komatiite (purple) rock units. Previously, the mine had encountered high-grade gold at the contact between these units. The latest find came deeper, from a shale layer (yellow dashed line) within the lower basalt unit.
That the shale is a good host for gold deposition makes sense, but it’s only going to host gold where gold-bearing fluids are able to encounter it because of some kind of structure. As the graphic shows, the impressive gold of late came from an area where a vertical shear zone cuts through the shale layer – the perfect setup.
Shales are slippery, so the shear zone shifts a bit at the shale layer, creating those four red gold zones. That’s great for right there, but it’s pretty unlikely that high-grade gold exists within the shale much outside of that shear zone area.
So while RNC may be able to tap into a few other spots where structure cuts through shale and leaves behind gold, there’s no reason to believe the shale layer is prospective outside of those areas.
The other big red flag with RNC is money. RNC had been trying to sell Beta Hunt because the company is actually focused on its 28% stake in the Dumont nickel-cobalt project in Quebec. Advancing that project while honing in on this gold bonanza have left RNC $33 million in debt. And debt has been rising quickly, and RNC still needs something like $8 million to cover its part of the Dumont feasibility study this year. The company is worse than broke.
With such a terrible balance sheet and limited potential for further bonanza gold, I am not at all interested in buying RNC.
Question: I own Denison Mines. It’s about 24% down since 1/2017 when I bought it. Do you have any views of this stock? Would you continue to stick with it if you had it in your portfolio? Do you think I should consider selling it to buy another uranium stock with more potential?
-- LK
Answer: Thanks LK. This question is a great follow-up after my bullish uranium comments last week.
My preference for uranium stocks to buy in order to profit from the coming market are:
1. Companies set to ramp up production of low-cost uranium to feed the looming deficit.
2. Advanced development projects with a real chance of maintaining their march towards production, as such companies will perform well whether they continue as is or get acquired.
3. The very best uranium explorers.
I named several companies of the first type last week, including Maven holding Uranium Energy Corp (NYSE:UEC). I also named Maven holding NexGen Energy (TO:NXE) as a prime example in the second category.
Denison Mines Corp (TO:DML) also fits into the second category. A pre-feasibility study is due out shortly on Wheeler River, the project that Denison (63.3%) owns alongside partners Cameco (26.7%) and JCU (10%).
Wheeler River is a very good project. Ongoing exploration continues to generate some pretty exciting numbers, including defining the much improved new resource estimate for the Phoenix zone, which will likely improve Wheeler’s economics in the pre-feasibility study compared with the PEA.
At the end of the day, there are hardly any uranium equities left. There are even fewer that fit into category 2, as the long dark bear market killed off all but the very best projects.
Denison survived because Wheeler River is one of the best. And Denison was smart to increase its stake in Wheeler River over the last two years (rising to 66%), because majors that see long-term opportunity in uranium will eye this asset as one of the few they could build to feed the supply gap.
I bought into NXE early in its discovery phase and now hold it as my Category 2 uranium holding, but DML also fits that bill. And really: if you believe in a pending uranium bull market, the way to profit is simply to own something. I don’t mean to sound flippant, but I say that because the depths of this bear market killed off every weak to mediocre uranium stock, leaving only the best behind.
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