Say “Hello” to my little friend!
March 13, 2011
Over the past several months, Southern Arc has been systematically walked down, I think, for the purpose of acquiring cheap stock. On a good number of occasions, I’ve witnessed steady upward pressure on share price, only to see someone step in, hitting the bids when the spread is quite large. Not placing an offer just below the inside ask, but selling outright at 7-8 cents lower. Not dumping, mind you, just a few hundred shares, sometimes as little as 100 shares. This type of game goes on every day on the Venture Exchange. Thin liquidity makes it too easy to manipulate share price up or down. Some people do not want to see Southern Arc’s share price go up just yet. Not until they’ve filled their bellies with cheap shares.
Some of the selling this week, for certain, was coming from nervous investors. Bad economic news out of the U.S., continued uprisings in the Mideast, and Japan’s natural disaster. At the same time, I suspect strongly that some game players (beginning on Wednesday) were taking advantage of this building collection of bad news. From a high of $1.74 on Wednesday, SA saw a low of $1.31 on Friday morning, before recovering to close at $1.65.
Every once in a long while, a movie line is so good that it enters the lexicon of the language. For me, Friday’s trading action on SA called one such line to mind.
By 11:20 a.m. on Friday, Tony Montana had seen enough of these rough games, apparently. His little friend trades through Haywood Securities, and maybe elsewhere, too. It remains to be seen how many little friends are on the response team to these manipulative games. Hopefully, Friday’s response was just the preamble. We’ll see. For sure, the message was sent: You want to play with this stock. C’mon. Let’s play! If people are prepared to sell into the bids in an effort to break the spirit of longstanding shareholders, they need to be prepared to sell big and pay the price. It won’t be a free ride, that’s for sure.
Conspicuously absent from Friday’s trading, and puzzlingly so, was Mackie Research. Mackie was the lead investment banker in the recent $28 million financing at $1.60. Not one buy from Mackie on Friday where most of the trading was below $1.60. If Southern Arc was such a good story for a collection of sophisticated institutional investors (comprising, I’m told, some 90% of the recent offering) at $1.60, why isn’t it a screaming steal at $1.31?
As I understand it, institutional investors who participate in placements such as this one (with a four-month lockup on shares) are looking for quadruples or better within a twelve-month period. For the calculator-challenged among you, that’s $6.40+. So what’s taking so long to carry this exceptional story to the marketplace? I look forward to hearing, or rather, seeing Mackie’s answer to this question. With a successful financing under its belt, and healthy commissions booked, I should think that Mackie’s estimated 160 financial advisors might have seen fit to at least nibble as the knockdown ensued over the past three days.
Since the financing closed (February 23rd), net shares purchased through Mackie Research total a paltry 28,500 (33,500 bought and 5,000 sold). Haywood’s net purchases total 203,575 during this same period, with 157,850 this past Friday, alone.
I sure hope Mackie’s not waiting for next month’s release of drilling results to start telling the Southern Arc story. Yes, with some 200 holes planned for the next twelve months, the drilling program will make a compelling case, but this story is worth telling now, as indicated by a very successful financing. If Sunday night’s description by the Mackie representative was genuine; namely, that Mackie looks forward to helping Southern Arc realize its potential to enjoy a market capitalization of $1 billion, or $2 billion, or $3 billion, how can its network of advisors not be hopping all over this story when the market cap sits in the range of just $150 million? Does Mackie believe the story it’s just taken to the institutional market, or doesn’t it? If yes, there’s no evidence of it. I do hate to be harsh, but it appears to me that somebody’s been asleep at the wheel. So far, I’m entirely unimpressed. Talk is cheap. Time to separate the talkers from the doers.
………………….…
Now, say ‘hello’ to the other big question that has been asked of me repeatedly in recent weeks. Could we see another crash like the one in 2008? Never say never, but I don’t think it’s coming. The U.S. government seems bent on ensuring liquidity in the markets. An excellent explanation of QE-to-infinity is found in yesterday’s audio interview of Jim Rickards at: http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2011/3/12_Jim_Rickards.html
I see corrections and recoveries as a natural course for the next couple of years, but I don’t see a major crash like we saw 2 ½ years ago. Do I know this to be so? No. Too many people out there claim to know but don’t. I certainly don’t. The only thing I’m sure of is that what I don’t know occupies a much larger space than what I do know.
If my guess is wrong, and the market does take a swirl down the gurgler, as Hamish Campbell (pictured below at the PDAC Core Shack table) calls it, here’s what I do know.
Southern Arc is in a much different place from where it was in the summer of 2008. Then, it had no permits on any of its properties. Drilling was not allowed. On Lombok, the location of its flagship property, it was, then, still illegal to mine. Cash was skinny, and the Company was essentially in survival mode.
This time, the Company is fully cashed up for the next two years, it’s now legal to mine on Lombok, and permits are in place for all current properties. The management team has been recently supplemented with the addition of Mike Andrews, and a strong advisory board is in place.
There’s also the small matter of three joint ventures with two of the largest mining companies in the world. As an aside, I heard rumour that another (unnamed, ‘cause I don’t like lawyers) explorer was throwing darts at Southern Arc at the recent PDAC conference in Toronto, suggesting that, if SA’s properties were of any value, the Company would not have joint ventured them. Very interesting. I know of a school that, for a time, couldn’t afford an athletic complex for its students. Boy, did they ever do a good job of extolling the virtues of an outdoor education program. Hmmm… Here’s another line that has entered our lexicon.
Enough on rumours. Let’s stick to wild speculation, shall we? If the market crashes as it did in 2008, Southern Arc will take a hit like everyone else. How much of a hit is the big question. The difference this time is that Southern Arc is a fully staffed operating company with two years’ worth of cash in the bank, properties with permits, and a program to drill. Market or no market, this drilling program will go forward. Market or no market, the JVs will advance. In the event of a general crash, if it happens, when the market recovers, as it surely will, the juniors who’ve been drilling… and getting good drilling results… will be the first to bounce back.
There’s an old saying in this business, “drill it and kill it”. When I look in the eyes of Hamish Campbell, Mike Andrews, Andrew Rowe, and Steve Garwin, I don’t see any fear of the upcoming drilling program. As much as one can ‘know’ anything, they seem to know what they’ve got and are itching to prove it.
I’m a buyer. Never sold a single share. I bought shares on Friday, I bought shares the day before that. I bought shares two weeks before that. If the opportunity presents itself, and my couch cushions continue to be forthcoming, I’ll be a buyer again.
Best,
Kevin Graham