Genuity Capital Analyst: Goldsource Mines Shows Potential, Rated a Buy

Goldsource Mines Inc. (GXSFF.PK) became the talk of the junior mining world last spring when its search for diamonds in Saskatchewan turned up coal.  Luckily for Goldsource, the discovery happened at the start of one of the biggest coal booms ever, and the company's shares shot from pennies to a high of C$19.60. Since then, they have plummeted back to earth and are currently at C$2.80.

Analyst Michael Gray of Genuity Capital Markets has picked up coverage of the stock and asked the question on everyone's mind: will Goldsource deliver a new thermal coal district in Saskatchewan? So far, he estimates that the company has potentially documented around 750 million tons of thermal coal with a combination of "hits" and "misses" in its drill program.

That is still short of the two billion tons or more that many investors will want to see, but Mr. Gray noted the company has "clear exploration potential." However, the geology appears to be complex.

He put a "buy" rating on Goldsource with a 12-month target price of C$9.00 a share. Some catalysts for the stock include results from its summer drill program, a large winter drill program, and an inferred resource estimate that is expected in the second quarter next year, he noted.

He also suggested that the project is well-suited to supply coal to customers since it has a rail line going through a portion of its property.

He wrote in a note:

If [Goldsource] can define a large, consistent thermal coal deposit with high calorific values, there is high potential in our view that the coal will find its way to North American markets.