Kaminak Gold (OTCPK:KMKGF) learned that some large players in the mining space are financing Kaminak Gold's Coffee Project. Specifically, the company learned that Ross Beaty and Zebra Holdings will be issued C$6.75 million in stock at C$80/share. Given that this indicates that well respected players in the industry believe in the project, the shares soared more than 30% on Monday on high volume.
On the one hand this seems to go against my initial thesis, in which I argued that I felt the company failed to incorporate several stressors and contingencies in its preliminary economic assessment. For instance I felt that the company failed to stress test the possibilities that its costs would rise, and it used a 5% discount rate in generating its headline NPV figure, which is far too generous. As a result, I argued that investors in the stock should realize that their position was speculative and contingent upon either a new discovery or a larger, well financed party taking interest in the project.
It turns out that the latter happened. On the one hand this is great news. It gives the project credibility and it means that the company will have more capital to further develop the Coffee Project. But on the other hand, the stock is up a whopping 32% on the news and there are more shares outstanding. With this in mind, and with the reversal in the direction of gold prices, I reaffirm my position that investors should wait for a pullback. However I am amending my thesis to reflect the fact that this is a stronger speculation stock than I initially thought, and I think aggressive investors can consider taking a position should the shares fall by 10% - 15%.
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