(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
Savvy investors are aware of the advantages of following the buying and selling by the company insiders. While this is not the Holy Grail, insider activity can be a valuable insight to making money. An insider can be defined as an officer, director or 10% plus shareholder of a public traded company and they are required to report their transactions on a timely basis.
Company insider buying is a much more reliable indicator than selling. There is only one reason for the insiders to be buying but there can be an array of personal reasons why a company insider is selling.
History has shown us not to rely on only one insider, thus we advise looking for 2 or more insiders buying or selling as a potential gage for the future performance of the shares.
We suggest investors visit, CanadianInsiders.com for Canada Companies and InsiderTracking.com for the United States Companies. Both of these services are free and are owned by INK Research.com, a Canadian Company and institutional service of which we are subscribers.
In the resource sector most of the companies are Canadian incorporated and thus their reporting requirements and filings are in Canada and all figures used in the examples below are in Canadian dollars.
Now let's showcase two Canadian Companies with recent insider trading activity which trade in the United States.
Fortuna Silver (FSM)
Fortuna Silver Mines Inc. is a rapidly growing silver producer with two low-cost operating mines and land holdings of more than 95,600 hectares in Peru and Mexico. Fortuna is financially stable and has no long-term debt or hedging programs. FVI is forecasting 4.4 million ounces of silver production for 2013 and had $68M in cash and short-term investments in first quarter of 2013.
Fortuna Silver Mines is positioned for sustainable growth with two, 100%-owned operating silver mines and extensive property holdings in Peru and Mexico. Formed in 2005, the company has established a reputation as an efficient mine builder and operator. Today, Fortuna is one of Latin America's fastest-growing silver producers with production forecast to grow from 4.0 million ounces of silver and 20,700 ounces of gold, plus base metals, in 2012 to approximately 5.4 million ounces of silver and 31,600 ounces of gold, plus base metals by 2014.
Fortuna's land package of 95,600 hectares offers attractive opportunities for driving organic growth. A 51,000-meter drill program is underway to examine multiple silver and gold targets at the San Jose and Caylloma mines.
While all of the news above sounds good, we were surprised to see that 2 insiders are selling and this has caught my attention:
Durant, Ganoza, J.A. is the President and Chief Executive Officer:
Sold 24,000 shares on August 22th, between $4.50-$4.56 and holds 32,100 shares and options to purchase 1,363,902 shares.
Ruiz-Conejo, J.M. is the V.P. of Operations and closed out his share position.
Sold 95,000 shares on August 15th, between $4.31-$4.43 and closed out his position but still has options to purchase 541,892 shares.
In our research, we also found that the Chairman of the Board, Simon Ridgway holds a meager 560 shares but has options to purchase 377,900 shares.
While there may be many reasons for selling, if you are looking to buy the shares, this might not be a good time. If you already own the shares, the question is 'what do I do now?' The shares closed at Friday, August 23rd at $4.39 on the NYSE.
In my case, I recently owned a small number of shares in Fortuna Silver and I didn't like the fact that 2 insiders were selling, thus, I just closed out my position and will seek out other opportunities.
Endeavour Mining (OTC:EDVMF)
Endeavour Mining is a gold producer delivering growth. Endeavour owns three gold mines producing more than 300,000 ounces per year in Mali, Ghana and Burkina Faso. Endeavour's annual gold production is forecast to exceed 400,000 ounces per year during 2014, including the start-up of production at the Agbaou Gold Mine in Côte d'Ivoire scheduled for Q1 2014. The three producing mines are showcased below:
TABAKOTO GOLD MINE (80%), MALI
The Tabakoto Gold Mine is located is southwestern Mali, close to the Senegal border. Production was restarted in 2009 and in 2012 Tabakoto produced 110,301 ounces. Mining in 2013 is from the Djambaye open pit as well as the Tabakoto underground mine. Ore is processed through a 4,000 tpd plant and gold is recovered through a standard gravity-CIL process. Development is proceeding well on a second underground mine, Segala, which represents approximately half of mineral resources. Underground drilling is ongoing to convert resources into reserves. In addition, there are numerous opportunities to target additional resources on the Tabakoto property as well as the nearby Kofi project.
NZEMA GOLD MINE (90%), GHANA
The Nzema Gold Mine is located in south-western Ghana, approximately 280km west of Ghana's capital city, Accra. Nzema began full scale production in April 2011 and produced 109,447 ounces during 2012. The Nzema mine consists of open pit contractor mining from a chain of shallow oxide pits along the Salman trend plus the Adamus pits 8km west of the plant. Ore is processed at the 1.6 Mtpa to 2.1 Mtpa plant (depending on ore type) and gold is recovered through a standard gravity-CIL process. The processing plant is connected to the national power grid. Exploration is currently underway to explore additional oxide resources with the objective of increasing mine life.
YOUGA GOLD MINE (90%), BURKINA FASO
The Youga Gold Mine is located approximately 180km southeast of Ouagadougou, the capital city of Burkina Faso. Youga has been in production since 2008 and produced 91,030 ounces of gold in 2012. Ore is processed through a conventional gravity-CIL plant with a design capacity of 1.0 Mtpa. Youga is a hard rock, drill and blast open pit operation that employs contractor mining. Grid power is delivered to site from Ghana via a 21 km transmission line. In early 2013, Endeavour completed a Preliminary Economic Assessment on the Ouaré deposit which is located 40km to the northeast of Youga to explore the economics of trucking the Ouaré material to the Youga plant to add three years to Youga's mine life.
Endeavour Mining has a different story with five (5) insiders recently buying in the public market:
Milau, C. is Executive V.P. - Chief Financial Officer
Bought 72,000 shares from April 3rd to August 22nd between $1.28 - $0.90 and holds 272,548 shares and options to purchase 1,000,000 shares.
Woodyer, N. is the President.
Bought 50,000 shares on April 19th at C$0.90 and holds 447,127 shares and has options to purchase 4,953,400 shares.
Laing, D.C. is Executive VP of Technical Services
Bought 100,000 shares from April 10th to April 16th at $0.97 - $1.31 and holds 388,618 shares and options to purchase 990,680 shares.
Beckett, M.E. is the Non-Executive Chairman of the Board
Bought 30,000 shares from April 3rd to April 16th at $0.96 - $1.35 and holds 160,000 shares and options to purchase 500,000 shares.
Carroll, M.D. is Senior V.P.
Bought 20,000 shares on April 15th at $0.99 and holds 73,174 and options to purchase 495,340 shares.
To recap the insider buying at Endeavour Mining over the last 4 months we have 5 insiders buying and they all have significant positions. Other insiders have significant share positions as well.
Most of this insider buying was while the share price was declining and the insiders were buying early as the share price bottomed at $0.415 in late June and closed Friday, August 23rd at $0.89.
Due to the location of the company's properties in Africa the company is subject to possible geopolitical risk. As well, if the gold price retreats back to below the $1,300 level, revenues and earnings will be greatly impacted.
Investors must realize there is no guarantee that the shares of Endeavour Mining will continue higher, but it is always a good feeling being on the side of the corporate insiders.
For those readers interested in learning more visit our website.
Disclosure: Neither Dudley Pierce Baker nor CommonStockWarrants.com is an investment advisor and any reference to specific securities does not constitute a recommendation thereof. CommonStockWarrants.com is an online newsletter providing complete details on all stock warrants trading in the United States and Canada. The information and opinions expressed should not be construed as a solicitation to buy and securities mentioned in this service. I am long OTC:EDVMF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.