Sunday

Commodities, The Inflationist Challenge 2009, TheInflationist StockPicks

Giralia - Cashed Up Iron Explorer

TheInflationist bought some GIR last week at 0.34c (market cap: 60mil) with 73 mil in cash reserves, no debt, and 4 mil equity in listed investments. Since then GIR touched a high of 44c (29% above our entry) and closed at 39.5c (market cap 70 mil). TheInflationist got a “please explain” from a shareholder over our previous article stating that its $4 mil investments will not “see the light of day”. We apologize for our pessimism, but maintain our defensive position. We are both barking up the same tree and if these investments bear fruit we would be pleasantly surprised and happy to be wrong.

Our main reasons for buying GIR are:

• Trading below cash - Buffett tick
• iron ore tenements with good potential (directly adjacent to BHP and RIO; and MidWest)
• Shareholder focused management team (series of in-specie share distribution by spinning off multiple small cap-companies during the peak of the market - but dont count on this for a while
• (fine print) $4 million worth of “lottery tickets” in PMH, UTO, ZNC, CAP, HAZ give investors exposure to various commodities from copper, zinc, uranium, tungsten, coal to germanium. We looked into these companies, hoping that they were also trading below cash, which would give us further value and significant leverage on these penny stocks. Unfortunately, most were running low on cash (PMH $4.5 mil cash with market capitalisation(mc) 12mil; UTO $2 mil cash, mc 9 mil; HAZ $2.5 mil cash after recent capital raising at 7.5c, mc $6 mil - exceptions were: CAP 5mil cash, mc 2 mil and ZNC 3.2 mil cash, mc 2 mil). They were burning cash at $1-2 mil a year, and are light years away from production with some only at the rock sampling stage.

With (large) producing companies struggling to stay afloat, the only way these penny stocks would stand a chance is if it had a world-class deposit or a significant cash reserve to keep them afloat. TheInflationist sees many capital raisings ahead and dilution of GIR’s investment. For now, the circling cashed up vultures have better acquisition targets (producers or near term producers).