Monday, May 9, 2011

ECU Silver May Be Ready To Make A Big Move

ECU CEO Michel Roy released a letter to shareholders with a complete update on operations today.  Before I get on my soap-box and highlight the salient operational points, I would like to first re-print this quote from the letter with regard to the inexorable, illegal manipulation and price-capping of this stock that has occurred for several years now: 
ECU's stock also appears to have received excessive pressure from trading patterns which appear designed to suppress the stock price. Management considers this to be a serious concern and is in discussions with legal counsel regarding the nature of this activity and potential recourse.
One of the largest shareholders has been meticulously and laboriously keeping track and recording the market-making activity in this stock for about 4 years, at least.  Eveyone of us with decades of trading experience have evaluated this data and it is unequivocally illegal manipulation, likely in conjunction with a rogue blogger who operates out of Peru.  I even believe Citadel Capital, the Chicago-based hedge fund may be the lead perpetrator.  Having said this, the shareholder referenced above has filed several complaints with the regulatory officials in Canada - I have seen some of these complaints - and of course the complaints have been arrogantly and summarily dismissed.  It is beyond absurd but not unexpected given the corrupt nature of the regulatory bodies governing both Wall Street and Bay Street in Canada.

Now, having gotten that out of the way, here is the letter:  LINK

For whatever reason, the market seems to overlook many of ECU's key accomplishments to date, the most significant of which is that they are systematically exploring and proving what turn may turn out to be one of the largest silver deposits in the world.  One of the big criticisms of ECU has been that the metallurgy of the deposit is not economical.  ECU has spent a lot of time and energy disproving this by building a milling operation which has been processing stockpiled ore and converting it into gold/silver/etc concentrate which is used to help substantially fund ECU's continued drilling activities.  You tell me if  you think this sounds like its deposit is not feasible: 
ECU has increased revenue over the past five consecutive quarters, enhanced by the successful negotiation of the sale of a 13,000 tonne stockpile of processed material containing gold pyrite. Revenue in Q4 '10 was over $6.4 million, almost 200% higher than the period five quarters earlier. Altogether in 2010, metal sales increased year over year by 250% for gold, 144% for silver, 568% for lead, and 375% for zinc. Although the sale and delivery of the gold pyrite stockpile has been completed, management expects revenue from production to improve when the company mines in recently-developed stopes containing significantly higher resource grades...An accelerated development program is underway to advance additional veins, and mining levels, to a stage where mineralized material can be extracted from more mining stopes, thereby increasing production.
The entity that purchased the gold pyrite was one of the largest multi-national gold and silver miners in the world.  In my view, one of the most significant aspects of this milling operation is that it should expedite the pre-feasibililty/feasibility process once ECU is ready for that stage of mine development.

Currently ECU is in the middle of drilling a Mass Sulphide Zone (MSZ).  One of the most compelling features of what ECU has discovered and proved so far is that they have not found the ultimate "source" of the veins it has been uncovering.  While ECU's last resource report contained a statement from the engineering and testing firm that prepared it that essentially said that the depost may contain close 1 billion ounces, it is thought by many of us that discovering and defining the MSZ could add another 50% to ECU's resource.

I think the biggest impediment to ECU's stock achieving a more realistic and comparable valuation, besides the smear campaign being waged from seedy corners of the market and illegal trading activities which are allowed to fester unfettered by the regulators, is the fact that ECU's share base has 308 million shares outstanding.  Most junior stock investors, for whatever illogical reason, would prefer to invest in companies with less that 100 million shares.  Of course, relative value is about understanding and defining relative valuation. 

In that regard, let's compare ECU to Great Panther (GPL), one of the silver market darlings.  We own GPL as a trading play, by the way.  GPL sports a $450 million market cap and reports having 12.8 million "measured and indicated" ounces of silver (including silver equivalent) and a total of 21 million ounces, including inferred.  $21/total ounces per share of valuation.  Hmmmm....let's look at ECU (and I would like to say that ECU makes it significantly easier to find this information).  ECU has a market cap of $237 million on top of a resource of 40 million "measured and indicated" and 430 million including inferred.  55 cents/oz per share.   If you're like me, you're scratching your head on that one.  Now, granted there's a story behind GPL and they are producing silver and that production is on target for some nice increases.  But the disparity in valuation is absurd.  And in my valuation assessment of ECU, I'm not giving any credit for "potential" resource as outlined by Micon.

In terms of trading, I took profits for myself and some profits for my fund when the stock traded over $1.10 a few months ago.  I have a fiduciary responsibility to my investors (which includes me) and we had been riding some positions we put on when the stock was below .60 cents last year.  But we always have a large core position in the fund.  However, in this latest sell-off in ECU, some of which is obviously sector-related - but MOST of which has been due to excess shorting/naked shorting and end of day trading games each day - I have reloaded my personal position (I have been in this stock since July 2005, so I know it well) and have added substantially to the position in my fund.  This is one of the cheapest silver stocks that I'm aware of by any metric you want to use.  ECU should soon start releasing the first drilling results from the deep-drilling of the MSZ and will continue to do so over the summer.

Please read all of Michel's letter if you are interested in this situation and please, please, please do your own due diligence, which would include contacting the Company with any questions or informational requests.  I do not often pound the table on stock plays, as it only leads to complaints from disappointed people who buy the same stocks I buy.  However I am adamant in my view that ECU represents one of the best possible risk/return,  fundamental/value/trading plays right now in the mining stock sector.


  1. Any idea why a major hasn't bought them out at a bargain price?

  2. Not as much M&A going on period in the sector. I'm sure they've taken calls from low-bidders. I mean, you can ask that question about any number of junior mining companies. At this point I don't believe the upper management is open to selling the company because the stock is just way too cheap. And i don't think a major would come in a pay full price that assumes 430mm ounces.

    If they have what I think they might have, this is easily a $3 stock.

  3. I hear the rogue blogger is in with the Illuminati

  4. LOL. We know who it is and it's more likely that he's in with the La Cosa Nostra/Gambinos.

  5. Any comments on Northbay Resources?

  6. Not familiar with that one. Is it worth taking a look at it?

  7. I think it might be. It's a penny stock with an interesting price history among other things. The ticker's NBRI.

  8. Most interesting interview with an Indian woman about gold from Casey.

    I find the following the best to the question - Do other factors affect why Indians buy gold?

    Answer - The stock market has recently fallen from many corruption cases - so people turn to gold.

    What I also find heartening is about Silver. Mostly poor people buy it. I think a big wave is starting in Silver which is a complete change where the marginalized people are now going for the throat. It is these people who get screwed the most with paper. Enough is Enough. Let the revolution role.

    This is why take downs will be bought aggressively (physical only) until there is a change in the world. I mean last week Silver traded 7 years of production in paper. This alone shows there is something really wrong in the paper market.

  9. A question - what do you think the Peru bloggers motivation is regarding ECU?

    Jim Rogers was a little vocal before the silver smash about having to go down etc? Read Jim Rogers blog regarding silver, especially on Friday 6th. So has he bought some more?

    Then what has gone unnoticed are his comments about the UK being next to get help. So lets wait for that to unfold. Osborne is saying today that the UK is far ahead of the curve regarding sorting its book. What trash!

  10. UK it seems to me is in almost as bad of financial condition as the U.S.

    Not really sure what Rogers is doing with his portfolio. He's been pounding the table on silver for about 10 years but he was cool on gold until about 5 years ago. Who knows? I think he's purposely opaque and I think he has a great investing mind.

    The blogger in Peru is an at-large stock analyst who publishes for Hallgarten and Company. He's a real slippery scumbag. I'm not sure if he lives in Peru or just uses a server in Peru for his blog.

    His motivation? Assuming a he has a few thousand followers, maybe even more, a big hedge fund can pay him to go on a smear campaign against a stock. This guy's work on ECU is blatantly wrong and slanderous. We have confronted him several times via email and he responds with unabashed arrogance and lies. Yellow journalism at its epitome. ECU is an easy stock to manipulate because it has such a large float that is a high percentage of individuals. Individuals use firms like Schwab and Ameritrade and keep stock in "street" name which makes it easy to borrow in order to short. It is easy to naked short because the Canadian regulators are even worse than their U.S. counterparts at enforcing the laws with regard to the financial industry. We believe Cidtadel is the main perp because when Citadel bought out Etrade, all of a sudden Etrade showed up as a huge seller (mostly) of ECU. Not coincidentally, Etrade is used by individuals who keep their stock in street name.

  11. One more point. This analyst has NEVER spoken with the Company despite having numerous offers to have Steve Altmann spend any amount of time going over everything. He simply refuses because if there were a record that the Company had specifically told him his numbers and assumptions are wrong, he could be sued for libel. The guy is a crook and so is/are the firm(s) for whom he "fronts."

  12. Thanks for your reply.

    I am not an American and don't live there - but this is absolutely tragic.


    Plus inflation keeps on rising.

    CEO pay keeps on rising

    Market keeps on rising

    Interest rates have no snowballs chance in rising.

    Something has got to give - and it will be catastrophic.

  13. NBRI - whoa - way too many hairs on that one. Looks like they have a 1 qtr worth of cash and they'll have to sell a lot of stock to do anything with their projects...

  14. dave, what do you think about cream?