For more than forty years, I have been investing in microcap stocks. I currently have about ninety positions in microcap stocks. Almost all of these investments are in a subset of the microcap universe. This subset is an offshoot of penny stocks. It is the strange and unknown world of penny mining stocks. It is also hands down the most profitable and as strange as it might seem to you the safest sector in the penny stock category. And I have the battle scars to prove it, reaching back more than forty years.
Allow me to introduce you into the strange and wondrous world of penny mining stocks.
For the price of a night on the town you can be a player.
Their greatest attraction of course is their proven ability to earn enormous profits on a chump-change investment. In my investing, I refuse to accept a profit of less than 300% on my penny stock investments and five and ten baggers are common.
let's see how I play the game. First, I eliminate the fly-by-night and the pump and dump frauds by only buying stocks that are listed on the Toronto Stock Exchange and the junior venture exchange. Then I insist that they have been listed on the exchanges for a minimum of five years. This eliminates virtually all the scams. It is a rare scam that is in existence for more than five years. And contrary to our popular belief,our northern cousins in recent years have done an excellent job of protecting investors from scams.
Compare this with the typical pink sheet penny stock that does not have to meet any exchange requirements at all. And that all too often prove to be little better than vapor stocks when compared to the hard asset penny mining stocks with true wealth in the ground potential.
I have always believed in making my points with a sledgehammer. Currently the cheapest stock that I own is a little jewel called Copper Ridge Explorations. It is currently selling at about 2 cents a share. Now before you go nuts and stampede for the nearest exit maybe you should know why I own the stock.
It is listed on the Toronto Venture Exchange and was Incorporated in 1983. This pretty well eliminates the-fly-by-night and the pump and dump schemes. Next, I look at the total float or the amount of outstanding issued stock, which is about 79 million shares. This is higher than I like. I prefer less than 50 million shares. Multiply that amount times 2 cents and you come up with a total market value or capitalization of about $1.8 million.
Contemplate this figure. It means that you can buy the whole company, lock, stock and barrel for almost nothing. A ridiculously small amount of buying power can send this stock to the moon. Three investors each buying say $10,000 worth of stock on the same day could easily send this stock into orbit.
I then take a careful look at the 52 week high and low for the stock. Remember the only way to make money on a speculation is for the stock to fluctuate. The 52 week low for the stock is about a half a cent a share. The high is 14 cents. The stock moves. Another test passed.
In my investing I place tremendous importance in the stock's trading range and in the concept of "reversion to the mean."
Let us now examine the stock's annual high and low since the year 2000 (2000 .11-.41) (2001 .03-.16) (2002 .03-.12) (2003 .05-.27) (2004 .07-.33) (2005 .06-.21) (2006 .07-.25) (2007 .10-.23) (2008 .005-.14).
What is of absolute importance here is the fact that Copper Ridge Explorations has shown the repeated ability to post annual highs in the teens and often in the 20's. The only thing that is required for a "reversion to the mean" to occur is for the current stock market panic to abate and the stock should revert to the mean.
Since I am a hard assets guy let's see what we are getting for 2 cents a share. Copper Ridge Explorations has a nice stable of ten properties. Most of the properties have been optioned out to other parties. If any of these parties get lucky,there could be a nice payday for both parties.
Since I am not a geologist I never concern myself with ore bodies unless they rank in the category of proven & probable reserves. It is seldom the case in penny mining stocks for there to be proven reserves.
What I do concern myself with are "location plays" and acreage size for obvious reasons. My ideal is mining claims that are adjacent to a producing mine or the ownership of an ex-producer.
To me their most intriguing property is their Copper Ace property of 31,000 acres which is adjacent to the important producing Gibraltar Copper Mine. Of lesser importance is the Lucky Joe copper and gold prospect with 22,000 acres and the Yukon Olympic copper and gold prospect with 14,800 acres or a total acreage of 67,800 acres. To be conservative I throw out all the other mining claims and give them a zero value.
If you divide the total market capitalization of $1.8 million by 67,800 acres you arrive at a value of $26.55 per acre. Not too shabby is it.
Now because I am psychic I know what you are thinking. You are thinking that all this is very impressive but it is clear to you that any corporation that is selling at 2 cents a share must have an outstanding chance of going bankrupt. Not the least of the virtues of penny mining stocks is that they have virtually no chance of going bankrupt even if they are selling at a penny. At least 90% of all penny mining stocks are dormant, they are not generating an income stream and therefore cannot qualify for a loan. The only way they can raise capital is to issue stock. The only exception to this is penny stocks which have an operational mine. Which is very rare.
Now let's take a look at book value. The book value of the stock is 7 cents a share yet the stock is selling at 2 cents a share. For purposes of illustration lets compare this amount with General Electric which is currently selling for $12.18 a share and has a book value of $10.00 a share. According to its most recent annual report Copper Ridge Explorations had a working capital of $1,391,773 this is very close to the market valuation of $1.8 million. Divide that amount by 79 million shares and my calculator rounds it off to 2 cents. Working capital is cash on hand or cash in the till nearly equals the market value of the stock.
There you have it. I have 1/4 of 1% of my investment capital invested in Copper Ridge Explorations. In the weeks to come it is my intention to introduce the reader to the blood-splattered battleground where I choose to hang out. I have chosen this battleground because in more than four decades of searching I have never found an arena where the risk- reward ratio is greater than it is for penny mining stocks. It is my strong conviction that the world is entering a great age of inflation. The greatest inflation hedge is natural resources. Wealth in the ground will make you rich.
Fred Carach is the author of the recent book; "Forty Years A Speculator" his blog is fortyyearsaspeculator.blogspot.com
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