As we move past the Labor Day weekend, and into the teeth of the Fall trading season, we have a number of dynamics in play that point to some really terrific opportunities for keen investors. The landscape is currently defined by tremendous recent strength in emerging markets, a weak US Dollar, a very strong copper market, sluggish and rangebound oil prices, and a very strong and steady gold market.
We have also seen the recent emergence of all of the key ingredients we typically associate with a strong stock picker’s context for small and micro-cap stocks.
That’s part of why we are putting Kerr Mines Inc. (OTCMKTS: KERMF) on your radar. The other part is the remarkably interesting setup we see in this stock right now in particular, as we explain below.
- KERMF is a developing strong potential producer in the gold mining space, where monetary and geopolitical factors drive the story.
- KERMF has a deep-pocketed and committed core shareholder base, as well as strong liquid assets at hand with which to undertake remaining development of the Copperstone upgrade project.
- KERMF has a well-established strong bullish trend in place since early 2016 and has seen a steady build-out in depth and liquidity of the secondary share market, with average trading volume expanding by over 3,600% in the past 18 months.
- KERMF recently announced the initiation of underground drilling access in its high-potential Copperstone mine.
- KERMF’s principal mining asset already has significant infrastructure and permitting in place, including access roads, assay lab, all plumbing and electricity, underground tunnel development, and a 450 TPD on site processing mill.
- Gold Miners stand to benefit disproportionately from aggressive central banking and geopolitical turmoil, which represent two chronic features of market reality at present and likely for some time yet to come.
Understanding the Basic Story
First off, by way of introduction, Kerr Mines is a company operating as a junior gold miner in a very mining-friendly district, which may be the most important factor that any of us face when evaluating a new mining security. The red tape is not going to be a part of this equation and there is effectively zero risk of nationalization or corruption in terms of the relationship between legitimate investment and return so long as the company sees the positive end of the outcome distribution where key elements of chance are concerned.
The company’s shareholder base and capitalization table appears very committed and well-financed, which is important given the company’s core strategy of reviving and expanding the production of a previously productive mine.
We think of this approach as “highly cost-effective exploration”, provided you tap the right property.
In this case, mine data suggests a very promising candidate: the fully-permitted past-producing Copperstone Mine project – a high-grade gold project located along the Walker Lane mineral belt in Arizona. The company’s materials make a strong case that this project demonstrates significant upside exploration potential within a 12,000 acre land package which includes a production history of over 500,000 ounces of gold.
The company’s current focus is on maximizing Copperstone’s potential by defining and expanding current resources and strengthening the mine’s economics toward the objective of resuming full gold production.
Given this backdrop, one of the most important factors in our analysis is that the company has over $5.42M in cash and short-term cash equivalent assets on the balance sheet as of July 2017, and is working with an already fully-permitted mine property that contains an extant mine infrastructure, complete with an underground mine development, access, and utilities; a processing facility with a 450 ton/day mill; a tailings storage facility with capacity for existing resource; power and water distribution systems; surface buildings including assay lab; and roads and access to surface exploration sites.
In other words, much of the front-end fixed cost pain has already been taken off the table. The company’s goal from here is to maximize the economic equation and reach a production decision.
Good as Gold
The gold market has been surging again recently for two primary reasons: First off, we are obviously seeing a ton of critical geopolitical catalysts in play at present, with highly sensitive and potentially combustible relationships between the US and Russia, China, and certainly North Korea. That comes in addition the typical fireworks shack that is the middle East.
The second big catalyst is 6 months of declining CPI data in the US. In fact, at this point in the business cycle, we have never seen such a drop off in inflation data.
That’s a plus for gold because it implies a reduced likelihood that the Federal Reserve is going to follow through on its plans to start reducing its balance sheet, and may even have to resume quantitative easing at some point in the not-too-distant future.
Gold has historically responded extremely well to any semblance of a QE-enriched environment.
Moving Toward Monetization
As far as recent catalysts, the company just announced that it has initiated the first phase of the underground drill access mine development for the 2017 Copperstone Mine exploration/development program and pre-feasibility study.
According to the release, “approximately 1,200 feet of new exploration drift is planned to be completed in the first phase. This drift will provide first-time underground drill access to facilitate further definition of the parallel Footwall Zone and to enhance the existing resource in the Copperstone Zone.”
The company had previously announced the first phase of surface access. So, by all accounts, the process of developing the property is flowing along smoothly thus far.
The stock has been acting extremely well, locked in a strong and potentially accelerating upward trend since carving out a pivot low and respectable technical base back in early 2016.
The first half of 2017 presented shareholders with a powerful 150% appreciation, with volume numbers growing basically every day.
The stock closed out the Summer with a sharp breakout higher in August that came on very strong volume and took the MACD momentum indicator into “strong bull trend” mode without pushing RSI into an overbought state, which can indicate longer-term strength under the surface of the tape, suggesting subsequent weakness may be best seen as a new opportunity.
KERMF (Kerr Mines Inc.) operates as a gold exploration and development company in Canada and the United States. Its flagship property is the Copperstone gold mine, which encompasses approximately 35.7 square kilometers of mineral rights in La Paz County, Arizona.
The company was formerly known as Armistice Resources Corp. and changed its name to Kerr Mines Inc. in January 2014. Kerr Mines Inc. is headquartered in Toronto, Canada.
Please note that we have been compensated 5K USD for advertisement services on KERMF by Cream Consulting LLC for the month of September, 2017.