Karora Resources (TSX: KRR) Finding Value When The Market Has Lost Its Mind (Flashback To March)

Karora Resources
  • TSX: KRR
  • Shares Outstanding: 645M
  • Share price C$0.78 (29.07.2020)
  • Market Cap: C$503M

Investors will have been closely observing the panic selling over the last few days. The FTSE 100 & 250 has fallen off a cliff edge and Wall Street has experienced its biggest drop since the Black Monday crash of 1987. Investor sentiment has been obliterated by COVID-19 uncertainty and by a reactionary response more similar to the aftermath of 9/11 than the global financial crisis of 2009.

These are horrific times for humankind, but what does the market crash mean for investors? If anything has served as a perfect example that the market is strongly influenced by sentiment, this is it. In this short series of articles, let’s take a look at some market valuations of a couple of my favourite stories from the last few years.

Karora Resources

Crux Investor has followed Karora Resources, then RNC Minerals, closely, penning numerous articles and conducting several interviews. Karora Resources caught our eye after Paul Huet took the helm in mid-2019. The CEO transformed Karora Resources from a flagging nickel producer into a robust and consistent gold-focussed producer. In our most recent interview with Huet, things were still looking up.

After stabilising Karora Resources and consolidating its share price for nervous investors, it looked to be the next stage for Huet’s company: growth. In our most recent interview, Huet took a firm, logical stance on the company’s royalty arrangement with Maverix Metals. He commented on RNC’s 2020 guidance (http://www.rncminerals.com/2020-01-23-RNC-Minerals-Provides-2020-Production-Cost-Guidance-and-Strong-Operational-Update) Things appear to be looking up for Karora Resources, with projected total gold production of 90,000-95,000oz, and that’s excluding any exciting contributions from coarse gold occurrences at Beta Hunt. Moreover, Huet and his team expect coarse gold in 2020 based on their interpretation of the Beta Hunt shear zone/Lunnon Sediment intersection horizons. The AISC looks a solid if unspectacular US$1,050-$1,200 per oz, but the introduction of an ore-sorter could bring this number closer to the magic US$1,000 per oz.

Huet then moved into the area of particular excitement for investors: growth. Exploration is a priority for RNC in 2020 as it looks to reward investors who have been more patient than most. The renegotiation of the Morgan Stanley Royalty at Higginsville Gold Operations (HGO) has unlocked an unexplored 1,800km2 land package. The Pioneer deposit, Two Boys extension, Paleochannel extensions, Baloo-Sluth trend, and Zuleika parallel mineralised structures all look promising. Karora Resources’ 2020 exploration budget of A$9.5-A$10 million, allocated across HGO and Beta Hunt, means the company has the capital to get this exploration moving forward nicely, and Huet’s strong management has given me confidence that this will be achieved.

However, if one is to take a look at Karora Resources market performance, they might get sweaty palms; that’s if they don’t know any better. Karora Resources’ share price is currently sitting around C$0.20; that’s down from C$0.48 less than a month ago. Panic selling has gripped the company’s stock, just like it has for every one of its peers.

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It’s time for investors to get real. Karora Resources has just achieved a remarkable turnaround. Real growth appears to be on the agenda for 2020, and operations are as solid as ever, but the share price has fallen? It doesn’t take an investment virtuoso to work out that this doesn’t make any sense.

In my opinion, there is no way a company like Karora Resources, that has performed so consistently since Huet took charge, deserves the kind of low valuation it is sitting at today. All Huet can do is keep on hitting operational targets, which I have no doubt he will continue to do.

The situation is clear: institutions have taken their profits off the table, and the reset button has not so much been hit, but rather smashed with a hammer. These market conditions are producing some bargain opportunities for brave contrarian investors with confidence in a company to pick up some cut-price stock.

If investors have confidence Karora Resources can keep producing as it has in the past and can ride out the storm until COVID-19 scurries off into the sunset, if could be a good bet for them right now. Karora Resources has a crucial edge over the competition: cash flow. It does not need to go to market and raise expensive capital in this current environment. It has plenty of cash for all its explorational plans.

Karora Resources is just one of a number of companies we’ll be covering in this series over the next week. If you judge market performance in isolation, you’re selling yourself short. Look at the history. Look at the context. Look at the facts. You could be onto a winner.

Looking back on this article, in hindsight, I was definitely proven right.

Company Website: https://www.karoraresources.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

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