Technical analyst Clive Maund charts a gold miner that is advancing its project to production.
To look at the stock charts for Kerr Mines Inc. (KER:TSX; KERMF:OTC; 7AZ1:FRA) you would think that it owns nothing more than a moose pasture where wild-eyed geologists get out of helicopters in huge anoraks with hoods for photo ops, instead of which it owns a respectable gold mine in Arizona that is set to go into production later this year, and finished a financing late last year that apparently involved Eric Sprott, who is not known for “putting his foot in it.” The location of the company’s main asset in western Arizona, which is a gold mine despite having the somewhat misleading name of the Copperstone Mine, means that the company is likely to attract a higher caliber of employee since it is very close to Las Vegas, affording all employees, especially management (although they are unlikely to admit it in their annual report), the opportunity to leverage their gains by attending the various casinos during their time off.
We’ll start by looking at the long-term 16-year chart, on which we see that the company’s stock is extraordinarily cheap, historically speaking, being less than 1% of its price at its peak at its spike high above C$17.00 back in 2007. It is so cheap now that even Ebenezer Scrooge might consider sticking his hand in his pocket to buy some. For those who might argue that “Oh well, it’s so cheap because of dilution—there are 277 million shares in issue,” this is a good point to link to the company’s latest presentation in which we see that much of its stock is owned by directors and insiders and family funds, etc., leaving only 31% or 85.5 million shares on the open market. On this very long-term chart we can also see that the price is bumping along the bottom at a very low level marking out some kind of low Pan base, which we will now look at in more detail on a 6-year chart.
Our 6-year chart opens out the base pattern and reveals it to be a fine classic “Cup & Handle” base. The Handle part of the pattern has been building out for a long time now, about 16 months, and has taken the form of a bullish Falling Wedge, and its duration suggests that an upside breakout is drawing near. Of particular importance is the volume pattern, which is signature for one of these formations—heavy volume on the rise out of the Cup, followed by a dieback as the Handle forms, and although the On-balance Volume line still looks grim, the more telling Accumulation line, which is trusted more because it is intraday tick for tick instead of just end-of-day like On-balance Volume, has held up very well as the Handle has formed and is not far off making new highs, which is a very bullish sign that portends an upside breakout before long.
Moving on, the 2-year chart enables us to examine the Handle part of the Cup and Handle base pattern in detail. It shows that it has consisted of a stubborn and destructive downtrend that has wiped two-thirds off the value of the stock from the September 2017 peak. However, there are subtle signs that this long reactive downtrend has run its course, and that a reversal into a new uptrend may be imminent. These include the relatively buoyant Accumulation line already mentioned, the easing of downside momentum revealed by the MACD indicator, which has already climbed back above the zero line, the breakout from the inner channel shown that has occurred this month and lastly the 50-day moving average flattening out and turning up. Whilst these factors won’t necessarily stop it from sagging back again short term if the sector turns lower, they are certainly positive and increase the chances of a breakout into a new uptrend.
Finally, the 6-month chart shows that Kerr may be “coiling” ahead of a breakout above its 200-day moving average. It gapped above its 50-day moving average over a week ago and then stalled out at a resistance level at about C$0.145 where it is suspected that it is marking time to unwind its short-term overbought condition and allow the 200-day moving average to drop down closer to the price, before pushing on higher again. Whilst it could react back a little short-term, it is considered unlikely, given all the positive factors that we have observed, that it will make new lows again.
The conclusion is that Kerr is inexpensive here and good value, and a large quantity of stock can bought for a relatively small outlay. Whilst it could dip back short-term, downside is now considered to be trivial compared to its upside potential and it is rated a strong buy here and on any near-term dip which is likely to be minor. The stock trades in light but acceptable volumes on the US OTC market.
Kerr Mines website.
Kerr Mines Inc, KER:TSX, KERMF on OTC, trading at C$0.145, $0.11 at 11.00 am EST on 8th February 2019.
1) Clive Maund: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. CliveMaund.com disclosures below. I determined which companies would be included in this article based on my research and understanding of the sector.
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Charts provided by the author.
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
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