In the first article I provided some general background about the company. In this article I will explain why I am a buyer of the stock.
I generally avoid long time horizon investments – there is so much time risk in the market that 95% of my trades are relatively short term. That will remain my general bias until the market is cleaned up (I am not holding my breath). But I make exceptions for some companies and this is one of them. So much so that I currently own CanAlaska, I have it bid at lower prices, and should sufficient catalysts emerge I will double down my holdings. Why?
The important drivers for me look like this:
1. I believe it is likely that the uranium market improves rather than deteriorates given the favorable longer term supply and demand dynamics of the industry
2. I believe this company will end up with significant proven reserves, I want to own it before that occurs, especially if I can be a buyer throughout the bottoming of the uranium market
3. I believe the company survives this downturn even if it gets dramatically worse, it has cushion from; a) good cash position, b) proven ability to raise money in a shareholder friendly manner, c) its large holding in the Athabasca as a material asset
4. An unusual upside event in this company has a reasonably strong chance to occur; whether that is the discovery of a large, high grade, near surface Uranium deposit or the simple acquisition by a corporation or sovereign fund
5. It is reasonable to believe there will be a general recovery in the Uranium market, and it is reasonable to believe this company can achieve normal corporate development (explore, discover, produce). Should normal probability events unfold, this company appreciates into a nice longer term investment. This is slower wealth creation than 4, but wealth creation all the same
6. This announcement regarding the discovery of Rare Earth Elements (REE mineralization) may change the basic fundamentals of the company by adding and an additional revenue stream
With the discovery of REE mineralization, I think it is quite likely that the company has just realized a significant fundamental event, the potential for an entirely new and largely unanticipated revenue stream. I also think the market has not recognized that the company’s fundamentals just changed materially. As a trader and and investor, I am quite pleased with that last point. It provides me with the opportunity to buy value that has not been realized and priced in.
Rare Earth Elements
As of this writing, I think it is safe to say that Rare Earth Elements are still largely unknown to most investors and this Oct 20th announcement, especially on an OTCBB stock, was unnoticed and unappreciated by most. However, as evidenced by the 1,500% increase in relative volume that coincided with the news of REE mineralization, some investors have managed to connect the dots and understand the significance of the announcement.
Rare Earth Elements are used in many green technologies; think wind turbines and high-efficiency electric motors and high-efficiency lighting. It is currently estimated that China produces 93% of the world’s current REE resources and up to 99% of the world’s supply of dysprosium and terbium. China is willing to play hardball with this resource; if most of the REEs required to manufacture something like a high-efficiency wind turbine are not allowed to leave China, where will all the manufactures in that space be forced to locate their companies? That’s right, in China. You can read more about that here and here.
Of course, while he average investor remains blissfully ignorant of the REE issue and its geopolitical implications, Government-Sachs (nee Goldman-Sachs) has already started to profiteer in the REE space. With that $3m taxpayer appropriation in hand, Government-Sachs is set to profit handsomely. But folks like you and I – folks that do not own politicians and infiltrate government agencies – need to find a more honest way to play the REE space and I think CanAlaska is one of those ways.
To that end, I would like to draw your attention back to the Oct 20th press release and cite some two specific lines.
“Total Rare Earth Element (REE) mineralization ranging from 0.2% to 10% is reported and, in many cases, it is the most valuable mineralization component of the samples.”
“Most of these reported samples are from radioactive boulders, sampled for uranium. No specific exploration was conducted for REE bearing rocks, but all current targets will now be followed-up.”
In other words, CanAlaska found REE mineralization without even looking for it while they were exploring for Uranium. Once they sampled for REEs, not only did they discover their presence, but in some cases the REEs were worth more than the uranium itself. Since it is relatively cheap and easy to prospect for REEs and they have noticed where they tend to occur – often in association with uranium or thorium mineralization – they will now prospect for more deposits on their exploration projects and properties. I think it is likely that more REE mineralization will be reported over the coming months and years. Keep in mind that CanAlaska has a well funded budget for the upcoming winter exploration season.
For those of you that have not reviewed the mineralization report of Oct 20th, you can download it here. Note the Lanthanum rates. You were probably first introduced to Lanthanum while camping, it is used in the mantles that light your Coleman lantern. But it is also a key component in hybrid car batteries, with a typical battery for a Toyota Prius requiring 22 – 33lbs (10 – 15kg) of Lanthanum.
I know you’re not an investment adviser but do you think the current price Of CanAlaska at 17 cents is a good level to buy. I have a bid several pennies lower, but I’m afraid that it won’t get filled and the share price starts to move higher for one reason or another. Any thoughts? Thanks in advance.
When I deal with a stock like CanAlaska, I am always thinking about making multiple purchases. I will make up some numbers to illustrate. If I decide I want 24,000 shares of CanAlaska, I generally set up a buying plan like this:
3,000 shares @ .1701
3,000 shares @ .1501
6,000 shares @ .1201
12,000 shares @ .1001
Should all the shares fill I would have 24,000 shares at a .1201 basis. So I get my GTC orders in, and I continue to monitor the company. If the fundamentals of the company or its ecosystem collapse, then I might sell the position and take a loss. But if the fundamentals are holding up I actually hope the price pulls back. If substantially good news breaks, I can always choose to buy the move at the market price. What I am willing to risk is the possibility that I am not fully vested if they are acquired. The key to this strategy is proper evaluation of the company and its prospects and staying on top of company developments.
kavustock,
would you set up a buy plan for a stock thats not under a dollar, the same way you showed in the example above. what if they stock was trading a 6.50, what would be the increments down?
In general, if the stock is listed (as opposed to OTCBB) I often set a price alert to notify me if the stock is moving out of a range (Last =6.98). If I do that with a couple dozen stocks, I can monitor for good entries without having to commit any capital.
KAVUSTOCK
thanks for your insight. i see we both own and trade alot of the same stocks. nnvc cvm and cvvuf. im also in cxm and bmod, both small or micro cap biotech stocks. any thoughts on them ?
No thoughts on those, they are both in my universe but I have not had the time to take a proper look at either yet.
kavustock
i have been trying to add to my position in cvvuf. i bot at the current price and have bids below the current share price. what does one do when they are trying to build a position but the share price never really dips to your bids. i had alot of bids in before the company released news on there rare earth metal discovery that didn’t get filled, and then when the news hit i thought i missed out so i started buying in the low 2xs just to see it dip back to .16 is there a point when you say to yourself that you just have to own it at current levels not to miss the boat? or do i need more patience as an investor
what does one do when they are trying to build a position but the share price never really dips to your bids.
With a stock like CanAlaska, I try to remain patient. But there are circumstances where I simply switch modes and become a buyer. A good example from the past would have been Rentech (RTK). I enjoyed buying that on the dips and had a basis in the .4Xs. I understood the company, and I also understood that it had a trigger event . . . the fuel was approved for military use, were it to be approved for commercial flight the market impact would be huge, so that was the trigger I was waiting for. The news came after hours, a buddy let me know. I took out every share I could under .60, even though I had a nice position and that price was dramatically higher than my basis. For CanAlaska, news of a significant near-surface deposit might trigger me to become a more aggressive buyer.
i like to trade stocks with a good story and a trigger event, how do you find these small or micro cap stocks to trade. do you have a big universe of stocks that you follow or on a radar.
do you have a big universe of stocks that you follow or on a radar.
I have written some custom software [11/15/2009 update, the software is now available] to help me with that task. The software finds news stories for me and then I can analyze them and record my observations in a database. It makes it easier for me to maintain quality due diligence on a large number of stocks. A friend and I are lamenting that we just missed VKNG, a stock we looked at on November 3rd (around .05 then, .35 right now). The trouble I have is trying to spread my time between trading, researching, and writing software to support those activities – I noted VKNG but never got back do it. But I do have a plan. I am hoping that by sharing my software, folks will contribute their research back to this site. Then the folks that use this site will benefit from watching a larger pool of higher quality stocks than they could ever hope to follow on their own. This will all become more apparent once I release the software (I will do some work on that today, I have to write legal disclaimers, test install programs, etc).
i hate when i take my eye off a stock that i was following for so long, just to see it has ran when i finally look back. i think what you are intending to do with your site is awesome, hopefully it brings alot of traders and investors together to share there ideas so we all could benefit from it.
LOOKS LIKE CANALSKA IS TRADING AT 3X NORMAL DAILY VOLUME TODAY WITH HALF THE DAY TO GO, MAYBE NEWS ON MONDAY
kavustock
seems like canalaska is constantly doing private placements, diluting shares. i thought the whole purpose of signing with those big conglomerates is to have them pay for everything so its less dilution for shareholders. what do you make of it? do you think we get selling pressure from it?
No investor is a fan of dilution, but this is an exploration stage company and it will need to seek cash infusions from time to time – sometimes via partnerships (where they must give some ownership interest away) and sometimes in capital raises. This is minor dilution, I think under 3% and there is nothing in the placement that gets me upset. This team has a lot of active projects and they are raising money while others cannot. The type of dilution that is difficult to swallow is the type that just occurred at CTIC where the company just handed out 10,000,000 million shares in stock grants to the senior management team and directors. These CanAlaska placements seem pretty benign. My sentiments are unchanged. I am playing a patient game here. With luck the winter drilling season yields good news within the next few months.