Today I am in sunny Austin, TX where I am attending an Internet conference to help me create more value for you with our Kung Fu Finance website, so I have asked another “Accredited Investor” friend of mine, Laurence Hughes, to give us a quick debrief from the presentation he attended yesterday in San Francisco.
Laurence went to an Accredited Investor presentation yesterday given by Cayden Resources (TSX.V: CYD/OTC: CDKNF) at the Mandarin Oriental Hotel (always nice digs when companies are trying to separate you from your money!).
This is a highly speculative “junior gold mining exploration company” that trades on the Toronto stock exchange and on the “Pink Sheets”, although they expect to list on the NYSE-AMEX in the next few months. (Note: they also “expect” to make a lot of money, achieve great success, etc….but like everything else, take this with a grain of salt!).
I will talk next week about “speculation” vs. “investing” vs. “gambling”, but for the moment please remember that we are NOT recommending this company and if you do decide to speculate on it in any way whatsoever, you should do so VERY cautiously with the full knowledge that you could easily lose your money.
But, it is interesting to see what happens at these “Accredited Investor” presentations—what type of information is given (and what is withheld), what kinds of questions sophisticated institutional investors ask these companies, etc… (And yes, sometimes some of these do make great speculations.)
So what is this “Cayden Resources” company, and would it be an interesting speculation?
Let’s find out!
Take it away, Laurence…
To your financial success,
— Kung Fu Girl
A Junior Gold Explorer with Insurance?!
This is my very first guest article for Kung Fu Girl and Kung Fu Finance. I’ve been a keen follower of what Kung Fu Girl has been doing and am glad to have an opportunity to throw down some information that hopefully you can profit from!
As way of background, I’ve been successfully investing and trading for my own account for over 10+ years. I’ve seen the Internet boom and bust, two housing bubbles/collapses, two commercial real estate booms/collapses, the S&L crisis, the Asian financial crisis of 1997, the Russian Ruble Crisis in 1998 and resulting Long Term Capital Management collapse, Bernie Madoff, etc.
It’s amazing that after all of this I have survived (and even thrived), but taking risks (calculated risks) courses through my veins and each event has been an opportunity to learn and to grow my investing skills. I now trade full-time and am a full-time investor.
One of my key philosophies is “non mi fido nessuno!” or translated from Italian, “ I do not trust anyone!”. I don’t hand over my money to Morgan Stanley, Salomon Smith Barney, or to any other Series 7 broker to manage. I am not saying they are all bad, but frankly the Series 7 (which I have held myself, along with several other security licenses) only makes you legal to be a financial “sales” person. It does not teach you how to make money. More on this in future writings perhaps….
One of the commonalities that Kung Fu Girl and I share is our interest in Gold, Silver and the overall Commodity Resource Sector so when she asked if I would write about my meeting today with one of the players in this industry I was excited to take a shot at it.
Do let me know if you find it useful!
Cayden Resources (TSX.V: CYD/OTC: CDKNF)
Cayden is a junior explorer with two primary properties:
- Morelos Sur in Guerrero, Mexico, and
- Quartz Mountain in Nevada, USA.
The company produces no gold and there are no guarantees that they ever will, but do not let that dissuade you completely as this is common in the junior explorer sector and is also typical of investments that can offer investors the most upside. [Kung Fu Girl Note: Yes, these are highly speculative plays…high risk, but possibly very high reward, too.]
Ivan Bebek is the President & CEO and made a compelling argument today why a speculative investment might be worth considering.
I will hit the high points and let you peruse their website for more details at:
The company is only about 1 ½ year old. The management team founded Keegan Resources and the Esaase Gold deposit (+5 million ounces) in Ghana, West Africa. They raised over $340 million for the company in the past 5-years and Keegan is headed toward production. The thinking is that hopefully they will be able to create a similar pattern of success with Cayden.
As I mentioned, Cayden owns two properties at this time but the real story and the one which I will focus on is Morelos Sur. This property is located approximately 4 hours south of Mexico City and 2 hours east of Acapulco and sits in what is known as the Guerrero Gold Belt. There are several miners and explorers in this area including Newstrike Capital, Torex, Tarsis and the well-known Goldcorp.
Goldcorp is a major gold producer with assets worldwide (NYSE: GG, $38 billion market cap) and their third most profitable mine and the one that represents 13% of their revenue sits within Cayden’s property. I am told that this is also Mexico’s largest gold producing mine.
The red box represents Cayden’s Morelos Sur and the yellow box is Goldcorp’s property.
Goldcorp is mining gold from Los Filos and El Bermejal at cash cost of $490/ounce. Gold is presently trading at > $1,700/ounce (thank you Bernanke!).
Cayden was able to acquire this land by taking over land options from a private investment group out of Canada who ran out of funds and patience to pursue holding the property back in 2010. (I am told that the private group that owned the option was young wealthy kids who ran out of money and spent considerable amounts on wine and women.)
In any event, Cayden made their final payment of $8.6MM (all in approximately $25.5MM) and now control 100% of Morelos Sur. Under the terms of the purchase, Cayden will need to make ongoing payments to Grupo Mexico (one of the world’s largest copper producers) the greater of $200K annually or 3.5% net smelter fees (this would only apply at the point that the Morelos Sur project produces gold).
The exciting part of the project and what could potentially be called the “insurance” on this investment is that there is a good potential that a future transaction with Goldcorp could be made. On the map above, you will see that Goldcorp currently is using Cayden’s land as a heap leach platform for the dirt that they are digging out of their mines. They are running out of space and need the expansion delineated by the white dotted line.
Your eyes are not mistaken when you see that Goldcorp’s heap leach area sits on Cayden’s land. No, they do not have permission to be there and no they are not currently paying Cayden a cent.
Originally, Goldcorp had been in discussion with Grupo Mexico to buy the site for $21MM but at the time gold was trading at ~$600 per ounce and Goldcorp’s mine was just a low-grade deposit. After a year of not being able to come to a deal, it fell by the wayside (i.e., two big companies with other pressing issues) but now Cayden owns the project and they intend to use it as leverage.
Currently, Cayden has the right to move Goldcorp off of their land but has instead been positioning themselves to potentially sell part of Morelos Sur to Goldcorp.
They are actively drilling in the blue dotted area Mina Verde and Las Calles. Las Calles sits at the entrance of Los Filos Pit. It’s believed that both Los Filos and El Bermjal are connected and will be one super pit. Cayden believes that their drilling program of 30,000 meters within the next six months could bring resources close to 1 million ounces between Mina Verde and Las Calles.
At a potential $350/ounce/resource, a transaction could result in a $350MM. I pressed Cayden for a low-side estimate and they gave $150MM. With fully diluted shares of 43,191,001 shares, that can be anywhere between $3.47/share to $8.10/share in just selling the land east of La Joya.
The real excitement for the current institutional investors (Libra Advisors and Sprott Asset Management) is La Magnetita. While there has not been extensive drilling here, the magnetic anomaly is huge. It is the largest magnetic anomaly in the Guerrero Gold Belt.
All of the strikes in the area have been +5 million ounces and Cayden believes that La Magnetita could be as big as Goldcorp’s project. They intend to start drilling in March 2012.
Thus, their play is to work a deal with Goldcorp ($150-$350MM sale), retain $50MM in the treasury, pay a special dividend to shareholders, and focus their effort on drilling La Magnetita.
While there is no guarantee that a deal will be made, Cayden could stop the heap leach operation at any time and force Goldcorp to move their project, which would cost Goldcorp delays and increase their costs. Cayden’s strategy is to not be contentious as they ideally would like to work out a friendly deal; thus, this represents the insurance.
Even if no deal is made with Goldcorp, the carry costs of the Morelos Sur are $200,000 annually. Cayden will not pack up their bags and will continue forward with drilling their property to further define their resources. They have $2.8MM in cash which will fund 30,000 meters of drilling. Cayden has said that drill results for Las Calles should start being announced in February with ongoing news releases months ahead. [Kung Fu Girl Note: This will be extremely interesting to see…remember the adage, “drills kill”! But if they have positive drill results, it could bode very well for them.]
Cayden market cap as of 1/25/12 is approximately $100MM which suggests plenty of upside if events unfold as projected.
Technically speaking, it is difficult to do any kind of short-term trading on an OTC traded company. Cayden has rallied 11.5% as of today as the entire resource sector took off. The 52wk range is $1.41-$4.69/share.
If you decide to speculate on the company, I would prefer to not chase and buy around $2.15/share which would close the gap up today. A price drop below the $1.41/share price would suggest that the story had significantly changed or a significant drop in the gold price has occurred. On the other hand, drill results starting in February (if favorable) or a deal with Goldcorp could easily take the shares to +$4/share.
- Entrepreneurial management with skin in the game (roughly 30% ownership interest and participated in the last round of equity financing of $2/share) and proven track record.
- Unique situation with Goldcorp that could lead to a sale of part of Morelos Sur.
- Potential upside to re-rating of shares through drill results, Las Calles and La Magnetita. Future exploration opportunity in Nevada project which was not discussed much.
- As a long-term investment, there is a tremendous upside if resources are proved out as they would certainly be a target for Major and Mid-tier producers looking to replenish their resources
- Low share count of only 36MM shares (fully diluted 43MM shares)
- Exploration company just starting to prove out their resources
- No guarantee that a deal with Goldcorp will actually occur or could take longer than believed
- If a deal is not made with Goldcorp, it is likely they will raise additional funds to fund exploration. However, share count is very low and this will likely not be a situation where it would affect the stock.
- Low trading volume on the OTC exchange. If you are to buy significant amounts, you may want to contact the company and seek a private direct investment (Accredited Investors only). The Company has stated that they intend to list on the NYSE-Amex exchange in the next few months.
— New Taipan (aka Laurence Hughes)
This article is for informational purposes only. The writer is not a licensed investment advisor and cannot provide investment advice. While the writer has made every effort to be accurate, there is no warranty that the above information contains no errors. The writer is not liable for any losses from your investments. You must do your own due diligence. I do not hold any interests in Cayden Resources nor am I affiliated with the Company in any way.