KRR - Get Ready to Back Up the Truck

When opportunity knocks, you need to be ready to open the door.

Suggesting anyone to buy KRR now is the epitome of trying to catch a falling knife. Suggesting they “back up the truck” is even more foolhardy. Then again, the early bird gets the worm, so I’m saying get ready. Would you have listened to such advice in early March 2020 when it was dropping hard from $2 to 88 cents, a drop of 59.6% in just 4 weeks? Would you have pulled the trigger on Monday, March 16 when the miners made an enormous wash out low from a huge gap opening lower and then roared up? If you did, you pocketed a gain of 410% by August. Not bad for having the knowledge, courage and conviction to take the trade.

Even after such a great run up, shareholders were complaining all of 2021, that the company was unloved and undervalued. Likely it was, as it wasn’t a well known, actively traded stock. Regardless, with it moving sideways for over a year, you needed to continue to trade it, accepting the fact that it wasn’t going to suddenly start getting the love and attention it deserved.

Finally, in 2022, all the love came pouring in. If you had been trading all of 2021, it might have been difficult to force yourself to ‘let it ride’ this time. And when it finally peaked at 7.55 on April 18, there was no clear reason to sell, but it was likely that the valuation was getting stretched. On Thursday, April 21, as it took a bungee leap from 7.20 for whatever reason, there is absolutely no excuse for not selling everything at 7.00 or higher. It made a low of 6.61 on the day and closed at 6.68 (-8.99%) and you were safely on the sidelines counting your cash.

Once it dropped to 4.90 and was holding that floor, which ‘matched’ the extended flat period in February before it broke higher, there was every reason for optimism. If you bought hard on May 24, that was a very reasonable decision and when it opened down the next day, it moved up from the opening so you wouldn’t have sold. When it topped out, the wise decision was to sell for a small gain and get back to the sidelines.

On May 25, Taylor Dart posted a new article, “Karora Resources: An Upgrade To The Investment Thesis”, stating, “Karora announced that it would be acquiring the Lakewood Mill this week, giving it a second mill and an immediate boost to 2.6-2.8 million tonnes per annum of processing capacity.” In Taylor’s opinion, “This is a brilliant move by Karora's CEO, Paul Huet, providing potential haulage cost savings, de-risking the growth plan, and beefing up the company's long-term potential.” And concluded, “Given that Karora has a rare mix of growth combined with likely margin expansion, I would view sharp pullbacks as buying opportunities.”

“The final news was the announcement of a ~$40 million bought deal at ~US$3.85 (C$4.80), with an option for a 15% overallotment. While some investors might be less enthused with the final piece of news, and dilution from a producer is rarely ever welcome, the other two pieces of news could be game-changers.”

After reading that, it was reasonable not to sell the shares you bought on May 24. Then again, markets do the darndest things. The hard drop on Friday, May 20, faking a breakout lower, followed by a hard move up, suggested upside potential. Then the drop on the news release could be your ‘last chance’ buying opportunity, or maybe it’s a double fake? Many people were upset by the dilution at ‘such a low price’. Sure, it would have been nice to have completed the deal when the share price was over C$7, but you can’t time business decisions based on irrational stock price movements. When it dropped hard on May 31, it was time to fold, even if the market was bluffing.

I made this comment on June 23, with the stock down to C$3.54, “The bought deal at ~US$3.85 (C$4.89) is looking like a great decision now! I swore I wouldn't re-buy as it was falling again but it seemed like C$4.80 and then $3.80 were bottoms, which was a heck of a discount from selling at $7. At 3.80 I was re-buying shares sold in February thinking I would never get a chance to re-buy, but wanted the cash. We're now a stones throw away from 2021 lows and the story is far better than it was then, so get ready to back up the truck again.” The next two days it moved up and Tuesday, June 28 it again dropped sharply and one should have sold.

Downtown10 commented, “I missed selling high, but I started nibbling as KRRGF fell below $3.20 (C$4.19). Added more today. Much lower and I’ll actually start reducing my cost basis. I never thought I’d see these prices again as well, certainly not with gold over $1800. Scary to think what we would trade at if gold dropped to $1500.” Let this be a BIG lesson for everyone. Do not 'miss’ a chance to sell high. And sell it ALL. Don’t hold some in case it goes higher. And do not ‘nibble’ at $4.20 and then not take the chance to sell for a small gain or break even as it resumes its plunge. June 22 was a clear day to sell at 4+ as it fell from open/high 4.07 and you had bought at the floor of 3.90+. In fact, Taylor recently told me he stopped out of KRR when it couldn't hold C$4.00. In 2 days, it dropped to a low of 3.47, -14.07%. Buying the next day, Friday, June 24, in the tight range of 3.54-3.64 was much, much preferable to buying the day before while it was still in free-fall.

Two trading days later, June 28, open/high 3.75 and falling hard. Exactly what you saw the week before so sell. Get out of the way of this avalanche. It doesn’t matter that it makes no sense, that it is already cheap, that it may suddenly open higher the next day and continue up. Get out of the way!

This time it fell for 6 days straight to 2.93, -20.8% from selling at 3.70 and locking in a small gain of 2.8%. If it had held and reversed, buy it back, it costs nothing to place a trade anymore and can be done with a click on your phone. Not doing that is like jumping off a bungee bridge with no way of knowing if you’re tied on to a bungee cord or not. If you didn’t sell, you’re now down -26.8% from not selling at $4 or down -58.1% from not selling at $7.

For sure, anything under $3 is a gift, but what if gold continues down to 1600? Or 1500? As Downtown10 said when KRR was over $4, “Scary to think what we would trade at if gold dropped to $1500.” Yet he’s hanging on for the entire roller coaster ride. A good friend decided to buy some at $3 since I had told him before that if we got to that price, it’s an absolute bargain. I cautioned him that he should still sell if it breaks lower. Naturally, he didn’t because it’s not what we’re wired to do and we justify it by saying it’s a small position. I do it as well but it’s really a bad, bad, bad idea.

The good news is that it can’t and won’t fall forever, and we may have seen the low on Thursday, July 14. The problem and fly in the ointment is gold itself. It can and probably will go lower. On Wednesday, I took a look at the valuation for gold and was surprised to see that from many perspectives, it’s actually overvalued.

Suddenly Downtown10’s concern for gold dropping to 1500 became clearly possible, and perhaps likely. I didn’t sleep well that night since I already had a gut feeling that gold and miners were going to drop further, before I did the gold analysis. Sure enough, Thursday morning had me in a panic selling mood, but the mistake was to be holding any shares at all.

Now what? Regardless of whether you’re holding shares underwater or back to your original buy price or thinking about buying for the first time, the answer is the same: It was good to buy off the low on July 14, ready to sell if it continued lower.

To get some perspective, I asked the expert, Taylor Dart. That’s when he told me that he wisely sold his KRR when it dropped below $4 and he remains completely bullish on the potential. How is it that all of us fools who read his article on May 25 didn’t sell as well? And how many times are we going to commit the same mistake in the future?

He agrees that trying to put a value on gold is nearly impossible and suggested that it’s better to consider the production cost, which is currently around $1600. Excellent advice and I remember in 2015, that was the discussion then. Gold was pushing below $1200 which was the generally accepted cost of production. Taylor also feels that miners haven’t been this cheap since 2015. Well, best take a look at 2015!

So, we could definitely go lower in price, but a floor is on the horizon and a rally will follow, so best to get ready ahead of time. The other good news is that the company itself is now approved to start re-buying shares. “July 15, KRR is pleased to announce it has received approval from the TSX to renew its normal course issuer bid to purchase up to no more than 8,492,971 of its issued and outstanding common shares. Purchases under the Bid may commence on July 20, 2022.”

For me, this is fantastic news and something I have been waiting for. People complained about the deal financing the mill at C$4.80, but the CEO, Paul Huet, has consistently made good decisions. They also have a history of only buying back shares when they are truly cheap. According to my records, KRR share repurchases: Feb.-Mar. 2021, 198k (C$2.94-3.29), Aug.16-17, 23k (C$3.25 ave.). Best to see what that looks like on the chart.

It seems like betting on Huet to make a good decision is like betting on Wayne Gretzky to score a goal. If you’ve been holding shares through this avalanche drop in the share price, remember, it’s like a 7 game championship series and you’ve been blown out in the first 3 games. Suck it up now and play like a champion. The strategy is clear. Hard offence when the opportunity is there and always be ready for a quick switch to defence. Once you get the lead, hang on to it. And there’s plenty of time left on the clock! There’s no need to pull your goalie. Be patient and smart and get ready to take advantage of this great opportunity.

And just like in any game, it’s important to get off to a good start and clearly KRR has been making its move early in the trading day, right from puck drop.

So, obviously, if the price starts dropping sharply at the open on Monday, sell. If it pushes up over 2.80 and back to 2.90, we may have seen the bottom. Stay defensive though with an alert or stop or both.

There are other gold miners that may do better or are safer. AGI is likely the safest and sturdiest of all the gold miners. Marathon has potential but is difficult to trade due to its low volume.

If gold mining isn’t something you want to invest in, there are many other opportunities that may be even better. Here are two that I like. XBI, a biotech ETF has already put in a bottom at 61.78 and could be on its way back to its 2021 high of 174.79. ASAN operates a work management platform and is down from a high of 145.79 last November. Sure, it was way overvalued then but with such growth potential, it will likely get there again, but it will take more than the 7 months it took to fall to a low of 16.23 on Friday. That’s below the low after its IPO in 2020, and may be a double bottom similar to XBI a few weeks ago.

I hope that gives you some options that will provide some big rewards.

Update, July 28: With the FOMC meeting in the rear view mirror and markets and gold pushing up, everything looks promising. KRR nearly hit C$3.30 today where I had a limit sell in for a trade. When it fell back to 3.16, I bought some more instead since my truck isn’t yet full. Taylor posted a new article, KRR - Buy The Dip, which emphasizes the business reasons it’s a bargain at current prices with as much as 200% upside to fair value.

Update, Nov. 5, 2022: In less than 4 months since recommending KRR, it has made a new low and provided an opportunity to double your money by trading the range.

In general, KRR has followed the price of gold. From the April high to July 14, KRR dropped a tremendous 66.5%. Since July 14, gold has trended lower while KRR has held up reasonably well and rallied strongly on each gold rally.

If gold continues up, KRR will take off, so careful not to sell early. If gold drops again, take gains on KRR and wait to re-buy lower.

Taylor Dart, the key person to follow regarding gold producers, currently thinks IAU, i-80 Gold, is an even better buy than KRR and feels it has the potential to perform like KL, that rallied from $1.60 to start 2016 and topped $50 in August, 2019.

Below is IAU. Will it top $50 in 3+ years? Perhaps it’s another once in a lifetime opportunity, again. I’m certainly taking a swing, hoping for a home run.

Update, Sun. Dec. 11: Hopefully you took a swing at IAU as it’s up 53.6% since I suggested it, and I haven’t sold any. In fact I’ve added on the recent dips expecting it to blast over $4 soon and then I’ll trade a portion.

KRR also roared higher. I traded a bit of it and sold some on Nov. 4, unfortunately, and didn’t get a chance to re-buy. Lesson: Don’t sell at previous trade levels when it makes a jump and looks likely to break through prior resistance.

I was expecting a drop this past week since gold and miners typically drop in advance of all FOMC meetings and the next one is Wed. Dec. 14. Some other miners did drop and gold has stalled, so there may be some lower prices coming and then, who knows! FOMC days are always a complete crap shoot.

In general though, several trusted sources are bullish gold and miners for next year, including Avi Gilburt who wrote on Friday: Gold And Silver May Be The Outperforming Assets For 2023. “We're seeing signs that the consolidation is almost done, and a major rally is about to begin. .. As we stand today, I'm watching this market quite intently, as it seems to be setting up for a potentially strong rally for 2023. And, I'm looking toward getting aggressive on the long side in the complex again.”

What he’s saying also is that you’re not too late, if you’re still on the sidelines. “So, what I'm looking for in the coming weeks in the metals complex is for a corrective pullback to take shape. Should we see that corrective pullback take shape, and then see the market rally over the high struck before that corrective pullback began, that would signal the resumption of the bull phase I expect to see in 2023.” Perhaps that pullback will happen this coming week.

5 months later, Sunday, May 14, 2023, Happy Mother’s Day! :

Hopefully you applied everything you learned in 2022 and locked in a tidy gain of 115% in less than 3 months from the October low. It’s not rocket science and a 5 year old could draw the trendlines. I presume you took gains and/or sold on a stop recently near the 5.60 top and re-bought on Friday at a tidy 10% discount in 3 days.

In my original article, dated July 17, 2022, I suggested “AGI is likely the safest and sturdiest of all the gold miners.” Like KRR, it was basically flat till taking off with gold in November and it actually started earlier, on Sept. 28 with gold’s initial move up.

In my November 5 update, I wrote “Taylor Dart, the key person to follow regarding gold producers, currently thinks IAU, i-80 Gold, is an even better buy than KRR.” A month later I wrote, “Hopefully you took a swing at IAU as it’s up 53.6% since I suggested it, and I haven’t sold any. In fact I’ve added on the recent dips expecting it to blast over $4 soon and then I’ll trade a portion.” It did finally push hard over $4 but quickly fell on the same day so selling out on a stop at $4.10, just below the opening price of 4.11 had you safely on the sidelines and avoiding a 32% drop.

Once it held 2.80 and knowing the extra drop was based on a news event that had no merit, it was a welcome chance to load the boat again and with extra shares as it started a push higher. Selling those extra shares at 3.50 made a lot of sense, especially knowing the nature of this stock which is evident from the weekly view.

Good luck going foward!