Friends In Vancouver And Cipher Resources

Friends In Vancouver And Cipher Resources

With my daughter playing water polo in Surrey, BC this weekend, I thought I would come out to Vancouver one day early and get caught up and exchange some ideas with Dave Forest and Jay Sujir – I can’t remember a visit to Vancouver over the last 7-8 years that hasn’t involved having a drink or breaking bread with either of these 2 fine gentlemen.  I have mentioned Dave in my musings before but for those of you who don’t know Jay, he is one of Canada’s best securities lawyers – his clients are a who’s who of the mining industry.

As a funny aside, back in the period of 2001-2005 and prior to ever meeting Jay, I used to search his name on Stockwatch to find which shell companies he was a director of.   In those days, I was very “street” and I was dead set on making money in the junior mining space.  And without the benefit of the relationships I have now, I had to find ways to get in early on good deals.  In researching Frank Giustra’s deals, one of our industry’s biggest players, I would always come across Jay’s name as a director of the shell company that would often end up being the vehicle for Frank’s next big play.  Of course, he was a director of shells used by other groups as well, but he seemed to be the common denominator in many big mining deals.  To my thinking, owning shares in shells that Jay was a director of was a sure way to make money.   So, I would pick away at all the relatively illiquid shells he was a director of and hang on until a deal was announced for them.  Funny thing, I’m not even sure if I’ve ever told Jay this story.

My visit to Vancouver was also good because it allowed me to visit with Elena Tanzola, CEO of Cipher Resources (TSXV – CIFR).  As previously mentioned, I got involved in owning shares of Cipher through Jim Mustard – a director of the company.  But I had never met Elena prior to today – in short, and as advertised, she was very impressive.

It would seem that Cipher is looking at a lot of different streaming opportunities and they just need to pull the trigger on one good one so the story can “break” so to speak.  It would seem the company is being picky on the first streaming deal because it will be foundational to the story going forward but I reiterated to Elena that delaying much longer is risky too.  Regardless of what commodity is involved, the only thing that matters to a streaming company’s valuation in the medium and long-term is cash-flow metrics.  A streaming company is a CFA’s dream – with good metrics, analysts can have a field day plugging numbers into their models and spitting out valuations.

For a streaming company, I’m commodity agnostic.  If Cipher can find a stream on a mine with a streamed commodity that only has a very small chance of going down in price and where big recovery upside exists from the base case, then they should move ASAP.  As far as I’m concerned, the stream could be on the production of tomatoes if the metrics make sense – it’s all about the numbers.

With the drop in Cipher’s share price, I’ve added quite a bit to my position this week.  I’ve brought my average price down to $0.07 but I’ve also bought about as much stock as I want considering the size of my position vis-à-vis Cipher’s liquidity.  It trades by appointment, so I don’t want to take a position so big that I can’t ever move off of it without killing the share price.  Quite a common consideration in the world of micro-cap junior mining stocks.

Philip O'Neill
Philip O'Neill
poneill@mp1capital.com