Loading: Equitas Resources (EQT.V) oversubscribes financing as volume increases

Here are some things I look for when I’m about to invest some money in a resource company, with the more of these present, the more the likelihood that I’ll invest:

1. I want it to be at the bottom of a drop, for something that wasn’t their fault, and which the market overreacted to

2. I want that drop to have settled and formed a new base

3. I want trading volume to have started to increase

4. I want a small nudge upwards on the back of that volume uptick

5. I want the company to have responded to their bad news with something other than ‘We’re going to drill more holes

6. I want any future financing to be fulfilled quickly, completely, and with the company receiving more than it was looking for

7. I want that company to be involved in a sector that is on the rise

8. I want to be able to look the CEO in the eye, give him shit for the company’s failures, and have him accept those failures without refutation, humbly, openly, and intelligently

9. I want that stock to be under $0.10

10. I want the company to have a marketing machine behind it, ready to get the story out to investors as it picks up steam

Not many companies have a lot of these aspects in place. Some have a low share price but no plan. Some have a marketing campaign in play but nothing behind it. Or no volume. Or management that couldn’t lie straight in bed. Some have a crappy sector, even though everything else is in play.

Almost nobody has everything on this list.

Equitas Resources (EQT.V) has everything on this list. Equitas is unknown, loaded up, freshly financed at an oversubscribed total, it has a CEO I would climb into a foxhole with as the mortars fly, and it walked into a threshing machine previously, leading to a massive sell-off that was way into the oversold margins.

Equitas had a nickel play that it liked, and a lot of other smart people liked it too. But it was nickel, and nickel sucks right now, and when they went and drilled the property, they missed.

Stock drops from over $0.20 to under $0.05, early holders clear out, and the thing drops into a big hole.

Perfect.

Why perfect? Because I missed that mess.

And because the mess, which one can put down to dumb luck – the CEO tells me they could go back with what they know now and drill again and be confident they’d hit the sweet spot next time – was not a company killer.

In fact, missing on your drill targets is far from the end of a resource company’s story. It happens. That’s why companies drill more than once. As you go, the targets get better defined and the resource (hopefully) gets bigger.

But none of this matters for Equitas because, again, nickel sucks. And because they just closed a deal to take over a gold mine.

Actually, a 60% stake in six gold properties, with four production licenses, in Brazil.

And gold? That doesn’t suck right now. In fact, gold is where you want to be at this moment in time.

Alta Floresta Gold, which is the private company Equitas completely stole, in my opinion, from its current owners, has over 184,000 hectares of Brazilian land to tap into.

Oh, another small thing: It’s producing.

Equitas has just jumped from an exploratory nickel play that would have been three years and a bunch of cash from producing a single rock, into a producing gold play right when gold is starting to rev its engines.

Let’s go to the company blurb:

“Alta Floresta Gold started processing alluvial gold mineralization in the Baldo zone in June 2015 with modest gold production to date. Equitas Resources intends to embark on a three-phase development plan at the Cajueiro Property. First, the Company plans to install a small gravity plant to process the saprolite mineralization at the Baldo zone. Once permits and the necessary supply agreements are in hand, the second phase of the plan envisions the construction of a carbon-in-leach plant between the Baldo and Crente zones. These two zones are less than 1 km apart. Initial metallurgical test work indicates that in excess of 85% gold recovery can be achieved through gravity separation and cyanide leaching. The third phase would be to increase production at the Cajueiro Project under a full production licence.”

Now the kicker: “The Company expects that this could be funded through operating cash flow.”

I love it when you talk dirty, Equitas!

Okay, they’re not yanking gold out of the ground on a four-foot wide conveyor belt just yet, but gold is being produced and with a little elbow thrown in, that could be ramped up easily enough, and will be without having to blow out the share structure.

Equitas just went to the street for $1m to get things moving in Brazil (the nickel play can sit in cotton wool for a bit), and the market handed over 50% more than they were asking for. Not insignificant when you’re talking about 1) a company that just experienced a icy mountain highway blowout with a hefty slam into the guardrail, and 2) every resource company in the land is taking the recent uptick as a chance to get long delayed financing happening.

$1.5m is a vote of confidence in Equitas, and it’s CEO, Kyler Hardy. And that’s my next point.

You should be friends with Kyler Hardy. He’s that kind of guy. He’s young, he knows his stuff, he’s confident and knowledgeable and works hard, but he’s also the kind of CEO that climbs the side of a mountain to make sure he’s not missing something on the other side, and comes back three hours later with his pockets filled with rocks. He’s the kind of guy who leads with the problem, rather than the excuse. He’s the kind of guy who a journalist doesn’t need to disarm, because he comes with arms open.

Kyler’s a great dude, and I want him to win, and would have no hesitation telling investors to take him seriously. He’ll answer the phone when you call. Unless he’s out on the side of that mountain.

Now, he may not stay on as CEO, because that’s what sometimes happens when a junior explorer picks up an operating concern, but if he’s on the board or shifts to operations or geo or whatever the hell, you want to be betting on people who actually want a mine to happen and get there in months, rather than sloth about sucking in more financing so they can have some crew of randos drill while they’re hitting the cabin for the summer.

And I want to get behind a team who will see an opportunity out of the corner of their eye, understand it fully, and have the balls to pivot towards it rather than stay the course on something that might take an extra three years to realize.

I’m not telling you to buy Equitas stock because, first, I don’t do that, and second, there’s work to do to fully flesh out the Brazilian operation before anyone is going to see returns.

But the Brazilian economy is in the toilet right now, so their costs will be negligible in running and upgrading that mine. So if you don’t like this turnaround, this retooling, this shift in focus from long range development to short term streamlining and revenues, well I don’t know what to say to you.

Stick it on your watchlist. Hundreds already have over the last few weeks, and more are sure to follow.

–Chris Parry

http://www.twitter.com/chrisparry

DISCLOSURE: Equity.Guru has a marketing agreement with Equitas Resources. So, yes, we’re part of that #10 point – the big fat marketing program about to gear up to increase investor exposure. That means we’re biased. Don’t buy a damn thing until you’ve looked it over hard and made your own mind up. 

But that watchlist thing? Yeah, you should do that right now. I’m telling you to. Do it.