Saturday, May 31, 2008

Greencastle Resources (VGN)

Shares Outstanding: 42,267.005

May 30 Closing Price: 0.15 Target Price: .40 - .50

Recommendation: Strong Speculative Buy

OVERVIEW

One of the secrets to scoring huge profits as a junior resource investor is finding a stock that the "crowd" hasn't quite discovered yet, a company "flying under the radar" with superior management, strong fundamentals, and a great story just waiting to be told. Greencastle Resources fits that description perfectly, and that's why we're issuing a strong speculative buy on this TSX Venture Exchange company which closed Friday, May 30, 2008, at 15 cents. We strongly believe VGN is in the beginning stage of a major upside move that could see it reach all-time highs this summer. The purpose of this SolomonSmallCaps Report is to provide a quick overview of the investment opportunity with an update and further analysis to follow shortly.

Up until now, Greencastle's focus has been oil and gas and gold exploration. The company holds interests in three oil and gas properties in west central Saskatchewan (a strong revenue generating asset from a 2003 discovery), four gold properties in Nevada, and one joint-venture gold property in southwestern Niger, West Africa. Last year, Greencastle stepped into uranium exploration by entering into a joint venture with Energy Metals Corporation (now Uranium One) on a property in Wyoming. Greencastle is currently awash in cash and aggressively pursuing new opportunities, including coal in Saskatchewan.

A 15 CENT STOCK WITH NEARLY 10 CENTS IN CASH!

How often do you find a junior resource stock trading barely above its cash value with monthly revenue around $200,000? You would call that a nice little gem, wouldn't you? Well, that nice little gem is indeed Greencastle which just reported a first quarter net income (Jan. thru March) of $434,539 or .01 per share. Total working capital as of March 31, 2008, was $4,239,438 or 10 cents a share (8 cents in cash and cash equivalents).

The company's oil and gas royalty revenue for the first three months this year was $582,457, its second-best quarter in two years. Aided by strong heavy oil prices, and investments in public exploration companies (oil and gas) that are also doing extremely well, Greencastle and its shareholders are in an enviable position as management has no need to dilute the stock through a financing. The company has a significant and growing pile of cash to more than meet all of its needs this year and maximize shareholder value in the process.

Fully diluted, Greencastle would have only 50,708,005 shares outstanding, and another $2 million added to the treasury from the exercise of options (6,191,000 at an average price of 18 cents) and warrants (2,250,000 at 40 cents). Oil and gas royalties could add very close to another $2 million to the treasury by year-end, so there is no disputing the fact that this is a company on a very solid foundation which makes the investment risk-reward ratio extremely attractive.

MANAGEMENT

In CEO Anthony Roodenburg, Greencastle has a leader with a proven track record of entrepreneurship and stewardship. Roodenburg started this company with little money several years ago. While he is certainly not risk-adverse when sensible opportunities arise, he's also both cautious and conservative - traits shareholders can take comfort in as their CEO is not one who will foolishy squander Greencastle's resources. He's not a geologist - he's a businessman, through and through. He understands how a company should operate and while he's far from being a "promoter", he does appreciate the importance of share value. Roodenburg heads up a strong management team that also includes Dr. James Pirie (Director and President), a successful and respected exploration geologist for over three decades. Roodenburg has steered a smart and steady course for Greencastle whose asset value has grown to $7 million or nearly 17 cents a share as of March 31, 2008.

NEW OPPORTUNITIES

A key statement many investors may have overlooked in the company's latest news release (March 29, 2008) was contained in the second-to-last paragraph of that release: "The company continues to evaluate exploration and investment opportunities." As we stated above, Roodenburg is cautious by nature but he will pounce on opportunities when they arise which is why he applied for coal exploration permits in Saskatchewan shortly after Goldsource announced its discovery in April. The "conservative" side of Roodenburg is evidenced by the fact he has not shouted and screamed this fact from his office rooftop like other participants in this exciting coal play. He has been quiet and is patiently awaiting confirmation of Greencastle's permits from the Saskatchewan Ministry of Energy and Resources before proceeding with the next step.

We believe Greencastle will add other projects to its portfolio in the coming months, outside of precious metals and uranium, and will also likely increase its investment holdings in other juniors given its strong cash position and the recent substantial appreciation of its marketable securities.

GOLD EXPOSURE

Greencastle has four early stage gold projects (100% interest in each) on the Battle Mountain Trend in Nevada. Its Indian Creek property, located in the heart of the highly productive Cortez area approximately five miles north of the Pipeline open-pit gold mine, has attracted interest from several parties. We expect an Indian Creek joint-venture agreement will be announced soon between Greencastle and another junior.

Exploration is continuing on Greencastle's Koyria permit in West Africa where Orezone Resources is the operator.

BULLISH TECHNICALS

If you examine Greencastle's five-year chart, you will notice strong spikes in 2003 and again in 2006 and 2007. Historically, there is extremely strong support at 10 cents, and this year's bottom was .11. A low pan base has been forming in Greencastle since last September, and it now appears certain that a new uptrend has started which we believe could soon result in new all-time highs given the strong fundamentals here.

Volume indicators have been very bullish with Greencastle in recent days, weeks and months, and on Friday, May 30, VGN broke through its 200-day moving average with a close at .15. The stock's 100-day moving average has also turned positive, a very bullish sign, and the 10, 20 and 50-day moving averages are also heading north. All of this points to significantly higher prices in the weeks ahead. We are also very bullish on the Venture Exchange as a whole for this summer, with even stronger commodity prices, so the backdrop for Greencastle is very positive.

CONCLUSION

Quite simply, at current levels and even into the '20's, Greencastle Resources is an extremely attractive investment as a revenue-generating, cash-strong exploration company involved in oil and gas, as well as coal, precious metal and uranium exploration. This stock will face resistance in the mid-30's to mid-40's, but if there was ever a year VGN could blast to all-time highs, this would be it. The risk-reward ratio is highly favorable at current levels.

As with all investments, we recommend you do your own due diligence, invest only with money you can afford to lose, and never put all your "eggs" in one basket. Invest wisely, and we suggest taking at least half your profits off the table on a "double".