Published in collaboration with Against All Odds Research
New Found Gold (TSXV:NFG)
Stock is a short with >50% expected downside
Every once in a while a stock chart defies gravity as the market falls for a story. New Found Gold is one such story. The company holds a 1500 square km land package in the Newfoundland province and is reporting spectacular drill results from the Queensway gold project. Since the IPO last August, the company has had no trouble grabbing market attention. The founder Collin Kettell runs the popular podcast Palisades Radio and is well connected within the resource industry. Billionaire Eric Sprott owns 19%. Rob McEwen of Goldcorp fame and founder of the eponymous McEwen Mining is a shareholder with a 7% stake. Quinton Hennigh is a director and Novo Resources is a shareholder with a 10% stake
The shareholding pattern is one reason the stock has shot up so much. The float is only 21%. But the current market cap of C$1.9B is not just excessive - it is unheard of for a junior at NFG's stage of development. Investors are basing this valuation purely on the merit of the people involved in this story and the drill results reported thus far. There isn't even a resource estimate or any metallurgical test work done.
Development stage assets, with a mineral resource estimate or perhaps a PEA could potentially command such a lofty valuation, although that is also extremely rare. The only such example that comes to mind is De Grey Mining (ASX:DEG), with a resource estimate of 2.2 million gold ounces (of which 1.1 million is in the Inferred category) and current market cap of A$2B.
The closest comparison to NFG is explorers like Great Bear Resources (TSXV:GBR), Rupert Resources (TSXV:RUP) and Wallbridge Mining (TSX:WM) which have flirted with a C$1B market cap - again with no resource estimate - but no higher. Tudor Gold (TSXV:TUD) with its 27.3M gold equivalent ounce Treaty Creek project has a current market cap of C$467M.
New Found Gold is not worth more than C$500M in my opinion. And even that's pushing it.
IBKR shows the shares are shortable. You may have trouble locating shares and the fee rate shown is 12.58%. And the float is small (21% of shares outstanding).
But trees don't grow to the sky. All it would take is a little selling pressure, perhaps triggered by one of the institutional investors or the all-star cast of individual shareholders, and the stock should drop like a stone. The money is made by going short now and awaiting that event, even if it takes a couple of attempts at this trade before it works.
Good Trading!
Kashyap