Greencastle Resources (VGN, TSX-V) was added to the BMR Portfolio in mid-October at 14 cents and already the stock has doubled in value – it closed today at 26.5 cents which was actually a 1.5 cent drop from Tuesday. So where to from here for Greencastle? This company has been around for a number of years and our thinking is that VGN has an excellent chance of hitting new all-time highs sometime during the first quarter of next year.
When evaluating potential opportunities in the speculative junior mining stock arena, it’s always critical to search for important clues, signals and signs that companies sometimes give in news releases and we’ve just had some classic examples of that with Greencastle.
First off, VGN announced on Monday that it has retained Ubika Corp. as a “consultant to provide capital market exposure services”. This comes just four weeks after Greencastle announced the hiring of Douglas McKay & Associates, the same IR firm that has been involved with Richfield Ventures (RVC, TSX-V) since the summer. Of course we’re very familiar with Richfield as it has exploded to $5 a share after we first introduced it to BMR readers last December at $1.20. The fact Greencastle President and CEO Tony Roodenburg is paying two firms to generate new exposure for the company is highly significant and suggests Roodenburg could be working on putting together a major property deal (more on that in a moment). Roodenburg has traditionally been very conservative in terms of spending money, especially when it comes to IR, so the fact he has brought on two firms to tell the VGN story speaks volumes about what may be going on here.
On Tuesday, Greencastle came out with more news. This time it was a general review of the company’s current affairs including an exploration update on Greencastle’s newly-acquired Nechako Gold Property near Richfield’s Blackwater discovery. But the release also contained a highly significant quote, in our view, from Roodenburg in the final paragraph:
“Greencastle has never been in a stronger financial position. Our balance sheet is strong and royalty revenues continue to perform well. The recent share price improvement suggests that the market is waking up to the fact that Greencastle has been quite active in Gold exploration in the past, and the Nechako option in B.C. confirms that our near-term plans are to be more active in Gold. Greencastle retains two very significant Gold exploration projects on the Battle Mountain trend in Nevada. On our Jewel Ridge project, near Eureka, Nev., we drilled 40 metres of 2.1 g/t Gold in 2004, and our Indian Creek property lies in the heart of the Cortez Hills/Pipeline district, one of the most prolific Gold mining regions on Earth. Of course, we are always reviewing potential new opportunities, and currently our focus is advanced Gold projects.”
Interesting. Roodenburg has put it out in very clear language so the market can’t miss it – Greencastle, it appears, is actively searching to add an advanced Gold project to its portfolio. The company already has three Gold projects – Nechako in central British Columbia and Indian Creek and Jewel Ridge in Nevada – and it’s focus is currently on adding a fourth project but an advanced one.
Greencastle’s current market capitalization is only $12 million – it has half that amount in working capital, a substantial war chest that many companies with significantly higher market caps would love to have.
Roodenburg, it seems to us, is getting all his ducks lined up in a neat row and he’s getting ready to pull the trigger.
In clockwork-like fashion, Greencastle has experienced three powerful moves (very sharp spikes) over the last 7 years (late 2003, early 2006 and mid-2008). 2006 was more intense than 2003, and 2008 was stronger than 2006. We’re certain that a very powerful fourth move is now underway, driven by Greencastle’s recent shift in corporate strategy to get much more active in the Gold exploration space. Volume has picked up dramatically in VGN since late October, which is what one would expect in the early stages of a major move.
Technically, John sees Greencastle in a “pennant consolidation” at the moment with signs of a new up-leg starting within the next couple of weeks:
John: Today, Greencastle Resources (VGN, TSX-V) opened at 28 cents, its high for the day, and drifted to close at its low of 26.5 cents for a loss of 1.5 pennies on CDNX volume of 215,000 shares.
Looking at the 3-month daily chart we see that on Oct. 28 VGN broke to the upside from 14 cents to 17 cents on much higher than normal volume. From there it continued to climb to a high of 29 cents. Then for 8 sessions it declined to 23 cents, a retracement to the 61.8% Fibonacci level (blue horizontal lines). Then in 2 sessions the price rebounded to a new high of 30 cents on Nov. 23. From there, over a period of 6 sessions, a consolidation pennant has been formed.
The support trendline is in green and parallel to the bullish supporting daily SMA(50). The convergence between the RSI and price (mauve lines) is a warning of a decline or consolidation. This is validated by the declining volume during the pennant (just to clarify, a consolidation has to be validated by a declining volume because if the volume was increasing this would indicate a bearish sell-off and not a consolidation). The next Fibonacci target level is shown to be 38 cents (this is not a BMR price target as we don’t give price targets but a theoretical Fibonacci target based on technical analysis as a guide for investors).
Looking at the indicators: The RSI, as mentioned above, shows a negative divergence with price. It’s at 58% and pointing down. I expect this to continue to move a little bit lower to the 50% level.
The Slow Stochastics has the %K (black line) pointing down at 64% and below the %D (red line) at 70%. I expect this to continue to fall in the near future. The ADX trend indicator shows that the +DI (green line) is at 24 and sloping down and is above the %D (red line) at 18. The ADX trend strength indicator (black line) is at 35 and sloping down. This is a bullish orientation with a weakening bullish trend strength. This scenario is typical during a pennant consolidation.
Outlook: The pennant is a continuation pattern and in a bullish trend the probability is that when a breakout does occur it will be to the upside. We should see a breakout or new pattern development with Greencastle within the next 2 weeks.
