2020-09-22

Anatomy of a 13-Bagger

"You have chosen luckily." Chalice Gold Mines has become a 13 bagger for me over the past 14 months. How did it happen? For me it was luck. They had some great drill results and discoveries. Why was I in it though? Last year while researching gold mining stocks, I came across a report discussing the potential for a rerating. The chart below shows how many successful mining stocks behave. If an investor expects a rerate, what he's saying is that either the market is incorrectly valuing the stock or that he expects positive results will propel the stock into the next run-up phase. In the case of Chalice, it was a good prospect for successful drill results. When the drill results hit, the stock took off.
I'm not a geologist, so I defer to analysts on the geology. Instead, I look at the chart. What I saw was a nice basing pattern. I purchased a small position and waited.
Then, the stock was delisted from Canada and the only listing was in Australia. This wasn't an issue because I can hold Australian shares in my account. I waited with the stock effectively "dead money" for months. Then in the midst of the pandemic they reported incredible drill results. The stock took off.
I've taken some profit from Chalice and purchased some new specualtive positions with the proceeds.

I hope to repeat my luck with Chalice by finding more combinations of good fundamental potential with an attractive chart. I stress the word luck because until there's a drill result, nobody really knows what is in the ground. Mining companies are "liars standing over a hole in the ground," but many haven't even dug a hole yet.

This is not my only strategy in the mining sector. This is for stocks that get a maximum of 1 percent of assets. I also do not recommend this as a strategy for finding a 10-bagger. This is a lotto stratgy for finding 20 to 50 baggers.

If you are starting out, the best approach is buying higher quality, lower risk stocks with ample upside potential before moving on to lotto plays like Chalice. For finding a 10-bagger, find a potential 5-bagger. Companies that have made a discovery, but are building a mine, might be in the "orphan" phase of their lifecycle. It's early in the bull market and many of these companies are still undervalued. One I like is Rio 2 (RIO.V, RIOFF). It's down about 5 percent since I bought it. If they follow through on production at current prices, they could be a 5-bagger. To get to a 10-bagger it would need to double one more time. Rising gold prices alone could deliver that extra double down the road. That's not a low risk stock, but it is far lower than something like a Chalice.

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