Junior resource sector cash kings - Late November update

Almost 30% of companies that made the initial cut no longer qualify as cash kings.

[Editor’s note: The following article first appeared on the blog A New York Nickel on November 17. Read the original entry here.]

Here at New York Nickel we’ve had several calls for an update to our popular “cash kings” analysis - these are companies with more than $10 Million in cash and cash equivalents. After all, things have not exactly improved in the market; we’re seeing the continued erosion of share prices and many of us – investors and management teams alike – are getting a little restless.

We’ve updated our initial screen to reflect the cash on hand according to the most recently reported quarter and the results are startling.

Not only are share prices down in some cases as much as 67%, but almost 30% of the companies that made the initial cut have burned through enough cash that they no longer qualify as Cash Kings. (To be fair, the initial screen calculated cash on the balance sheet at year-end, so companies have had some time to burn their money).

Some of you may recall that our initial screen turned up 94 companies. Now only 64 remain. Originally, nine had profitable operations. There are only eight standing now: we had to turf Impact Silver (TSX: V.IPT, Stock Forum) as their cash dipped to $8.3M (sorry guys!).

This is the time when management teams really start to standout: good and bad. Many of these junior resource companies are running out of money. Some of them will just disappear entirely. It’s when you see a press release that says “director resigns” that you know something probably not good is happening. After all, it’s almost impossible to raise capital right now, and borrowing isn’t likely to happen, either.

So: what are these companies doing with their cash? Is the bottom finally here and is it time for those with lots of cash to start shopping for undervalued assets to truly enhance shareholder value? Or do they want to pull a Gobimin and pull back and sell operations in an attempt to sweat this period out and stop burning cash? Or, are they doing silly share buybacks? Well, it’s a mixed bag. Let’s have a look.

Painted Pony Petroleum: (TSX: V.PPY.A, Stock Forum). Their cash and equivalents actually increased 132% to just over $40 million. Meanwhile their share price is down 6% to $2.20. Too bad their volume is anemic. They seem to be doing well on the operational side and we like their focus on “conservative fiscal management” which is absolutely prudent at this time. They did a bought deal in April for $38M at $4.35/share.

Pacific Rodera: (TSX: V.PRD, Stock Forum).Our favorite mining management team of all time run by ex Canaccord honcho Mike Greenwood. $22 million in cash sitting there…guess how much money Greenwood pays himself? Nothing. We wish there were more management teams like this one. So, what is the secretive Pacific Rodera going to do? You have to dig back all the way to March to find this gem in a press release: “As the credit cycle continues to unwind Pacific Rodera believes the real opportunities are beginning to present themselves and the importance of having cash is increasingly apparent. This is consistent with the Company vision that was set out over 12 months ago.” Their last release was at the end of May. Stay tuned to Pacific Rodera. 21 cents Monday.

Pan Orient Energy: (TSX: V.POE, Stock Forum). Another stock with more cash than when we found them. $63 million bucks on the balance sheet – a 72% increase. Volume is actually pretty good. We like these guys as the CFO has been through a few deals in his time. But how come they don’t have a website? Hmmm… only 45 million shares outstanding. Hey these guys need a new investor presentation as the current one is written in Latin. Or maybe it’s Thai which is where they derive their revenues. The stock is trading at $3.80 - way off from its $15.85 high.

Bellamont Exploration: (TSX: V.BMX.A, Stock Forum). Cash up 27% to $13 Million. No recent news releases…that’s either very good or very bad. Not a lot of volume here.

Silverstone Resources: (TSX: V.SST, Stock Forum). 46.5 cents Monday. Aha here’s some good news – they did an acquisition! Mind you, they used all of their cash to increase their silver sales to 4.5M oz from 2M. So $37.5M goes to Sherwood Mining which will be merging with Capstone…Capstone already owns 22% of SST, by the way. The Bay area investment firm Passport Management, controls 10% of Capstone. What’s it all mean? Well, SST won’t have cash reserves for much longer but check this out: the USD spot price for silver is near 2 year lows at 9.23/oz. Earlier this year silver was up at $21/oz. Seems like a smart move to pull off that Sherwood acquisition if silver can make a comeback to $13 which seems likely by 2010…(They recorded US$8.3 million of revenue just in Q2 from the sale of 459,000 ounces but get this: Net earnings were US$3.7million!) Wow these guys throw off real cash – net income!

Gobimin Inc. (TSX: V.GMN, Stock Forum). Of those eight companies with profits, Gobimin announced they have sold their operations to raise cash. Gobimin, by the way, has listings on several exchanges and expects to raise even more cash through a pending asset sale and pay existing shareholders a dividend although we’re unclear how much that will be. In any event we concur with their statement that the “current market conditions will provide exciting opportunities for cash rich mining companies”. This is one to watch.

US Silver: (TSX: V.USA, Stock Forum). Okay here is a stock that has been getting hammered worse than most probably because it trades more than any of its profitable peers, which is usually a plus. But, alas, their cash is down 53% to $13 million as of the last quarter and their most recent press release announcing several changes to the board states they have only $8 million inworking capital. Yikes. A cash burner trying to figure out what to do…these guys are in a tough situation.

Energold: (TSX: V.EGD, Stock Forum). Only worthwhile update here is that they aren’t proceeding with the stock options grant. Good call. Other than news from Q2 we don’t know what’s going on with this environmentally sensitive diamond driller except that they are a net income machine… Net income of $2.4 million on 11.4 million in Q2! Nice. Q3 results are due any day now although you can’t tell from their website – what’s up with that? It will be interesting to see if their customers’ projects are continuing to be well financed. They operate in 15 countries so it would be hard to imagine that at least some of those operating territories don’t get hit. We’ll see.

ZEDI Inc.: (TSX: V.ZED, Stock Forum). We sort of glossed over these guys the first time around and thought on more than one occasion that they deserve some New York Nickel ink. Funny enough last week they reported record earnings. Apparently this is a good environment for them as their products help cash strapped resource companies improve efficiencies. Uh oh: a share buyback. Guys - don’t do that! Buy someone else with the cash instead! The volume isn’t great with this stock…trading at 54 cents Monday; some dude named Peter Breiger thinks the recent acquisition Zedi did will cause earnings per share to jump to 10 cents next year up from two cents now. So another one to keep your eye on.

Santoy Resources: (TSX: V.SAN, Stock Forum). 6.5 cents. These guys discover and develop high-grade uranium deposits with some other coal stuff. Well they lost about $10M for the year due to the virtual writedown of its primary asset allegedly caused by the BC Government. Kind of a sad story if you are in investor. We sort of wonder where the government relations are with this company? Well, they’ve filed suit so hopefully they have some good lawyers who can recover some of that destroyed equity.

Coming up next from New York Nickel: who’s making what? We bet there are a bunch of fat cats out there doing next to nothing and collecting big paychecks. What’s “big”? you’ll read it here first.

Disclosure: We own many of these companies because they have lots of cash and profitable operations. To be precise, we own EGD, SST, GMN and PRD. We’re considering POE and Zedi but haven’t pushed the button yet.

This article was written by a member of the Stockhouse community.

Read more Stockhouse articles by jackp27.