Friday, September 03, 2010

Rye Patch Gold is Vulture Bargain #5

“Our ability to predict high-grade zones and then drill them is improving, and a core program will provide more insight into the controls and distribution of the high-grade gold,” noted President and CEO Bill Howald.

Because of the coarse gold, Rye Patch sent samples from two recent holes for metallic-screen assays. Re-assays of Hole 99 returned 54.2 g/t gold from the coarse fraction over a 15.1-meter interval, including a 1.5 meter section that returned 504 g/t gold. The original fire assay was 11.67 g/t gold over this interval. Hole 105 returned 7.32 g/t gold from the coarse fraction over 13.7 meters compared with 2.11 g/t over the same interval with a conventional fire assay.

Needless to say, Rye Patch now plans to re-assay all the gold mineralization encountered in this drill program using metallic screen methods. The recent results are welcome news after the company’s setback in early April, when Homestake Mining Company (a subsidiary of Barrick Gold) exercised its pre-emptive right to acquire Centerra Gold’s interest in the Ren gold property. That move short-circuited RPM’s plans to buy the interest for $42 million, and boost its gold resources by 1.4 million ounces.

As things stand now, Rye Patch’s gold resource inventory totals 1.2 million ounces of gold equivalent in the measured and indicated category, plus 2.7 million ounces of gold equivalent in the inferred category. The share price has yet to recover from the April sell-off, making the company a bargain for those with patience. – Brien Lundin, Gold Newsletter (Emphasis ours.)

Well, what can we possibly add to Brien’s update?

First of all here is a link to their most recent press release which tells us about the recent re-assays at Willco:

http://www.ryepatchgold.com/s/NewsReleases.asp?ReportID=414734&_Type=News-Releases&_Title=Rye-Patch-Reports-504-gt-Au-from-Metallic-Screen-Assays-at-Wilco

How about the fact that we have been tracking RPM.V for quite a while now and our own impression that it seems to be putting in our favorite time to add shares of the guru favorites, the “bottom consolidation.” Discovering bottom consolidations for sure is only possible in retrospect, so attempting to game them in real time is a bit of an art. Essentially bottom consolidations form when the price of an issue get so bloody cheap that there are enough people who think it’s too cheap and willing to set up on the bid that it has trouble going any lower, virtually no matter the volume, the market conditions or the news.

We could very well be early. RPM certainly could trade lower than its recent nadir of $0.12, but if so we don’t think by all that much. We certainly can point to very large bids (VLBs) set up in the $0.11 to $0.135 range for evidence of bidding support as of Thursday, September 02, 2010. Hundreds of thousands of shares worth of “support,” and we think it very possibly represents our goal of “overwhelming support.”

Below is our own longer-term tracking graph for Rye Patch. It shows the gut-wrenching harsh sell-down of investor disappointment selling which occurred shortly after Barrick opted to pre-empt Rye Patch at Ren. That event was “too much” for some holders of the stock and the initial disappointment selling morphed into panic selling of the first order, sending RPM.V into a range we have to view as “Stupid Cheap” or SC.

Notice in our notations that there has been consistent, favorable insider activity virtually all year. Insider activity is not enough by itself to tempt us, but favorable activity outweighs unfavorable activity every time and doesn’t hurt our own assessment of the situation. As everyone has already heard, insiders sell for all kinds of reasons, but they only buy (and buy in size) for one reason – they think the stock is too cheap.

Looking in closer at the trading action, here is our shorter-term tracking chart:

We think our friend Brien’s read on Rye Patch is on the money. We like the idea that RPM is taking another look at those assays that contained free gold and coarse gold with a metallic screen assay, prompting a new core drilling program and further metallic screen assays, and that is just enough of a potential near-term catalyst to satisfy our catalyst criteria. We think that RPM has been sold down to an SC level, out of non-lethal news disappointment selling. We think we see significant support trying to form right now. We note significant and persistent insider buying. We also think that management is worthy of our interest and because of all that as well as the other interesting opportunities that the company is working, we think RPM has the potential to at least triple in the next two years or less.

Therefore, we agree that for the strongest, most patient Vultures who can stand the high-risk environment and who won’t go overboard in size, Rye Patch Gold may be considered as Vulture Bargain #5 as of today, September 3, 2010. Since this post is being published prior to the open on Friday, we will use yesterday’s close as our “mark.”

Rye Patch closed Thursday at C$0.135, having tested its low of $0.12 earlier in the week.

Vulture Bargains 2010:

#1. Bravo Gold (TSX:BVG.V or BVGIF) at C$0.18 June 25. Possible bottom consolidation C $0.17 - $0.225. Summer drill program near-term catalyst.

#2. Hathor Exploration (TSX:HAT.V or HTHXF) at C$1.43 July 9. Richest U-deposit found this resource cycle. Summer and upcoming winter drill programs key. Resource estimates to come.

#3. Riverstone Resources (TSX:RVS.V or RVREF) at C$0.49 July 9. Expanding large-scale shallow gold deposits in Burkina Faso. Probable increase to resources imminent. Excellent potential for positive news.

#4. Timberline Resources (AMEX:TLR or TSX:TBR.V) at USD $0.75 July 26. Idaho-based gold miner/driller. Developing low-cost underground gold mine in Montana, production expected 2011. Intriguing exploration possibilities Battle Mountain-Eureka trend in Nevada. Well-run. Undervalued. Underground drilling at Butte Highlands and in South Eureka potential near-term catalysts.

#5. Rye Patch Gold (TSX:RPM.V or RPMGF) at C$0.135 September 3. Aggressive accumulator of mineral resources growing a multi-million ounce portfolio of precious metals properties. Re-assays of coarse gold bearing RC samples at Willco showed high grade, bonanza-style results prompting a core drilling program there, a possible near-term catalyst. Disclosure: The author holds long positions in all of the VB companies.As always we expect all Vultures to do their own full due diligence and to never rely solely on anything we say. Every Vulture is responsible for himself … as it should be.

Caveat Utilitor.

That is all for now. Future new Vulture Bargain offerings will be reserved for paying subscribers, … the good people who make this service possible.