The Haiku of Finance for 02/04/16

One more penny stock
No need to waste time looking
Just note poor earnings

IGEN Networks Defies Explanation

About five years ago, someone who does not deserve mention told me and a few other people in the vicinity about some hot idea. It had something to do with IGEN Networks (ticker IGEN). I could not figure out the opportunity at the time, which is why I ignored it. Five years later, the market can't figure it out either.

The stock has traded in the pennies for something like several years. The retained earnings deficit is -$7M and growing with every quarterly loss. I cannot recall the last time I have seen such a severely negative profit margin, operating margin, or ROE even in a penny stock. The business model has something to do with cloud, M2M, and wireless. I hear that all the time from Silicon Valley companies with serious experience and solid partnerships. I don't have to waste my time with anything else.

I do not feel sorry for the investors who bought the stock from January to March 2009, before that year's 1:100 reverse stock split. I don't know why I held onto this reference for so long. I should clean out my archives more thoroughly. There is nothing else worth saying about IGEN Networks.

Full disclosure: No position in IGEN, ever. I am too smart to do that, ever.

Inca One Gold Turns Its Wheels

Inca One Gold Corp. (US ticker INCAF) is yet another one of those tiny stocks milling around in precious metals mining. It trades under other tickers but the US listed one is the only one I need to see. There isn't much to see here anyway.

The CEO's bio describes precisely zero experience in mineral processing. Some of these people appear to have mining backgrounds, so maybe they found their way down a hole once in a while. A couple of the people listed here also have zero experience in metallurgy and their bios don't even describe their jobs at Inca One Gold. That just about takes the cake. Investors have cast their lot with people who don't tell the public what they do all day.

Inca One Gold's unaudited quarterly financial statements dated July 31, 2015 show CAD$236K cash on hand and a net loss of -$581K. They burn through the equivalent of their cash reserves in less than a month at that rate. The company does have revenue but COGS eats up a high percentage, and corporate expenses are almost three times their gross margin. This is one very poorly run turkey. Read their own choice of words "material uncertainty" in Note 1 about their going concern prospects in case you don't believe it's a turkey. The shareholders' equity deficit of $15.5M means it has always been a turkey.

The stock's EPS is a negative, losing -US$0.06/share LTM. The closing share price for INCAF on January 18, 2016 was $0.06/share at zero traded volume. That means the company loses the equivalent of its entire public value for an investor who buys now and expects to hold for a year. Some sucker who owns it now and can't sell would love to find someone even dumber. Any trading volume higher than zero means another sucker is born.

Full disclosure: No position in INCAF at this time.

Wellness Center USA In The Pennies

Wellness Center USA (ticker WCUI) is one of those micro-cap companies that only deserves a look long enough to move along. It reminds me of why I am always so skeptical of penny stocks. The company occupies several verticals related to health care that should theoretically cross-sell products and services. Theory is different from reality.

It is strange to see such a small-cap company organize its primary product lines as stand-alone corporate subsidiaries. It would be cheaper and easier to focus on one thing and spin off whatever isn't working. The company states on its website that it seeks to acquire other health care companies. They should really try to grow what they already have before buying something else. Too many different products will distract management's attention from scaling, because each thing scales into a slightly different vertical.

The current management bios made me chuckle while shaking my head. I certainly did not expect to see the same two bios listed twice on a single-page website. I am not interested in leaders who took previous companies through reverse mergers in unrelated industries. I have seen such maneuvers before and they rarely add the kind of value that comes from organic growth. It's really funny to hear an executive bio mention numerous publications and inventions under development. Yeah, I've got plenty of ideas in development too, but it won't drive revenue to my Web properties until I actually publish the stuff.

The company's Psoria-Shield is some kind of UV treatment for skin conditions. Independent sources can tell us whether UV treatment is effective. The National Eczema Association thinks UV therapies are somewhat helpful in remittive therapy, but the treatments require frequent outpatient visits that may not always be covered by insurance. The National Psoriasis Foundation thinks UVB works well with other therapies, but then again so does natural sunlight all by itself. The NCBI archived an article on narrowband UVB's apparent effectiveness in nonpsoriatic conditions. The science behind this therapy type is somewhat encouraging but not conclusive enough for some insurance companies' reimbursement methods. Read Aetna's positions on various UV therapies to see the difficulty of building a business model on therapies still considered experimental in many cases..

Wellness Center USA's unaudited 10-Q SEC filing dated August 25, 2015 showed cash on hand of US$126K and current liabilities of over $959K. They had better earn some serious income ASAP to pay that off, but that will be difficult with a net loss for the quarter of over -$525K. The financial statements also showed an enormous amount of goodwill from their acquired companies. I am usually disappointed to see small companies portray intangible assets so optimistically before they have successfully monetized their primary products. Read what the company says in its own 10-Q about how it must continually raise new capital because of its burn rate. Shareholders will see further dilution.

I don't know why the "investment professionals" who sent me information about this company still have me on their contact list. They should know by now that I don't invest in penny stocks with difficult earnings histories.

Full disclosure: No position in WCUI at this time.

Nevada Copper Corporation Languishes Under One Dollar

I first noticed Nevada Copper Corporation (Canadian ticker NCU.TO, US ticker NEVDF) back in mid-2014 when its stock was headed up to over two bucks a share. It looked for a while like there was something here besides a typical penny stock run-up. Let's take another look to see if there's anything still in this story.

Just look at these management biographies. Here we've got an accountant as CEO, forcing me to wonder what operational role the dude ever had in pulling ore out of the ground. Other folks on the team have been geologists and engineers, doing stuff that equates somehow to mining. The least I can say is that their headshots look nice. Maybe that's the most I can say without directly asking them whether they have personally run a profitable mine.

The one project they have is Pumpkin Hollow in Nevada. Admitting the preexisting surveys by other mining companies begs the question as to why those earlier explorers elected not to develop the property themselves. Sometimes that happens when larger, more successful mining companies realize they found a property that won't meet their investment criteria when they have more viable properties in hand. These Nevada Copper people have NI 43-101 reports on their website going back to 2006 and they are still drilling exploratory holes. Whenever I see a junior resource company taking that long to gather evidence, I have to wonder if there will ever be a final decision on production.

I had to suppress laughter when I saw that Nevada Copper's feasibility study kept the price assumptions for gold at $1200/oz and silver at $18/oz while they adjusted the copper price from their base case. I didn't even need to read their NI 43-101 report dated July 9, 2015 because they put those numbers right on the project's "feasibility studies" Web page. I realize the gold and silver are expected to be byproducts of this project's copper lode, but the least they could have done was run separate economic scenarios for each metal type. If I had turned in a sensitivity analysis like that as academic work, my MBA professors would have given me poor marks for sloppiness.

I looked through their unaudited quarterly financial statements for the period ending September 30, 2015. They had US$6.3M in cash on hand and showed a net loss of -$2M. The company must continue to raise capital so they can pay off more than $20M in short-term liabilities. Reading Note 5 on the details of their bridge loan facility is crucial. Nothing focuses the mind quite like a deadline. Compare the numbers in that note to the Current Liabilities numbers in the balance sheet. Just do it.

I never get tired of examining the entrails of such "opportunities" as Nevada Copper. I used to see plenty of junior resource companies at San Francisco investment conferences. They always had great stories about undeveloped properties that major companies had abandoned. Management was always raising capital to fund endless exploration, and they always paid themselves well. Investors in these types of companies must ask themselves why they keep paying up. The story never ends.

Full disclosure: No position in Nevada Copper Corporation at this time.

Caledonia Mining Corporation Goes Full Bore Into Zimbabwe

Caledonia Mining Corporation (Canadian ticker CAL.TO, US ticker CALVF) is optimistic about its prospects in Zimbabwe. That country ranks 156th out of 174 on Transparency International's Corruption Perceptions Index and 175th out of 178 on the Heritage Foundation's Index of Economic Freedom. It's a bad country for any kind of business. Caledonia Mining had recent success in spite of such geopolitical risk.

The current CEO is an accountant, not a geologist. It's surprising to see such a background in a profitable mining company. It's also surprising to see a geology PhD whose biography leans more on financial analytical work than on successful project discovery. I have more respect for applied competence than I do for luck. A mining company can rely on production from a good ore body for a long time while management teams come and go.

The Blanket mine's ownership structure is unique to the Zimbabwean government's requirements for indigenous participation in foreign direct investment. Caledonia still owns a stake in Blanket after accounting for a partial sale supporting a local participation requirement. The complex governance and financing of this agreement is typical of countries with high geopolitical risk. Suffice it to say that success with such a corporate structure requires investors to heavily discount any new discoveries or operational improvements in such a jurisdiction.

I looked through Blanket's latest NI 43-101 technical report dated July 9, 2015. The total P2 reserves of 2.9M oz Au at 3.67 g/t grade look really good. Those are some of the best numbers I've seen in a junior mining company's project in recent memory. The mine finances its own infrastructure maintenance. It's too bad the report used a gold price estimate of US$1250/oz in its DCF valuation; the world gold price is now under $1100/oz. Consider how further declines in the gold price will reduce the project's estimated valuation. A more appropriate forecast would use gold's long-term historic average price of about $640/oz since 1968. Caledonia's cash cost of production is $513/oz, but its AISC is certainly higher.

Caledonia's gold recovery rate at Blanket is 93%, which is remarkably high. The company is doing the best it can given the political requirements of its local hosts. Good grades and plentiful reserves can make any management team look brilliant even after surrendering ownership of half the project. The company's 43-101 report predicts mine production will start to decline after 2019. Caledonia must then replace production with new discoveries or additional engineering to maintain the company's valuation. The stock currently trades under a dollar because the market recognizes the difficulty of operating a good project in a bad country. It's tough to live in a good house in a bad neighborhood.

Full disclosure: No position in Caledonia Mining Corporation at this time.

Kaizen Discovery And Japan

Kaizen Discovery (Canadian ticker KZD.V, US ticker CCNCF) is another junior resource development company. It touts its connection to major Japanese trading house ITOCHU Corporation as validation for its project generator model. Strategic support for a raw material supply chain is nice to have but it cannot be a dominant factor in a company's valuation. Corporate customers can only buy what a resource company can produce. Only economically attractive properties go into production or get acquired because industry will never overpay for any globally available commodity.

The current CEO trained as a lawyer, not a geologist. Folks, a mining company must have a geologist at the helm if it wants my respect. Geologists are people who find valuable ore in rocks. Lawyers argue about what the word "rock" means in a lawsuit. It's nice that their exploration EVP has a doctorate in geology. I hope lawyers don't overrule his exploration plans. Hope is not a method but it's all some junior resource companies own sometimes.

This company has over half a dozen projects currently under exploration in different parts of the world. I can't call any of them successful until they demonstrate discovered ore grades an acquirer would find attractive. That is the whole point of a project generator business model. The grades discovered on those projects so far, even with NI 43-101 reports, aren't getting me all excited about future mine viability.

I checked out their most recent unaudited quarterly financial statements dated September 30, 2015. They had CAD$2.5M in cash on hand and a net loss of -$3M, so they need to keep raising new capital pretty much every quarter with such a burn rate. That's probably why they have an accumulated capital deficit of almost -$23M. American accountants would call that the equivalent of negative retained earnings. Maybe ITOCHU could pony up the cash to keep this thing afloat. Yeah, sure, whatever.

Project generator models are always neat ideas. I have yet to find one that fits my own preference for solid earnings from a history of successful acquisitions and spinoffs. Markets currently price Kaizen's shares in the pennies; they traded over a buck in early 2013 and have since fallen into the pink sheet basement. Kaizen expects its minerals to feed Japan's industrial appetite. Japan's economy has enough problems getting away from two decades of stagnation. I look for better strategies, and I don't need to look at Kaizen again.

Full disclosure: No position in Kaizen Discovery at this time.

Helius Medical Technologies Targets Brain Trauma

I have to examine Helius Medical Technologies (US ticker HSDT) just to wonder what this medical device company is all about. Here's another small company that went public before it became profitable. Startups often use reverse mergers to raise capital. The successful ones have a minimum viable product ready for regulatory review prior to said merger.

The company's core offering is some kind of tech that facilitates neurological rehabilitation. Their PoNS device electrically stimulates the tongue to prompt brain functions in patients undergoing different forms of rehabilitative activity. It's a cool concept and getting CRADA funding is also cool. I respect anyone who tries to ameliorate mTBI suffering. Doing it outside a research lab means making a product someone actually buys.

The market for mTBI treatments alone makes pursuing any solution a calculated risk rather than just a wild gamble. The NIH's NCBI cites a literature review from 2013 citing a wide range of estimates for the societal cost of TBI. The range of $25,174 to $81,153 for moderate TBI matters most for the types of solutions that will attract US government CRADA funding. Any device seeking market share must be available at a price point far below the low-end TBI cost estimate of $25K. A total addressable market anywhere from $2-4B is worth chasing.

The one data set that jumped in my face was the executive compensation on their Yahoo Finance profile page. I looked at their most recent 10-Q dated November 16, 2015 and it looks like the compensation is stock-based. That's appropriate if they're spending cash on R+D. Cash on hand as of September 30, 2015 was $192K while their net loss was just over $1M for the quarter. A burn rate of over $330K or so per month means Helius must regularly raise new capital. Shareholders can expect dilution after a successful $2M raise in late 2015. The drawdown of a $5M credit facility noted in the 8-K dated December 31, 2015 will also dilute shareholders.

Medical device makers cannot sell a product until the FDA grants approval for distribution. Helius must survive on invested capital until their product has complete regulatory approval. It's too early to tell whether Helius can match its tech's promise to market reality. Patients with mTBI can keep their fingers crossed.

Full disclosure: No position in Helius Medical Technologies at this time.

Madalena Energy Drills Where It Chills

Madalena Energy (Canadian ticker MDN.V, US ticker MDLNF) caught my eye back in 2014. They're based in Canada and they drill for oil and gas there too, but they also drill in Argentina. I have long been skeptical of the chances for junior exploration companies who locate their offices in North America but chase properties in developing countries. Raising capital in the easiest markets isn't the same as successfully drilling in difficult markets.

I always check the company's management team first. The current CEO was educated as a petroleum engineer but spent a lot of time in consulting and investment banking. I usually like it when company leaders have degrees in their sector but successful field work has to flesh that out. Companies in the business of finding and pumping oil must have leaders who have successfully done that for their entire careers. I am similarly unimpressed with other senior team members who had undefined positions with other companies, some of which no longer exist. I can't judge their abilities if I don't know what they did or why their former employer isn't around anymore.

The company's four Canadian properties must get pretty darn cold in the winter. Three of them are producing. The Argentina properties are a slightly different story. Some of the properties appear to be in production but it's hard to tell from the website's descriptions. I did not find any NI 51-101 reports anywhere on the Madalena Energy website, so it is impossible for me to verify each property's potential.

Geopolitical risk is always worth noting. Canada ranks 10th on Transparency International's Corruption Perceptions Index and 6th on the Heritage Foundation's Index of Economic Freedom. Meanwhile, Argentina ranks 107th for corruption and 169th for economic freedom. That is a huge delta in risk for investors from other countries. Argentina may start moving in the right direction after its recent political changes. International investors will be watching for progress.

I downloaded Madalena's quarterly financial statements and MD+A dated September 30, 2015. There's no pretty picture here. The accumulated deficit in shareholder's equity (or what we Americans typically call negative retained earnings) is now at -CAD$115M. Inexperienced investors need to recognize this type of negative figure as the amount of invested capital earlier investors have put into a company that has not yet earned it back. The company has $11M in cash on hand and swung to a $14M profit after losing money in much of 2014, so they are above what would otherwise be a burn rate for now.

The weakness of Canadian and Argentinian currencies against the US dollar probably helps this company's bottom line. Argentina recently relaxed its currency controls, devaluing the Argentinian peso against the US dollar. Note 2 in the company's quarterly financial statement says their Argentinian invoices have been in US dollars and their planned capex for Argentina is weighted to US dollar denominated expenditures. Argentina's currency devaluation means financing in US dollars and spending against a falling Argentinian peso will make Madalena's capex in the country less expensive. This is good news given the company's negative free cash flow for most of 2015.

Madalena deserves kudos for actually producing oil and gas, something many junior resource companies never do. The company's fortunes in Argentina may improve if the new government there takes reform seriously. One big problem facing the entire oil and gas sector is the continuing weakness in world oil prices. Bearish oil markets will challenge Madalena's ability to sustain the success it experienced in late 2015.

Full disclosure: No position in Madalena Energy at this time.

POET Technologies Has No Poetry

POET Technologies has been sitting on my radar screen for a few months. I had to let it percolate to figure out where it fits because it used to be known as Opel Technologies. Their main technology claim is that some integrated circuit with optics will extend Moore's Law. I am not convinced this is the path of least resistance for computing. All of the guru talks I have attended at many tech conferences attest to quantum computing as the next step. Anything that's not quantum can add marginal capabilities but will not be a quantum leap.

The company website's investor relations page talks a lot about several directors but little about management's background. I am not in the habit of giving managers the benefit of the doubt once their company migrates to manufacturing. POET's Yahoo Finance page shows the management team receiving very large compensation packages with no recent revenue.

Photonic integrated circuits (ICs) have been around for a while. Search the IEEE Xplore archive for the article "Optical Integrated Circuits: A Personal Perspective" for a discussion of the difficulties in moving the photonic Moore's Law curve. POET's tech uses gallium arsenide, but a simple Google search of "optical integrated circuits gallium arsenide" reveals articles dating from the 1980s on the promise of such technology. Basic descriptions of gallium arsenide (GaAs) indicate its value as a substrate material in ICs but it is not amenable to the same economies of scale that favor silicon. Light Science and Applications offers a selection of articles on photonic ICs, several of which describe competitors to GaAs tech.

You'd think that something with such a long development history would show some marketable results by now. I had to examine POET's unaudited financial statements and MDA for the six months ended June 30, 2015. They had over $15M in cash on hand with a burn rate of about $1M per month, so they should be around for at least another year. The tough pill to swallow for investors is the negative retained earnings of almost -$79M. All of that capital went to develop a 30-year old tech that has yet to match the performance of silicon in ICs. I did not see anything in the MDA describing a detailed strategy for generating revenue. Rearranging royalties and obtaining SBIR grants are no substitute for revenue.

I am hard-pressed to understand this company's rationale for existence. The IC market is broad but it is not at all clear how POET will capture any revenue once it irons out the kinks in its production process and has a viable chip to sell. I prefer not to bother with long-shots in circuits, especially when quantum computing offers so much more potential.

Full disclosure: No position in POET Technologies (tickers PTK.V and POETF) at this time.

True Gold Mining Has True Problems

True Gold Mining is losing money. I just thought I'd say that right off the bat so we don't waste any time beating around the African bush. The company has been around in some form since 1987 according to Yahoo Finance. That's plenty of time to get out of the market's basement and generate some wealth.

Their current CEO is a former investment banker, and his bio on the company website says nothing about academic qualification as a geologist or specific operational success. I see this over and over again in junior mining companies. The company's Yahoo Finance profile says their chairperson is making an obscene amount of money for a company with no revenue in several years. Guess what, when you put a bunch of investment bankers in charge of a mining company, don't expect to see a bunch of metal coming out of the ground.

The Karma Project in Burkina Faso is their big show. Burkina Faso is ranked 85 out of 175 on Transparency International's Corruption Perceptions Index and 102 out of 178 on the Heritage Foundation's Index of Economic Freedom. Its absolute scores in those rankings are abysmal. Demonstrations forced True Gold to halt its Karma Project in January 2015. Unrest has a funny way of messing up business in a poor, corrupt country.

I read the Karma Project's NI 43-101 preliminary economic estimate dated August 10, 2014. The indicated and inferred resources are decent grades and sizes, but I believe their assumed gold price of $1557/oz is too high given present gold market conditions. The probable reserve grades average to 0.85 Au g/t; that's still decent but not inclusive of proven reserves. I also wonder why they chose a gold price assumption of $1250/oz for their economic analysis that differs from the $1557/oz assumption for the resource estimate. Adding their estimated cash operating cost of $630/oz and capital cost of $207/oz gives us a total cost of $837/oz, unless I'm missing something. That is below gold's current spot price but above its long-term average historical price, so the project is very vulnerable to a prolonged bear market in gold.

The Liguidi Project in Burkina Faso is their side show. The project's fact sheet includes some sample drill results but I don't see anything that resembles a 43-101 report. The final Liguidi results will have to wait for daylight if Karma ever gets going. All of the international ranking data on corruption and freedom apply to both projects with equal validity.

The former investment bankers running True Gold need to raise US$132M to bring Karma into full production. I reviewed their consolidated financial statements dated June 30, 2015. The company's burn rate of $1.4M/month and cash on hand of $23M means they can survive for about 16 months before needing another capital raise. Shareholders will experience dilution if True Gold raises a big chunk of that $132M at some point. The accumulated negative retained earnings of -$81.3M shows how little progress the management made towards productively employing capital they raised in the past.

I will not invest in True Gold. The main project looks decent enough but it's in a bad neighborhood called Burkina Faso. Investment bankers should learn about geopolitical risk before they agree to run mine exploration companies.

Full disclosure: No position in True Gold Mining (tickers TGM.V and RVREF) at this time.

Vista Gold Is A Disappointment

Vista Gold (ticker VGZ) has a management team with obvious experience in mining operations.  It's always good to see geologists and engineers running a junior mining company.  I would have more confidence in this company's potential if their operational results matched the C-suite's pedigree.  A producing mine would justify their high salaries.  Check their pay yourself on the ticker's Yahoo Finance listing.

One Mt. Todd, Australia gold project is their primary live option at this time, with other projects that may pay royalties if other partners have their acts together.  The Mt. Todd site's most recent NI 43-101 report is dated July 7, 2014.  Its key findings are disappointing.  The 2P reserve estimate is 0.84 Au g/ton for the Batman deposit and 0.54 g/ton for the heap leach pad.  Those are very low ore grades compared to profitable mines worldwide.  The MII resource estimates for Mt. Todd aren't any better.  The initial capex estimate of almost US$1.05B means they need a large mining company as a serious partner.  Their base case assumption of $1450/oz as the gold price is too optimistic because gold closed at $1133/oz today.  I looked at their base case scenario of operating costs at $756.11/oz and capex (presumably spread over the mine's life) at $292.33.  Adding those up to $1048.44/oz gives us the minimum gold price that makes this mine economically viable.  Gold's long-term average price is far below that level, and a lot can happen over this mine's projected 13-year life.

Financial statements matter.  I reviewed Vista's latest 10-Q dated July 31, 2015.  They had US$3.8M in cash on hand at the end of June, plus $11.1M in short-term investments.  That would ordinarily be a mother lode of cash for a junior mining company.  I have to wonder why they are representing positive net income with zero operating revenue.  Their research and development grants from the Australian government (mentioned in note 10 of the 10-Q) are no substitute for a live mine, so it's more appropriate to doubt these grants' usefulness as recurring revenue.  Consider Vista's negative retained earnings of -$410M to know how much investor capital has disappeared down dry holes.

This stock has traded below one dollar since the summer of 2013.  Since it now trades around $0.29, anyone who bought it in the past decade is severely underwater.  I see these kinds of companies all the time on the investor relations circuit, clamoring for attention and waving term sheets at private investors.  Whatever potential that may have appeared in Mt. Todd's earliest 43-101 reports has never materialized.  That is why Vista Gold does not belong in my portfolio.

Full disclosure:  No position in VGZ at this time.

Uranium Energy Corp. May As Well Be Radioactive

Uranium Energy Corp. (UEC) used to be named something related to gold. Another company now has their old name, so that's just water under the bridge. The global nuclear power is healthy enough to support strong demand for uranium production. It's too bad UEC isn't successfully meeting that demand.

UEC has 23 projects in motion as of this writing, with all but two in the US. Their problem is that almost all of these projects are still under exploration. They have one operational plant, one producing mine (sort of, depending on permits), and one project at the development stage. That's all they have after a decade.

Consider the numbers for those projects that have NI 43-101 reports. Anderson will require almost $44M initial capex, with a recovered production cost of $33.65/lb.  It is sobering to see the base case NPV estimate (at a 10% discount rate, $65/lb market price) of $142.2M, when the total capex commitment is estimated at $139.2M in the 43-101.  That's barely worth doing at all.  Infomine reports the uranium price for Aug. 26, 2015 as $36.75/lb.  If the Anderson project is barely worthwhile at $65/lb, it cannot be viable at current market prices.

I grabbed UEC's Q3 2015 10-Q dated June 9, 2015.  The company had $1.4M in cash on hand as of April 30 and inventory of $2.2M.  Their monthly burn rate is about -$1.8M, so they're pretty much surviving one quarter at a time.  Note the negative retained earnings of nearly -$187M, because that's about how much investor capital the company has thrown down a bunch of holes in its lifetime.  Further capital raises will be needed to fund the capex for projects like Anderson, so shareholders can expect further dilution.

I will hazard a guess about why this company is losing money.  If they had focused on a handful of decent projects with grades of at least 0.10%, they could have succeeded by now.  The World Nuclear Association notes that the largest uranium mines in the world produce most of the world's uranium with average grades over 0.10%.  UEC has spent a lot of time and money exploring many projects whose MII grades do not cross that 0/10% threshold, meaning their ultimate 2P grades will likely be lower in a 43-101 PEA.

Uranium mining and processing can be a radioactive business. Companies that try to do it for a decade without financial success may as well be radioactive themselves. I will not have money-losing companies like UEC in my own portfolio. Financial losses are radioactive to my ROI.

Full disclosure:  No position in Uranium Energy Corp. (ticker UEC) at this time.

Bion Environmental Technologies Churns Much Effluent

Bion Environmental Technologies has spent several decades developing a technology to treat the waste runoff from commercial livestock operations.  Water treatment solutions should never mistake the nation's head count of cattle or pigs as a target market.  Those are more properly supply chain inputs.  I had to say that up front to clear the air before the analyst community dives in to big piles of manure.

The most important thing about this company is its lack of profitability.  It has existed since 1987, which is plenty of time to develop a viable product and find a market in agribusiness.  Bion has not made a profit in at least three years, with only a trickle of revenue.  If these folks had something, they would have had it by now.  Retained earnings were into negative nine figures by 2014.  That's how much capital has been sunk into this concept over time.

I have no idea why the company is paying its executives while they fail to produce financial results.  It is really embarrassing to listen to people spew horse manure about a technology that claims to clean up cow manure.  There is nothing new about bacterial mitigation of effluent.  Call me when something is financially viable.  Oh, yeah, the stock has traded under a buck since late July.  I don't think I need to waste any more electrons here.

Full disclosure:  No position in Bion Environmental Technologies (ticker BNET) at this time.

Galaxy Resources Is More Like A Black Hole

Galaxy Resources recently changed its name from Galaxy Lithium.  I never let a name change distract me from changes in operations.  The company's current management team has a background more in finance than mining.  I can totally understand if the company feels more confident about improving its financial situation than it does about improving its operations.

The company has three active projects at present.  A couple of them appear to be only semi-active; the Mt. Cattlin (Australia) mine has been shut since July 2012 and the James Bay (Canada) project is still under exploration.  The Sal de Vida (Argentina) lithium project is the only one left on which the market can hang some valuation.  Galaxy's corporate website displays a summary of some NI 43-101 data for Sal De Vida's claimed 2P reserves.  I cannot find the full 43-101 report for that project anywhere on Galaxy's website or in a SEDAR search of the company's filed reports.  If a company has to make it this difficult to verify its claims, I cannot waste my time evaluating its operational potential.

I did download the company's annual report for the year ended December 31, 2014 straight from its investor relations page.  Galaxy had a total net loss of over -AUD$56M in 2014, which wasn't nearly as bad as 2013's restated loss of over -AUD$104M.  A reduced loss is still a loss.  Their total current liabilities have exceeded total current assets in both 2013 and 2014, and with only AUD$13M in cash on hand they will absolutely have to raise a lot more money just to keep the lights turned on.  It is impossible to determine whether their fundraising serves an operational purpose without access to a 43-101 report describing how the company should further develop its most viable project.

The stock trades in the pennies, typically under US$0.04 throughout the summer of 2015.  One look at the EPS of -US$0.05 tells me this company is losing more than what the market thinks it is worth.  There is no way that such a company will ever belong in my own portfolio.  A company with aspirations to be galaxy-sized needs to have more than a big black hole of important information.

Full disclosure:  No position in Galaxy Resources (GXY.AX) at this time.

Making Heads And Tails Of ChineseInvestors (CIIX)

I somehow picked up a one-page, two-sided flyer for ChineseInvestors, a.k.a. ChineseFN.  I am reluctant to link to their website because my browser froze when I loaded their page.  I take that as a bad omen.  I had better luck examining their ticker CIIX at Yahoo Finance.  It turns out I didn't need the luck, or the knowledge.

ChineseInvestors intends to be a web portal for middle class Chinese investors seeking investment opportunities outside of China.  Addressing the legal specifics of how Chinese citizens can move their money outside the People's Republic of China is beyond the scope of a financial blog.  Chinese elites have no difficulty deploying money into California real estate and other hedges against economic annihilation at home.  Elites can easily grease any wheels needed inside their country to get cash out.  China's middle class will not have such an easy time given Beijing's need to artificially prop its stock market.

The Chinese government has imposed severe restrictions on domestic investors after the country's equity market lost over a third of its value this year.  Highly leveraged middle class Chinese are not able to liquidate their Chinese stocks.  Anyone counting on average nouveau riche Chinese to deploy capital from low-interest savings accounts or heavily margined stock brokerage accounts is at least two months too late into a new reality of capital controls.

Even if ordinary Chinese investors could count on easily moving capital, there is no reason to believe ChineseInvestors is successfully positioned to exploit such movement based on its present finances.  I reviewed the company's unaudited 10-Q dated April 14, 2015.  They had less than US$688K in cash on hand as of Feb. 28, 2015.  That is enough to cover their negative net income of over $448K that quarter, but it does not make up for an unrealized loss on available investment of almost $1.5M.  The company's burn rate indicates it must continually raise new capital.  That is a really crummy way to run a business.  It's even crummier given the accumulated deficit of $9.7M, with no turnaround in sight.

It should go without saying that ChineseInvestors does not belong in my own portfolio.  I came off the China bull story years ago.  Every public report of falsified government statistics and emergency stimulus measures from that country confirms that I made the right decision.  Chinese citizens are stuck with a bad hand.

Full disclosure:  No position in CIIX at this time.

Hemisphere Energy Corp. Pumping Alberta's Liquid Oil

Hemisphere Energy Corp. (HME.V) drills for liquid oil in Canada.  They are fortunate that Canada is such a friendly place for extractive enterprise.  Canada remains favorably ranked in both the Transparency International Corruption Perceptions Index (10th out of 175) and the Heritage Foundation Index of Economic Freedom (6th out of 178).  Their CEO is a geologist, which I like to see in a junior exploration company.

The company develops two projects in Alberta and one in British Columbia.  Attlee Buffalo and Jenner have somewhat different economics, as far as I can tell from their corporate statements.  It looks like Atlee Buffalo is the more attractive property, so they must preserve their flexibility to adjust production for each well.  I reviewed their annual statement dated April 14, 2014 (found in SEDAR) for some interesting tidbits.  Part of Note 8 on page 43 described an impairment charge of over $5.6M in 2012 for assets whose estimated reserves declined past the threshold of economic recovery.  It stands to reason that announcements of land package deals in the junior exploration space mean less than geological estimates of OOIP.

Hemisphere's most recent financial statements for Q3 2014 describe favorable netbacks and positive net income.  The company achieved these results before the price of WTI crude crashed to below $50/bbl.  I noticed that the line in their financial statement for "Average realized prices for crude" as of Sept. 30, 2014 was $77.97, when the average benchmark WTI for that quarter was $97.17.  The weaker Canadian dollar is a boon for Canadian producers like Hemisphere because Canadian exported oil is cheaper for US refineries even as the WTI price for US-produced oil continues to fall.  Nonetheless, Hemisphere and other juniors will continue to find it challenging to sell at competitive prices in this weak market for oil.

The company's current liabilities were almost eight times as large as their current assets as of Sept. 30.  That is very worrisome given their positive net earnings of only $833K for the quarter.  I do not see how they will be able to cover their liabilities into 2015 without raising significant amounts of new cash.  Raising more capital will dilute existing shareholders.

I will take a pass on this particular company.  Hemisphere's high costs negate its attractive netbacks in an era when WTI is crashing.  The Canadian dollar's weakness against the US dollar won't last forever, so Canadian juniors have a very limited window in which to build either a cash hoard or production growth that will sustain them in the difficult months ahead.

Full disclosure:  No position in Hemisphere Energy at this time.  

NioCorp Developments Bleeds Cash for Niobium

NioCorp Developments used to be called Quantum Rare Earth Development.  The name change from March 2013 has not changed the nature of the company.  They still plan to extract niobium in Nebraska.  Rare earth elements are crucial to the defense and high-tech sectors.  It is crucial that competent miners extract these elements for processing.

Their current CEO is the former CEO of Molycorp, the largest rare earths producer in the US.  It is usually good for a junior resource company to have experienced mining executives, but they need to have the right kind of experience.  Mineweb's reporting on this CEO's tenure at Molycorp mentions losses and legal problems.  Bloomberg's reporting on that period at Molycorp highlights operational problems.  Junior mining companies need a management team that won't bring drama.  Capital markets dislike drama and reward competence.

NioCorp's minor projects in Saskatchewan and Australia are too immature to deserve an economic estimate.  The main NioCorp project at Elk Creek has a 43-101 estimate of MII resources from April 2012.  The grades aren't exactly stellar but the size of the deposit matters.  The 43-101 report acknowledges the logistics trifecta that a mining project needs: roads, power, and water.  I could not locate any photos of this property on NioCorp's website but the 43-101 report indicates the land is mostly flat with some rolling hills.  Flat relief areas are good for the eventual construction of tailing areas.  The report's bottom line recommends an exploration budget of CAD$4.89M to further refine an estimate of the niobium deposit.

I checked SEDAR for their latest financial report dated March 31, 2014.  They had CAD$3.9M in cash on hand but lost about CAD$378K for the quarter.  That gives them quite a few months from that date before they will have to close another capital raise.  The problem I noted from that financial statement is that much of the expenses generating those losses are for administrative matters like management fees.  NioCorp needs to spend towards exploration plan as recommended in the 43-101 report.

I remember first noticing this company back in 2011 when junior rare earth companies were riding the media's fascination with the Molycorp story.  The share price of Quantum/NioCorp has always been in the pennies but crashed during September 2011 and did not really recover until April 2014.  It is still a high-risk prospect.  NioCorp must obviously raise more capital and dilute shareholders further just to prove its Elk Creek project is viable.  Creating a functional mine is a consideration far in the future.

Full disclosure:  No position in NioCorp at this time; no position in its predecessor tickers at any time in the past.

Editorial note:  I made a minor correction on 09/15/14 to the number of months their cash reserve will last based on their burn rate; the cash will last longer than I had first anticipated.  It does not materially change my assessment of this company's prospects.

Erdene Resource Development in Mongolia

This is the first time I have mentioned Erdene Resource Development (ERDCF / ERD.TO) on my blog.  It may also be the last time, unless they do something really impressive with their projects in Mongolia.  That country has a nasty habit of punishing foreign investors when it goes through fits of resource nationalism.

Mongolia ranks 83rd out of 175 on Transparency International's corruption index and 97th out of 178 on the Heritage Foundation's Index of Economic Freedom.  Those are really poor conditions in which to operate a foreign-owned business.  I remember the last time some mining executive (at another company) tried to tell me they knew the inner workings of Mongolia so well that their project could navigate any political pressures.  They were blindsided when Mongolia rolled up their project "for the good of the people," as kleptocrats always describe such actions.

The management bios show a geologist CEO who also holds leadership roles in other TSX-listed resource companies.  I am usually very skeptical of top executives who take a "lottery ticket" approach to stakes in other producers rather than focus exclusively on making one project succeed.  Other folks on the management team also have geology degrees, which is nice.

Erdene has several projects in Mongolia.  They have located deposits of gold, silver, molybdenum, and copper in various places.  They're also looking for coal.  The 43-101 compliant information they posted is of limited use if it only discusses MII resources at low ore grades.  I am not ready to invest in any resource company that cannot demonstrate comprehensive 2P reserves at economically viable grades.

Check out the financial reports on their website.  Their quarterly statement for June 30, 2014 shows a net loss more than 3x their cash on hand.  Erdene must continue to raise capital just to stay in business, putting their shareholders at risk of further dilution.

The stock trades in the pennies for pretty good reasons.  All of the geology expertise on the planet means little in an inhospitable political climate.  The best thing to come out of Mongolia so far has been the Mongolian BBQ cooking style.

Full disclosure:  No position in this company, ever.

California Gold Mining Pokes the Mother Lode

Today I noticed California Gold Mining (CGM.V / CFGMF) making its way across the financial landscape.  It is based in Canada but explores projects both in Canada and the central California Mother Lode.  It is good that the management team is qualified in geology and mining engineering but it's hard to tell from their bios just how much time they spent away from mining when they worked in finance.  Adding value in mining means bringing projects to maturity, not just raising capital.

The Canada project has a 43-101 mineral estimate and PEA.  The technical report's indicated resource grades at less than 1g/t Au are not all that attractive.  The PEA from 2013 concludes that the negative cash flow of -$43.3M from an expected five-year mine life makes the project uneconomical.  They would need a gold price over $1800/oz to make it attractive.  That's a long way for the spot price to climb from here.

The California project has some legacy exploratory data but I do not see a 43-101 report for this property on their website.  I also have doubts about the distance of the site from water sources (specifically the Merced River), assuming they plan to separate ore with heap leaching.  Finally, the photos of hilly topography make me wonder whether there is room on site for a mill and tailings area.  Those elements need flat terrain to be viable; changing the topography through engineering will add cost to the project.

I don't think I even need to look at the financial statements for this one.  The stock trades at about a nickel given the uncertainty of the above projects.  I track junior mining companies because someday I'll find one that deserves to be in my portfolio.  California Gold Mining isn't there yet because I need to see development of a mine plan and not some idle poking around the Mother Lode.

Full disclosure:  No position in California Gold Mining at this time.