RARE OPPORTUNITY Eurasian Minerals (EMXX) Gold Stock Generates 101.2% Quarterly Return!

Dr. Scott Brown

By Dr. Scott Brown

On August 2nd the share price of Eurasian Minerals (EMXX) hit a low of $1.61.  In fact it formed near perfect support with the prior low just a few weeks before.

This normally signals weakness.

Then Eurasian Minerals (EMXX) did something remarkable for its group.  It shot straight up to $2.64 by Thursday of last week.

That’s a [($2.64 – $1.61) ÷ $1.61] X 100 = 101.2% return in just 3 months!

The Fundamental Numbers

Doc Brown’s Trading University Trade of The Week
Stock

Eurasian Minerals

Symbol

EMXX

Type (Contrarian / Momentum)

Contrarian

Sector

Gold / Copper

Exchange

ASE

EPS Due Date

10/28/2012

IPO Date

N/A

IPO Price

N/A

IPO Offering Price

N/A

IPO Shares Outstanding (millions)

53.5

Current Shares Outstanding

53.5

Share Price

$2.51

Market Capitalization

$134.3

Shareholders Equity

$13.40

Book/Market (B/M) Ratio

0.100

Group  B/M Ratio Mean / Median / Min / Max

0.398 / 0.398 / 0.002 / 0.795

Sales Growth (3-Year)

N/A

Earnings Growth (3-Year)

N/A

Earnings Acceleration (Qtr. To Qtr.)

N/A

Annual Return on Equity (ROE)

56.2%

Date

10/13/2012

10/8/2012

Shares outstanding (millions)

53.50

53.5

Composite Rating

51

38

EPS Rating

9

9

RS Rating

82

47

Group RS Rating

A+

A-

SMR Rating

N/A

B

Acc/Dis Rating

B

B-

Source Investors.com.

 

Eurasian Minerals has a comfortable 53.5 million shares outstanding. This is 61% of the 88.30 million shares outstanding of first ranked Primero Mining Corp.

The Small Firm Effect

Eurasian Minerals has fewer shares outstanding and a smaller market capitalization than any of the group leaders. The market capitalization of Eurasian Minerals is $134.3 million. Primero Mining Corp has a market capitalization 4.7 times higher at $633.11.
There is an ephemeral small firm effect noted in the financial academic literature. It seems to come and go around January for small cap stocks. The prestigious professor Schwert of the equally prestigious University of Rochester says…

Anomalies and Market Efficiency

“The evidence in this paper shows that the size effect, the value effect, the weekend effect, and the dividend yield effect seem to have weakened or disappeared after the papers that highlighted them were published. At about the same time, practitioners began investment vehicles that implemented the strategies implied by some of these academic papers.
The small-firm turn-of-the-year effect became weaker in the years after it was first documented in the academic literature, although there is some evidence that it still exists. Interestingly, however, it does not seem to exist in the portfolio returns of practitioners who focus on small-capitalization firms.”

Read the article HERE.
This is troubling in terms of justifying investing in companies solely based on low market value. However there is another interesting hypothesis regarding firm size.

The Small Float Effect

There is anecdotal commentary from the investment industry that a small float (adjusted shares outstanding actually available) is easier for large shareholders to control.
The same purchase in a firm with a large float results in a smaller percentage controlled by the mutual fund, pension fund, insurance company or billionaire. It is theoretically possible that a single large buyer or group working in unison could “manage a small float” share price upward.
This would be in no way illegal if large purchases are generated by herding. Money managers chasing returns dog pile onto stocks as they rise.
One of them takes a profit.  The rest soon follow.
The idea is to jump onboard as EMXX moves into new highs.

Group Leaders

Group Leaders
Rank Company Symbol Shares Outstanding Price Market Cap Book Value* B/M Ratio
1 Primero Mining Corp PPP                                                        88.30  $                  7.17          633.11       503.28         0.795
2 Rangold Resources GOLD                                                        91.80  $             121.22    11,128.00          19.16         0.002
3 IAG IAMGold Corp                                                      368.50  $                15.64      5,763.34    3,474.54         0.603
4 SLW Silver Wheaton Corp                                                      353.90  $                38.87    13,756.09    2,654.22         0.193
Mean:         0.398
Median:         0.398
Min:         0.002
Max:         0.795
* Book Value is simply shareholder’s equity from the balance sheet. 

 

Eurasian Minerals (EMXX) started as a common stock Private Investment in Public Equity (PIPE) offered through Rick Rule’s Global Resource Investments. The company operates under a resource prospector business model.
Executives are all seasoned resource scientists with university degrees from recognized programs.
This team of scientists discovers large gold and copper deposits. Those deposits are sold off to large mining companies.
Because of this the company has no sales. Instead EMXX receives royalties. The company holds an impressive portfolio of …

Claims Staked on the Fringe…

“EMX is building shareholder value with precious and base metals exploration programs in some of the world’s most promising, but underexplored frontier regions. Eurasian is aggressively adding value to its portfolios in Turkey, Europe, Haiti, Australia and Asia-Pacific, and the United States. The Company is well-funded and strategically positioned to fully participate in the current favorable investment climate through solid technical advances, unique in-country expertise, and timely business initiatives.”

Read more HERE.
This is where the rubber hits the road. The assay value of these deposits are offset with lean and mean tightly controlled expenses.
This is where Eurasian Minerals (EMXX) shareholder equity is derived from.

Institutions Are Accumulating!

The fact that the ACC/DIS rating has risen from a B- to a B indicates that institutional money managers are beginning to load up. This is a bullish signal.

A Healthy Zero Cash Date

Eurasian Minerals has C$34,712,528 in cash and cash equivalents as of the second quarter ending June 30, 2012. Over that three month period the company burned through C$3,629,279. That is a monthly burn rate of C$3,629,279 ÷ 3 = C$1,209,759.67.
The zero cash date is acceptably 28.69 months forward from June 30th of this year.

This is another excellent stock to add to your Poor Man’s Private Portfolio. See my article on another called Parametric Sound (PAMT) HERE.

Eurasian Minerals has a relatively low book to market ratio. This is not a value stock.
The stock is rising off of two strong consolidations. It has risen out into new 7 month highs out of a William J. O’Neill cup and handle formation.
But this is not a CANSLIM stock.
The stock is rising off of extreme lows. Royalties are yet to build earnings. The book to market ratio is high for its industry. This is neither a value nor a momentum stock.

So you may wonder why I am interested this stock?

This is a rare resource generator play on the high copper and gold prices. Most of these Canadian stock plays operate across the Toronto Stock Exchange (TSE). This company has been successful enough to jump across the gap.
And that makes this a rare opportunity for you.
Some of the deposits that Eurasian Minerals (EMXX) controls offer the firm pay-offs similar to long term call options. In finance we call these real options.
Other EMXX deposits generate royalties.
The investment demand for gold has skyrocketed. EMXX remains in a strong long term up-trend. Meanwhile the amount of gold produced worldwide has languished. Here are the facts from a prior post entitled…

MINI-GOLD FUTURES Best Buy Signal in 33 Years!

1. Gold is not an inflation hedge.
2. Gold is not a currency hedge.
3. There is a spurious negative correlation between gold and Treasury bond yields.
4. Threat of Hyperinflation has a Large Impact on the Price of Gold.
5. We are not returning to a gold standard. Countries that left the gold standard first fared best during the Great Depression.
6. Too much demand in the form of central bank gold buying chasing too little supply has driven up the price. Momentum based investors have dog piled onto the back of central bank buying. Momentum buying has created an upward sloped demand for gold (rather than being an example of a Giffen or Veblen good).

Read article HERE.

The real play here is that the institutionals will notice the rise in Eurasian Minerals (EMXX) and buy more stock. This is contingent to older shareholders maintaining their positions.
This would result in an ongoing rise in both the share price and the ACC/DIS rating

.
There is very little information concerning institutional ownership of Eurasian Minerals (EMXX). This makes it much more difficult to make definitive conclusions regarding the degree of institutional support.
Listen to my interview of director of investor relations and seasoned geologist Scott Close of Eurasian Minerals here.

The Technical Picture

GoldProspecting

Gold Prospecting

EMXX-Eurasian Minerals Inc.-MONTHLY

EMXX-Eurasian Minerals Inc.-MONTHLY

EMXX-Eurasian Minerals Inc.-DAILY

EMXX-Eurasian Minerals Inc.-DAILY

Massive open pit mine

Open Pit Mining Is More Expensive the Deeper It Is!

3c

Gold Spirals Upward!

ZYGZ2 - Gold, mini 2012Z - Dec. - Monthly

ZYGZ2 - Gold, mini 2012Z - Dec. - Monthly

ZYGZ2 - Gold, mini 2012Z - Dec. - Daily

ZYGZ2 - Gold, mini 2012Z - Dec. - Daily

GoldProspecting thumbnail
EMXX-Eurasian Minerals Inc.-MONTHLY thumbnail
EMXX-Eurasian Minerals Inc.-DAILY thumbnail
Massive open pit mine thumbnail
3c thumbnail
ZYGZ2 - Gold, mini 2012Z - Dec. - Monthly thumbnail
ZYGZ2 - Gold, mini 2012Z - Dec. - Daily thumbnail

This company is a play on the price of gold and copper via purchase of shares in a micro cap prospect generator.
The share price waddled through a wide channel from September 7th through October 9th between $2.18 to $2.50. The break above the channel top at $2.50 coincided with a WSD Insider newsletter recommendation.

WSD Insider

This is a recommendation by Louis Basenese. He is an analyst I hold in the highest regard.
I am a tenured finance professor at a major state university. I don’t recommend financial analysts lightly. Lou is among the very best of the best.

WSD Insider gives you EXCLUSIVE access to insights, investment analysis and moneymaking recommendations from our team of seasoned Wall Street experts.”

More about the WSD Insider Newsletter HERE.

Share price gains held above channel resistance for 3 days following the recommendation. This is another bullish signal.
It says that the big shareholders did not sell out of the stock. This is another bullish signal for this stock.
The big number for Eurasian Minerals is $2.88. At that price level the EMXX becomes a momentum stock by moving into new annual highs.
It is important to note that the consolidation was broken on a dramatic increase in volume. This increase was far in excess of 50 percent above its monthly average. Prices held.
This is a bullish signal.

The Opportunity

The success of this gold play depends on three factors. The first is the ongoing strength of the Comex gold futures market bull trend. Watch for any sharp breaks in gold or copper below the monthly triangle pattern support.
The second is the ongoing strength of the industry. Check each week that the Groups RS strength is an A or better

.
The third is strengthening of institutional buying. Check to see that the ACC/DIS rating is B or better.

The Danger

Watch for downgrading of the three factors above or a drop in the equity markets:
1. Comex Gold Futures Price weakens on monthly chart.
2. EMXX Group Rating weakens.
3. ACC/DIS Rating weakens below B-.

Money Management

A prudent strategy for micro-cap stocks such as Eurasian Minerals (EMXX) and Parametric Sound (PAMT) is to create a portfolio of 10 such stocks. Allocate an amount that is no more than 30% of your total portfolio.
For instance a husband and wife contributing $5,000 each to a Roth IRA have $10,000 to invest. At least 70% should go into a core passive portfolio such as the Gone Fishing Portfolio.

That’s $7,000.
An annual $3,000 couldbe allocated into 10 stocks such as Eurasian Minerals (EMXX) and Parametric Sound (PAMT) in just over 3 years.

Remember that the idea is to use Lou’s research to guide you to these micro cap plays. Then you cycle a set amount through each one that fits your checklist.
Nonetheless do your own research. Drill down into Lou’s recommendations as I have done here.
Decide for yourself. THINK INDEPENDENTLY!
Don’t worry about diversification with this money management plan. Portfolio diversification is achieved with as few as 3 stocks. So $3,000 could go into 3 microcap plays in the first year.
You’ll be in hundreds of stocks anyway if a bulk of your portfolio is in a core passive strategy such as the Gone Fishing Portfolio above.

Stops and Mental Stops

A logical stop loss level is $2.18. If the stock price drops below this level it would no longer be showing shareholder support.
There are no options trading on Eurasian Minerals (EMXX) hence mental stops do not apply.
Eurasian Minerals (EMXX) is a well managed company of resource scientists. Take a look! 🙂

-Dr. Scott Brown

PS. If you don’t play you can’t win. If you lose everything you can’t play. 🙂
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