5 Resource Companies With Insider Buying During October 2012

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 |  Includes: CORVF, MDW, PIRGF, PPRTF, PZG
by: Markus Aarnio

When insiders buy shares on the open market, their companies are usually undervalued. Corporate insiders often have the inside track on their companies' prospects. Insiders probably wouldn't risk investing too much of their own money into their own companies unless they thought the stock might rise.

A study titled "Predictive and Statistical Properties of Insider Trading" by James H. Lorie and Victor Niederhoffer reached the following conclusion:

This study indicates that proper and prompt analysis of data on insider trading can be profitable, although almost all previously published studies have reached the contrary conclusion. When insiders accumulate a stock intensively, the stock can be expected to outperform the market during the next six months. Insiders tend to buy more often than usual before large price increases and to sell more than usual before price decreases.

It is also important to note that Gold (NYSEARCA:GLD) prices have made their highest monthly gains during the winter months (November - February) and the slowest growth have occurred in the Spring/Summer months (March - August) since 2002.

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We can also see that gold prices and Junior Miners (NYSEARCA:JUNR) are highly correlated markets.

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Based on these observations, I screened for resource companies where at least one insider made an insider buy during the October month. Here is a look at five resource stocks that I found. All these five stocks have seen insider buying by several different insiders this year.

1. Paramount Gold (NYSEMKT:PZG) is a U.S. based exploration and development company with multi-million ounce advanced stage precious metals projects in Nevada (Sleeper) and northern Mexico (San Miguel). Fully funded exploration programs are now in progress at these two core projects which are expected to generate substantial additional value for shareholders. Engineering studies are scheduled for completion in 2012 to define a development path and economic valuation for each project.

The 100% owned San Miguel Project consists of 150,160 hectares (371,053 acres) in the Palmarejo District of northwest Mexico, making Paramount the largest claim holder in this rapidly growing precious metals mining camp. The current work program at San Miguel is part of Paramount's strategy of expanding and upgrading known, large-scale precious metal occurrences in established mining camps, defining their economic potential and then partnering them with nearby producers. The San Miguel Project is ideally situated near established, low cost production where the infrastructure already exists for early, cost-effective exploitation. Paramount also owns 100% of the Sleeper Gold Project which is emerging as one of Nevada's largest new undeveloped gold resources. Here is a summary of all PZG resources:

MEASURED AND INDICATED RESOURCES
PROJECT Tonnes Au g/T Au Ounces Ag g/T Ag Ounces
San Miguel 23,918,000 0.83 639,000 70.0 53,559,000
Sleeper 326,963,000 0.33 3,479,000 3.86 40,606,000
Total 4,118,000 94,165,000
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INFERRED RESOURCES
PROJECT Tonnes Au g/T Au Ounces Ag g/T Ag Ounces
San Miguel 37,470,000 0.69 830,000 38.00 46,243,000
Sleeper 223,624,000 0.27 1,972,000 2.84 20,450,000
Total 2,802,000 60,693,000
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Insider buys

  • Christopher Crupi purchased 5,000 shares on October 23, 10,000 shares on June 28, 15,000 shares on April 20, 50,000 shares on March 30 and 50,000 shares on March 28. Christopher Crupi currently holds 3,949,766 shares of the company. Cristopher Crupi is the CEO of the company.
  • Christopher Reynolds purchased 20,000 shares on April 19-20 and currently holds 30,000 shares of the company. Christopher Reynolds is a director of the company.
  • Fcmi Financial Corporation purchased 1,170,732 shares on March 30 and currently holds 16,744,234 shares of the company. Paramount Gold has 147,546,184 shares outstanding which makes Fcmi Financial Corporation a 11.3% owner of Paramount Gold.
  • Carlo Buffone purchased 20,000 shares on March 29. Mr. Carlo Buffone serves as Chief Financial Officer of Paramount Gold.

Financials

The company reported the full fiscal year 2012, which ended June 30, financial results on September 5 with the following highlights:

Revenue $0.1 million
Net loss $12.1 million
Cash $20.0 million
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Analyst opinion

Dahlman Rose and Co. initiated coverage on Paramount Gold and Silver Corp. on July 15, 2010 with a price target of $9.06 and as of January 2012 the increased price target is $11.13.

My analysis

There have been eighth insider buy transactions and two insider sell transactions this year. The stock is trading at a forward P/E ratio of 2.99. The Preliminary Economic Assessment of the San Miguel Project is scheduled for the end of this year. For the Sleeper Project in Nevada the Preliminary Economic Assessment was released on September 13. According to the PEA at $1618 gold (the spot price on July 3, 2012), the total pre-tax net cash flow is estimated to be $1.9 billion, the net present value at a 5% discount rate is $1.2 billion and the internal rate of return is a robust 40%. The stock is currently trading just above its 200 day moving average which could be a good entry point for the stock.

2. Midway Gold Corp. (NYSEMKT:MDW) is a precious metals company with a vision to explore, design, build and operate gold mines in a manner accountable to all stakeholders while assuring return on shareholder investments.

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Insider buys

  • Kenneth Brunk purchased 12,000 shares on October 3, 12,000 shares on September 25 and 26,000 shares on September 19. Kenneth Brunk currently holds 69,000 shares of the company. Kenneth Brunk is Chairman, President and CEO of the company.
  • John Sheridan purchased 10,000 shares on September 14 and currently holds 13,000 shares of the company. John Sheridan serves as a director of the company.

Financials

The company reported the second-quarter financial results on August 7 with the following highlights:

Revenue $0
Net loss $4.2 million
Cash $4.4 million
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On July 6 Midway Gold closed its previously announced unit offering in Canada and the United States for aggregate gross proceeds of $15,694,799 through the issue of 12,261,562 units at a price of $1.28 per unit, including the partial exercise of the over-allotment option. Each unit consists of one common share and one-half of one common share purchase warrant. Each whole warrant will entitle the holder to purchase one common share at a price of $1.85 per share for a period of 18 months following the closing of the offering.

Outlook

Midway's goal:

  • Develop a production profile of 180,000-200,000 oz/year within 5 years.
  • Pan project into production by 2014.
  • Leverage Pan development and permitting experience to Gold Rock.
  • Gold Rock project into production by 2016.
  • Expand known resources by drilling from cash flow.

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Analyst opinion

There is only one analyst covering the company:

Stifel Nicolaus Initiated on June 6, 2012 Buy rating $2 target price
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My analysis

There have been four insider buy transactions and there have not been any insider sell transactions this year. The Pan project will be the first one in production by 2014. The Pan project has a Net Present Value of $344 million at $1900 gold price. The company's total resource base is 6 million ounces of gold. The 200 day moving average is currently at $1.5 which could be a good entry point for the stock.

3. Corvus Gold (OTCQX:CORVF) is a resource exploration and development company, focused in Nevada, Alaska and Quebec, which controls a number of exploration projects representing a spectrum of early-stage to advanced gold projects. Corvus is focused on advancing its 100% owned Nevada, North Bullfrog project towards a potential development decision and continuing to explore for new major gold discoveries.

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Insider buys

  • Quentin Mai purchased 9,200 shares October 19, 25,900 shares on October 17 and 157,600 on September 21-27. Quentin Mai is Vice President, Business Development.
  • Jeffrey Pontius purchased 2,100 shares on October 18. Jeffrey Pontius is the CEO of the company.
  • Daniel Carriere purchased 83,200 shares on September 21. Daniel Carriere is a director of the company.
  • Anton Drescher purchased 45,000 shares on September 21. Anton Drescher is a director of the company.

Financials

The company reported the first-quarter fiscal year 2013, which ended August 31, financial results on October 11 with the following highlights:

Revenue $0
Net loss $0.6 million
Cash $5.6 million
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Corvus Gold announced on October 16 that it had arranged a non-brokered private placement of up to 3,250,000 common shares at a price of CAD 1.07 per share for gross proceeds of up to CAD 3,477,500.

Outlook

Near-term production:

  • North Bullfrog - New Nevada gold discovery, potential rapid, low cost mine development for late 2014
  • Terra - Partner funded Alaska gold production beginning 2012

Base Case Gold Price Sensitivity Analysis - North Bullfrog Project
(all values in constant 2012 US$)

Gold Price ($/Oz) NPV5% ($M) NPV7.5% ($M) IRR (%) Payback (yrs)
$1200 $63 $46 18.2% 7.3
$1300 $118 $94 28.8% 2.6
$1400 $173 $141 39.1% 2.0
$1500 $228 $189 49.4% 1.7
$1600 $283 $237 59.6% 1.4
$1700 $338 $285 69.7% 1.2
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My analysis

There have been 23 insider buy transactions and 30 insider sell transactions since May 2012. The North Bullfrog Preliminary Economic Assessment [PEA] shows Net Present Value of $338 million at a $1700 gold price. The stock is up 200% year to date. The 200 day moving average is currently at $0.9 which could be a good entry point for the stock.

4. Premier Gold Mines (OTCPK:PIRGF) is one of North America's leading exploration companies with a high-quality pipeline of projects focused in proven, safe and accessible mining jurisdictions in Canada and the United States. The company's portfolio includes significant assets in world class gold mining districts such as Red Lake, Musselwhite and Geraldton in Ontario and the Battle Mountain and Carlin Trends in Nevada.

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Insider buys

Financials

The company reported the second-quarter financial results on August 14 with the following highlights:

Revenue $0.1 million
Net loss $6.5 million
Cash $60.1 million
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Premier Gold Mines announced on October 22 that it has completed a previously announced bought deal public offering of 7,030,000 common shares at a price of $6.08 per common share and 3,004,950 flow-through common shares at a price of $7.08 per flow-through share for aggregate net proceeds of approximately $60.8 million.

My analysis

The stock has a $11.25 price target from the Point and Figure chart. There have been 10 insider buy transactions and eight insider sell transactions since May 2012. I believe the next major catalyst for the stock will be the Preliminary Economic Assessment of Trans-Canada project to be completed in Q4 2012. Trans-Canada has a mineral inventory that exceeds 3.6m oz of gold. The stock is currently just above its 200 day moving average which could be a good entry point for the stock.

5. Passport Potash (OTCQX:PPRTF) is a publicly traded corporation engaged in the exploration and development of advanced potash properties with its major focus on a previously explored potash property in Arizona. Passport has acquired a strategic position in the Holbrook Basin with land holdings encompassing over 121,000 acres.

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Insider buys

  • Michael Brauser purchased 92,500 shares on October 22, 110,000 shares on October 17, 50,000 shares on September 19 and 25,000 shares on September 14. Michael Brauser currently controls 14,650,196 shares of the company.
  • Joshua Bleak purchased 57,500 shares on October 17 and currently holds 4,443,188 shares of the company. Joshua Bleak is the President and CEO of the company.
  • Phillip Frost purchased 150,000 shares on October 15 and currently controls 30,139,611 shares of the company. The company has 172,751,863 shares outstanding which makes Phillip Frost a 17.4% owner of the company. Phillip Frost's net worth was $2.4 billion as of September 2012.

Financials

The company reported the second-quarter fiscal year 2013, which ended August 31, financial results on October 15 with the following highlights:

Revenue $0
Net loss $3.3 million
Cash $2.8 million
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News

Passport Potash announced on September 27 the receipt of an updated NI 43-101 mineral resource estimate, effective date September 7, 2012, for its Holbrook Basin property in Northern Arizona. The updated resource report covers approximately 37% of Passport's land holdings. Here is a table of the updated report:

Average Grade KCI (%) Mass of Mineralized Material [MMT] KCI Mass [MMT]
Measured Resource 14.50 25.43 3.69
Indicated Resource 14.93 252.97 37.79
Inferred Resource 12.96 673.84 87.29
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My analysis

There have been six insider buy transactions and there have not been any insider sell transactions since September. Passport's near term goals are to complete the Preliminary Economic Assessment [PEA] by Q1 2013 and the Feasibility study by Q1 2014. The production is estimated to begin in 2016. The stock is currently trading near its 52 -week lows which could be a good speculative entry point in anticipation of the PEA announcement in early 2013.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OTCQX:PPRTF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.