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2/18/09

Ventana Gold (VEN.to) and the blueprint of a successful young miner

As mentioned yesterday, here's that post on Ventana Gold (VEN.to).

The recent move in VEN.to has been fast and strong, coming on the back of two or three interesting PRs that have added to its project area in Colombia, returned excellent drill results and added financing on good terms for current shareholders. Here's the chart I put together yesterday with annotations. Note that the price line goes off the chart a bit to the right as I've added this morning's price move to yesterday's chart.

Click to enlarge

So now compare what you see above to the theoretical, blueprint, not-gospel-but-right-idea chart below. This theoretical (see, I've said it again...that because there are no hard and fast rules here) gives an outline of what a successful miner's price chart often looks like over a five year period, as it moves from junior explorer to producer (and the Y-axis numbers are not representative, either...just an example):

Click to enlarge

You have an initial quiet period. Then comes a big move up when the market hears that "it's a live one" and the company has found itself a nice, prospective project. However at some point the initial enthusiasm wears off. Maybe due to a disappointing PR. Maybe because the company raises a ton of capital and dilutes too much. Maybe macro market conditions turn against it. There are dozens of possibilities but the result is the same, namely that the price goes down.

Then at some point in the life of this successful mining company a decision is made to move forward on the project. Financing is arranged and the whole thing starts to become a reality. This is often the point when long-term value seekers will take a position and hold it. As we move towards our theoretical year five, the mining project becomes a real mine and production starts. The share price increases along the way. The mine becomes a reality and the company matures into a producer. And they all lived happily ever after.

Now this is the most general of roadmaps and there are myriad alternatives, of course. Just as one example, it doesn't take into account any M&A activity. After all, a big miner could snap up our theoretical small miner at any point on this curve. However, Ventana Gold (VEN.to) is displaying all the hallmarks of that first "discovery period" share price jump right now; just don't ask me exactly where it is on the curve! Yesterday might have been the top, or there might be another dollar to add yet. I honestly don't know. Today's adjustment kinda points to a top, but the uptrend clearly isn't broken yet and there hasn't been any material news to change things fundamentally. Or in other words, DYODD, dude. Disclosure: I reco'd it at $0.67 but didn't buy myself (because I'm a pathetic whuss) and currently do not own.