Drill assays and the share price conundrum
THE DRILL SERGEANT: Many exploration companies become frustrated when the market either misses or ignores releases of drilling results, especially if they’re good.
It’s easy to dismiss such announcements as noise produced by companies designed to let their shareholders know that their investments are being spent wisely, however they can tell a studious investor so much more.
Recent research released by IntierraRMG has demonstrated an interesting correlation between good drill results and a subsequent rise in share prices.
“Despite the sharp reduction in drilling activity (as reported) during the [December 2012] quarter just ended, there have been some remarkable intersections during the past few months,” IntierraRMG said in its State of the Market Report.
IntierraRMG found some of the intersections announced during the December 2012 quarter had a significant effect on the share price of the project owners.
Ten day share-price gains of over 60 per cent were recorded by Newera Resources (ASX: NRU) and Greenpower Energy (ASX: GPP) after each company had announced encouraging drilling hits from their projects at Shanagan Uul and Mirboo, respectively.
The share prices of another eight companies jumped by more than 25 per cent in the ten days following a positive drilling announcement.
Source: intierraRMG
“Indicative of the mooted exploration activity (and markets) in the final weeks of the year [2012], only one of the 28 instances of share prices rising over 12 per cent (measured ten days after an exploration announcement) was in December,” IntierraRMG found.
“There were 17 such share-price rises in October and 10 in November.
“Indeed, even this one exploration share-price spike in December was by Newera, which had set the quarter’s record price gain during the previous month.
“Despite a share-price retreat between the two drilling reports, Newera’s share price doubled; demonstrating the abiding appeal of junior stocks.”
In his 2010 tome A Shareholder’s Guide to Investing in the Australian Mining Boom, perennial junior resources company director Allan Trench provided advice regarding the effect of drilling results, or lack of, upon an investment.
“Know when to fold,” Trench said.
“Ask yourself how wrong you are prepared to be.
“If the drilling program comes and goes, and the shares fail to rise, or worse still, fall, know when to call it quits.
“Invest on anticipation that a specific trigger will ignite interest in the shares.
“If that interest does not eventuate, exit.”
Coming in at number one for copper intersections for the December quarter last year was hole drilled by OZ Minerals (ASX: OZL) on its Carrapateena project, which returned 0.90 per cent copper over 1,492m (at a depth of 609m).
In second place was Blackthorn Resources (ASX: BTR) with an assay from its Kitumba project in Zambia of 3.02 per cent copper over 220m (at 206m).
Gold is never far from the end of the driller’s bit and the best result to come in for the shiniest commodity was from Pilot Gold with its 193 grams per tonne gold, over 12m (at a depth of almost 118m) on its TV Tower project in Turkey (for a grade-intersection value of 2,316m.g/t).
In second place during the quarter was 44 grams per tonne gold over 42m by ABM Resources at the Old Pirate project in Australia, which IntierraRMG said was noteworthy due to the fact it was from surface.
