Possibility vs. Probability

Nov 20th, 2009 – Comment

A pull back in the shares of FWM to $3.00 would be a reasonable entry point for a stock with potential but trading on thin volume.


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Lou,

Do you have any thoughts on Far West Mining…they have a copper deposit in Chile and some drilling going on in Australia.

Thanks,

Dave

Hi Dave,

The most frequently asked question in my investment universe is do you have any thoughts on this company or what do you know about that company. To be honest with you at the moment the question is asked the answer is no I don’t currently have any thoughts nor do I know anything about the company in question.

But having posed the question leads to an investigative and evaluative process that has me asking lots of questions, gathering information, and coming up with an answer to the single most important question you need to ask when looking at a stock. Does the potential reward justify the risk?

Far West Mining Ltd. ( FWM TSX) is focused on their Santo Domingo copper, iron project in chile. The project is forecast to have a 20+ year mine life and management says that production is possible in 2012/2013. The operative term to my mind is ” possible”.

cindy

Its not approaching zero, its zero.

Its possible that I could date Cindy Crawford in the next three years but the probability of that happening is zero. Its not approaching zero, its zero.

The question that has to be answered in the case of  FWM is what is the probability of getting into production at Santo Domingo within the next three years? Quadra Mining Ltd. ( QUA TSX) has stepped up to the plate with $10m in a recently closed private placement. The deal was priced at $2.04 a unit consisting of one common share and a full share warrant with a strike price of $2.75 good for the next 24 months.

fwm

The three year chart provides a view of the advance that FWM has enjoyed in 2009. The driver behind the gains was a series of reports expanding the resource base at Santo Domingo that took the stock to $2.00. The announcement of the Quadra deal in mid October set the stage for the next leg up.

fwm2The three month chart provides a look at the resistance at $3.80 and the MACD turning lower indicating that the upside momentum was losing steam.

The concern that I have with FWM is the thin trading volume. Yesterday it traded 2,000 shares. As Spinal Tap would say their audience is selective.

cuThe five year chart for copper shows an aggressive recovery from the lows and some resistance at $3.00. The strength of copper will contribute to the upside for FWM.

A pull back in the shares of FWM to $3.00 would be a reasonable entry point for a stock with potential  but trading on thin volume.

Happy Capitalism!

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