At BMR, we’re always on the search for unique opportunities in the junior resource sector – companies that have been overlooked by the mainstream analysts and newsletter writers. We’re very selective and we don’t feature a lot of companies which allows us to get to know as much as we can about each one and track its progress for the benefit of our readers. Our approach has been successful – over the last year the BMR Portfolio (we have selected eight companies in total) has gained a whopping 156%. Past performance, of course, is no guarantee of future results. We don’t issue price targets and our coverage of any company is for informational purposes only – it must not be viewed as a “buy”, “sell”, or “hold” recommendation as detailed in our disclaimer. Our objective is merely to introduce opportunities for your consideration and due diligence, and of course it never hurts to also consult a qualified investment professional.
Having said that, we’re very excited to add a new company to the BMR Portfolio – GoldQuest Mining Corporation (GQC, TSX-V) which as of 10:05 am Pacific is trading at 19.5 cents. We’ve actually followed GoldQuest quite extensively for over three years so we believe we have a very good “feel” for the direction it’s headed. The company has been exploring in the Dominican Republic since 2001 and also now has a significant zinc/lead/silver project (Toral) in northwest Spain. Both countries are mining-friendly jurisdictions.
We first alerted BMR readers to GoldQuest last Friday, September 24, in our Morning Market Musings when the company came out with some news that day and the stock traded between 14.5 to 17.5 cents. GoldQuest got as high as 24.5 cents on Tuesday of this week before pulling back slightly yesterday to close at 22 cents. It’s off again this morning with a low of 19 cents which has convinced us now is the time to strike. We would have preferred, of course, to have added GQC to the BMR Portfolio at an even lower price but the recent increase in share value doesn’t concern us as what we’ve seen over the last three trading sessions is an important technical breakout from a two-year base. This confirms that, indeed, GoldQuest has finally woken up after a long slumber and the next six months could be very interesting for this stock. We don’t suggest jumping into GoldQuest for a “quick flip”. This is a potentially tremendous opportunity, though, for patient investors with at least a six-month time horizon as the company is expected to be very active on the exploration front during that period and we could see some exciting developments.
GoldQuest’s explosive potential was clearly on display in early June, 2007, when the stock gapped up in one day from just below 40 cents to $1.20 on drill results from Las Animas. It got as high as $1.80 and that’s when a long slide started with the stock finally bottoming out around a nickel in late 2008.
What has caught our attention recently with GoldQuest is a spike in volume that started a few weeks ago. On September 17, on no news, the stock enjoyed one of its highest volume days ever (it has been trading since 2004) as over two million shares changed hands. Volume, as BMR’s astute technical analyst has pointed out many times, is a hugely important indicator for investors. So since September 17, in particular, we’ve been watching GoldQuest like a hawk which is why we brought it to readers’ attention a week later when news actually did come out.
So what are the fundamentals driving GoldQuest and why do we believe it could such a strong performer in the coming weeks and months?
GQC’s Dominican Republic Projects
The Dominican Republic has a population of approximately seven million and is pro-mining and pro-investment. It’s famous for its exports of sugar, coffee, tobacco and some very good baseball players. It’s also one of the best places in the world to search for Gold. Barrick (ABX, TSX) and Goldcorp (G, TSX) are currently working on the largest project in the Dominican Republic right now, construction of the massive Pueblo Viejo Au/Ag/Zn Mine which is expected to commence production by late next year (Pueblo Viejo contains over 20 million ounces of Gold).
GoldQuest, as we mentioned, has been exploring in the DR for nearly a decade and they have built an impressive pipeline of projects in three separate districts: Pueblo Viejo, Las Animas and San Juan. They are also searching for potential new targets in a regional exploration program. In a significant development in late 2009, GoldQuest re-acquired a 100% interest in all of its former joint venture projects with Gold Fields (JSE, NYSE) – the two companies had entered into a strategic alliance in 2003. Gold Fields invested over $6 million in exploration on those projects, so GoldQuest is blessed with abundant and valuable geological information on many properties that it now has a 100% interest in.
Just one of those properties is Las Tres Palmas in the San Juan District where recent GoldQuest drilling delivered some very encouraging results including 18 metres grading 16.32 g/t Au (LTP-39) and 53 metres grading 3.02 g/t Au (LTP-41). Results included silver, copper and zinc credits as well.
The company has been working on a game plan for more drilling in the near future on some of its high priority targets in the DR – and GoldQuest has many of them.
With the benefit of nearly 10 years of exploration in the Dominican Republic including a joint venture with Gold Fields that has generated an incredible geological database, GoldQuest is well positioned to make a major discovery in this country which has proven to be highly prospective for precious and base metal mineralization.
GQC’s Assets In Spain
In January of this year GoldQuest completed the acquisition of the Toral Project in northwest Spain which has an historical, non-compliant estimate of 5.4 million tonnes grading 9% zinc, 6% lead and 45 g/t Ag. GoldQuest has recently commissioned Micon International to perform a NI-43-101 resource calculation for Toral using data from extensive prior work including some 42,000 metres of diamond drilling. This drilling reportedly delineated a zone of mineralization that is 1,100 metres in length, 3.7 metres wide and over 400 metres high in a continuous, subvertical, tabular zone of coarse-grained lead-zinc-silver sulphide mineralization that is still open along strike and downdip. Lundin Mining (LUN, TSX) has a back-in right on the project (up to 65% if, among other things, it completes a feasibility study) but Toral is a valuable asset for GoldQuest and appears to have all the ingredients to develop into a producing mine.
GoldQuest has also secured a second polymetallic project, also in northwest Spain with similar characteristics to Toral, and further details on this will be announced by GoldQuest after full title has been received from the Spanish authorities.
Working Capital/Share Structure/Management
GoldQuest currently has 92 million shares outstanding for a market capitalization (at 19.5 cents) of $17.9 million. The company has no urgent need of a financing – it had $2.4 million in the treasury as of the end of June. GoldQuest has approximately 12.7 million warrants outstanding, all expiring in 2012 or 2013, with 84% of those warrants (10.7 million) exerciseable at 20 cents. Fully diluted, GoldQuest has 112 million shares outstanding ($4.3 million would be added to the treasury if all current warrants and options were exercised).
The company has an experienced management team including newly-elected director Stephen Orr, President and CEO of Ventana (VEN, TSX). It’s business as usual right now for GoldQuest even though the company is still searching for a new President and CEO after the resignation this past summer of Alistair Waddell. Some new blood at the helm should further reinvigorate GoldQuest.
Conclusion
As we’ve repeatedly stated over the past few months, it’s our firm belief that the real bull market run in gold mining stocks and the CDNX (the “Mania Phase”) has not even started to kick in yet. The general public is still uninvolved in this market. A company like GoldQuest, with a high quality portfolio of projects (several at an advanced stage of exploration), can be expected to be a very strong performer in the kind of market we see unfolding over the next six months and beyond. By breaking out of a two-year base this week on strong volume, GoldQuest has shown us that a significant turnaround is underway with this stock which got as high as nearly $2 in 2007.
As a matter of disclosure, BMR is completely independent from the companies it covers and has received no compensation from GoldQuest for this report. The writer holds a position of 40,000 shares in GQC.
