Someone is doing a deal on Crazy Horse (CVE:CZH) when it’s vulnerable. It looks smart. I read an interesting research note on Black Iron Resources, published recently by Northland Capital which highlighted the gearing effect of explorers to their commodity. The average fall in Iron Ore equites listed on the TSX from the 52 week high was... Iron Ore Price -8.8% ; Producers -19% ; Explorers -48%
It makes sense that explorers are geared, but it’s interesting to see it so clearly quantified here. Some of the stocks I know on AIM seem to be in line – see Arian Silver (LON:AGQ) , Stellar Diamonds (LON:STEL), Beacon Hill Resources (LON:BHR) , Baobab Resources (LON:BAO) – to evidence this effect across a range of commodities. It’s always hard to make accurate comparisons across companies even in a single commodity because there is so much variance between the projects (estimated cash costs, infrastructure, exploration potential etc) but the general picture does emerge here across the exploration companies.
If you are sanguine about the continued development of China (it consumes between 53% of world cement, 48% of iron ore, 47% of coal and 39% of copper, for example) – if you think China will keep developing and urbanising, and also the other developing nations, then commodities are good place to put your money. Nothing new here. But I stumbled across Crazy Horse (CZH.V) recently and liked it as a way to buy extreme gearing on this continuation of world development. The kind of bet that I like.
Crazy Horse has fallen roughly in line with other junior explorers from its 52 week high. It has a tiny market cap ($38m) but a huge low grade copper gold project. I think the key here is that it is low grade. It’s likely cash cost per llb of copper equivalent is going to be $1.50 whereas many projects are around $1. So the bet here is for people who think copper will be above $3 and probably around $4 for the long term from here on in, due to lack of supply and increasing demand. Copper sells at a little over $4 these days, so $1.50 cash cost would be…
You have to love the name too ... :-)
One thing though. Juniors like this never accrue the entirety of an NPV to themselves. Inevitably, once the project is proved up a major will be sought to farm-in who can actually fund the development, and therefore Crazy Horse's interest will get diluted down to less than 50%. It will likely have to issue a boatload more shares on the way too.
Another thing is that you don't have to go to the Philippines to get this kind of highly leveraged exposure to metals. There are loads of these types of low-grade copper/gold deposits lying around in Canada, the US and South America, most of which will have a TSX-V stock attached, and these companies will tend to trade at a premium to anything equivalent in Asia.
