"An Intriguing Speculation In Coal- The Goldsource Saga" by Fred Carach

There never was anything special about Goldsource Mines. It was incorporated in 1987 and was listed on the Toronto Stock Exchange. For years it drifted around at well under a dollar a share. Then something very strange started to happen.
On April 17, 2008 it closed at 22 cents a share with only 15,400 shares trading. By April 24,it was selling at 78 cents a share on a volume of 1,620,000 shares. By May 12,it was selling at $4.67 a share on a volume of 2,021,000. By June 9, it was selling for $9.20 a share on a volume of 175,700 shares and on June 24, it peaked at an incredible $19.09 a share on a volume of 196,900.
From its April 17,2008 price of 22 cents a share it had risen in value an amazing 86.77 times. An investment of $10,000 would have been turned into a staggering $867,700 in just two months time. Now you know why I have been speculating in penny mining stocks for more than forty years.
In April of 2008,Goldsource was drilling not for gold mind you but for diamonds of all things. Then the unexpected happened. Its drill bit intercepted a coal seam that was an amazing 23 meters thick at its Border Property in Saskatchewan,Canada. It was a bonanza strike. The more they drilled the more they found.
But Goldsource's parabolic ascent was over with. The market began to have second thoughts. The market always has second thoughts after every bonanza strike. Some of the intercepts were disappointing. There are always disappointing intercepts.
You can almost set your watch by it. I know I did. You see I choose to hang out in the land of the ten bagger. At least that's what I call it.Obviously,a play like Goldsource only occurs about once every four or five years, but you would be amazed at how many five and ten baggers occur every year in my world. In more than forty years of looking I have never seen an arena that has the risk-reward characteristics that speculating in penny mining stocks gives you. This is a world where your maximum risk is 100% but your maximum rewards are multiples of 100%. What other class of investment has these risk-reward characteristics?
By October 28, 2008 Goldsource's stock price had fallen to $1 a share on a volume of 198,200 shares. It was classic bonanza strike action. First the parabolic spike upward followed by the equally inevitable post-discovery collapse.
Today Goldsource has recovered somewhat and is selling at about $1.60 a share.
Let's see what I am getting for $1.60 a share. According to its last annual statement,Goldsource has 19.4 million shares outstanding. This means that the corporation has a total stock market capitalization of about $31 million. That means that you can purchase the whole company,lock,stock and barrel for $31 million.
Goldsource has three major properties,its flagship Border Property and its Ballantyne and Pine River claims,all of which are located in the coal rich Durango Trend.
The Border Property alone is 1,300 square kilometers in size,most of which is unexplored. At the present time about 115 holes have been drilled on the property about 50% of which have struck bituminous thermal coal. Some of the intercepts were up to 100 meters thick. Thermal coal is primarily used to power electrical power plants.
To put this in perspective many coalmines in North America have coal seams that are only a few meters thick. Goldsource has some coal seams that are the height of an eight-story building. Based on current data a total of at least 100 million tons appears to be a reasonable expectation and they are targeting 500 million to one billion tons.
Let's be conservative and estimate 100 million tons. Powder River Basin Thermal Coal, which may be the closest match, is selling for roughly $8.75 a ton. Multiply that figure by 100 million tons and you get a value of $875 million. Divide that figure by 19.4 million shares and you come up with the staggering figure of about $45.10 of coal per share.
Now I know what you are thinking. You are thinking gee,that's not very smart. It is not the value of the coal in the ground that matters but what it will cost you to extract and deliver the coal to its destination that matters. True enough,but I was not trained as a geologist and in any case, that is above my pay grade.
I have been investing in mining stocks for more than four decades and I currently own about 95 mining stocks. Do you know what I have discovered? You don't really need to know the technical stuff. The only thing you need to do is to acquire mining stocks at bargain prices that have properties in strategic locations in mining camps or mineral trends with some indications of an ore body present. Do that and you will do well.
My investment in this stock is 1/2 of 1% of my investment capital. If you put more than 1% of your investment capital in any penny stock, you are on your own.
Those who have found this article of interest will find the following companion articles well worth your time.
"An Intriguing Speculation In Tungsten" and "Amazing Profits Investing In Microcap Stocks"