Johnston-Sequoia Capital Corporation is engaged in the business of assisting nano-cap corporations with institutional targeting, market intelligence, buy-side advisory & venture capital. The model is tailored specifically to companies with:
- Strong management
- Strong balance sheets
- 100% ownership
- Potential world class discoveries
In the Middle of Every Difficulty Lies Opportunity
"As you may know I presented “The Wisdom of the Crowd” last week at our joint Discovery Investing / Murdock Capital seminar in New York City. Sometimes Crowds are wise and sometimes they are “delusional” in their decision making ability.
One year ago QMM shares were trading close to $1.80. They closed yesterday at $0.52. Last Friday it traded 627,000 shares in the U.S. It certainly appears that the market has turned against this company. In short, the stock is for sale.
This turn of events would be more understandable if the company held no assets or had mismanaged the discovery process. That is most definitely NOT the case.
It holds a project pipeline with several good to excellent assets it has developed. As you know we have a ten factor Discovery model we use to rank companies. Factor 1 is the “world class asset factor.” I am convinced that Quaterra’s Yerington copper project, acquired and developed by CEO Tom Patton over the years, has world class potential.
Recently we learned that Rob McEwen will develop a 12 billion pound, $2 billion copper deposit in Argentina. We believe that Quaterra’s Yerington is as good a project because it is in Nevada and has two former mines (Yerington and MacArthur) on the property. These include an economic and reasonably near term resource of 1.8 to 2 billion pounds of acid leachable oxide copper and chalcocite ore.
Independent analysts (Christopher Ecclestone and GMP) have valued Quaterra’s three pieces of the Yerington “District” at $500 million to $1 billion if and when developed and in production.
If their value estimates are anywhere near the mark, you can understand the potential value of the Yerington, MacArthur and the Bear deposits for shareholders. Quaterra has about 175 million shares outstanding.
There are two other QMM assets that may be ready for development or monetization. The Nieves silver project has a 43-101 resource of 85 million ounces of mostly open-pittable silver (cutoff 15 grams) and about 141,000 ounces of ~.1 gram goldi. This property in Zacatecas in the Faja de Plata, could be worth $100 to $200 million. Quaterra owns 50% of the property...
...In addition, Quaterra has valuable strategic relationships with Freeport McMoran on two properties (Tintic Copper and West Texas Moly) and a significant and funded exploration relationship with Goldcorp in Mexico. To some extent Quaterra has become Goldcorp’s exploration arm in Mexico.
I won’t try to estimate a value on QMM’s shares. Suffice it to say that I believe that shares, given the above asset acquisitions and discoveries, are worth more than $0.52, a lot more.
Either investors don’t know the story or they don’t believe it. I am, however, certain that the asset values are significant. We need Quaterra to get the word out in the form of an action plan that these assets can be monetized and that production, especially from Yerington, will be forthcoming – soon.
One danger, of course, is that with its currently depressed share price these assets could be taken away from investors who have been in the stock for years. – including yours truly.
At present investors are making their decisions based on worry, angst and anger. This is understandable. It is evidence of what Nobel Laureate Daniel Kahneman calls our brain’s System 1 knee jerk reaction in his excellent book, “Thinking: Fast and Slow,” a must read.
In the near future the company has indicated that several 43-101 / PEA’s will be forthcoming perhaps in the April time frame. Given the progress at Yerington, Nieves and Herbert Glacier, these announcements should increase the resource sizes and the category in each case.
If the market believes these announcements then they should support the stock.
We think Quaterra management must now come out aggressively and address the market’s current concerns and change its perspective of the company. This will require a bold move by management to perhaps monetize or announce near term (2 year?) production at Yerington.
In his analysis of the Yerington project after a site visit last September, analyst Christopher Ecclestone placed an NAV on all Quaterra’s assets of $1.43 about 3 times today’s price."
--- Dr. Michael Berry
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| A very favorable Margin of Safety Pattern? |
Johnston-Sequoia Commentary:
During the financial meltdown of 2008 (at the tender age of 27) I began accumulating what is now our single largest position (many of our readers would be correct in guessing Terraco Gold) at $0.05. Coming from a very conservative medical family in the Maritimes of Canada any one I would have discussed my investment philosophy with at the time likely walked away thinking I had taken one too many frozen pucks to the head over the years. In reality - I was accumulating a meaningful share position when everyone else was running for the hills. Then along comes September 2010 - the LIT.V team (led by Presdient & CEO Todd Hilditch) had just completed the merger of Salares Lithium (TSX.V: LIT) & Talison Lithium (TSX: TLH), creating the world's largest producing Lithium company in a $350,000,000 merger. More importantly, for shareholders - transformed a $0.23 stock (November 2009) into a $7.50 stock (November 2010) in one year. During this same time Terraco catapulted from a $0.07 stock to at $0.51 stock seemingly without a breath. All of the sudden - the very same investment philosophy didn't appear to be quite so foolish to those same individuals. Now, since the dark days of 2008 - I've been fortunate enough to have a lot a great conversations with an awful lot of folks & my only regret, (literally) was not accumulating Quaterra at $0.50. As they say - never make the same mistake twice.
Quaterra's geological management team (led by Dr. Tom Patton) has one of the strongest discovery track records we've seen in this space (we encourage a debate on this perspective). Discoveries include:
- GoldCorp's Penasquito Mine: The largest open-pit mine ever constructed in Mexico (18,170,000 ounces of gold, 1,068,000,000 ounces of silver & 17,575,000,000 lbs of Zinc)
- Quaterra's MacArthur Copper Deposit: Contains an expanding measured plus indicated and inferred resource of 2,277,300,000 lbs of copper
- Quaterra/Blackberry's Nieves Silver Project: Contains an NI 43-101 measured plus indicated and inferred resource of 85,000,000 ounces of silver
- Quaterra/Singatse Peak Yerington Copper Deposit: Contains 696,000,000 lbs of copper in the original open-pit with and additional 136,000,000 lbs of copper adjacent to the pit
- GoldCorp/Quaterra's Strategic Alliance: The Investment Framework Agreement signed by the companies provides Goldcorp with an option to acquire an interest in any mining properties held by or acquired by Quaterra in central Mexico (except the Nieves silver project) in return for funding a two year generative exploration program through a private placement investment of US$10 million in the Company.
- Freeport-McMoRan Copper and Moly Joint Ventures: Cave Peak is considered one of the best and highest grade, undeveloped molybdenum prospects in the U.S. Last year Quaterra signed an earn-in agreement with Freeport-McMoRan Mineral Properties Inc. ("FMMP") of Phoenix, Arizona, in respect of Cave Peak. In the terms of the agreement, FMMP has the exclusive right and option to acquire a 70% ownership interest in the Cave Peak project by paying 2011 land holding costs on behalf of the Company and by subsequently spending US$5 million on exploration over four years ending in 2015.
We own shares in Quaterra Resources - As always please do your own due diligence.
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