Alien Metals (LON: UFO) has just released an update to their drilling programmes at Donovan and San Celso. The results are, well, they’re just results really. They don’t show that there isn’t something there, something that huge value was being assumed for. They also don’t show that there’s some massive deposit previously unknown. They’re right in that middle ground where it’s difficult to extract a simple trading signal from.
The results from the drilling at the Donovan copper gold prospect showed some signs of interesting mineralisations. Not the sort of thing that has shouts of “There’s gold in them thar hills” but enough that it’s worth continuing to explore. The mineralisations are the sort of results that might lead us to think that there might be something worth mining there.
The results at San Celso, a silver project, were largely similar. Interesting mineralisations but no immediate claims of large concentrations of rich ore.
There is, of course, a certain art to reading these sorts of announcements. Phrases like “encouraging zones of alteration” and “highly promising for the potential presence” mean that no, nothing has been found other than indirect evidence that there might be something if we keep looking.
This being problematic for that clear view of Alien Metals’ prospects that we’d like to have before making a trading decision. The shares are down 6% today but as that’s within the spread that’s not something that should determine a trading stance. We need prices moves larger than that in Alien shares to be able to profit. We’ve also seen more positive drill results than this and yet Alien lost value upon announcement.
This means we’ve got to go back to basics in our valuation of Alien Metals. The basic mineralisation of the area tells us that there might be something worth mining there. The cost to be carried is of doing the work to find out whether there is. This leads to two possible future valuations. There is an economic deposit there, in which case Alien is worth more. There isn’t and so Alien is worth less and possibly nothing.
This is just how it works with junior miners at this stage of the process. The task is to discover economic deposits. The benefit is doing so, the cost is having to finance the work to try.
The risk is that there’s nothing that we – or the company itself – can do to make those deposits be there. It’s not possible to change strategy, or management, or tactics, and make the geology change. It’s just necessary to do the work and find out.
The next stage in the Alien Metals valuation process will be the detailed examination of those drill results. Once the metals values in there are known – the assay results which should come soon enough – then we’ll know more.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.