Orko Silver Corp. (OKOFF) was recommended at by The Mining Speculator at $1.77 in Investment Digest issue 671, dated May 19, 2012.
“I talked with several key people yesterday afternoon, including Orko CEO Gary Cope, regarding Pan American’s (PAAS) decision to pass on the La Preciosa project in Mexico.
“I spent most of last night agonizing and thinking over our dilemma now with Orko and how to guide subscribers, family and friends who own shares. It was a tough night.
“First, let me give some clarification on the comments from Pan American CEO Geoff Burns when he said, ‘After completing almost three years of exploration, engineering and project development work, we have come to the unfortunate conclusion that our continued participation in the La Preciosa project is unlikely to generate a rate of return that meets Pan American’s internal economic hurdle rate.
“I was very troubled by the highlighted part of this statement but now understand what was meant by this. At first glance one might jump to the conclusion that something is wrong with La Preciosa, but this is simply not the case. This is a very robust project that economically makes sense at $20 silver. At some point a major silver company is going to purchase this asset.
“The problem for Pan American in trying to acquire La Preciosa right now was that at their current share price of $21.31 a share, it would have taken a 30% dilution of their shares to acquire Orko’s flagship project. Pan American’s share price has been cut in half in the last year since their stock was trading well over the $42.00 level. This situation caused some obvious dissension within Pan American’s management team when it came right down to making this decision to acquire the much needed ounces La Preciosa offers. The Board simply didn’t want this much dilution right now, especially after acquiring Mine Finders.
“In my opinion walking away from La Preciosa after all the time, money and effort is a real embarrassment and loss for Pan American Silver, but such is the world of mining.
“Our dilemma now is what do we do with our shares of Orko and where do they fit within our recommended list.
“The reason that Orko Silver was recommended in TMS (The Mining Speculator) and listed at number one on our TOP 10 was because we expected a buyout from the premiere silver company in the world. Unfortunately this is no longer the case.
“After writing this newsletter now for almost 12 years I have learned many things. One of the most important lessons is that when the reason you originally bought a company is no longer the case, it is time to move on. Ignoring this lesson in most cases can be quite painful as companies typically return to a much lower level as far as their share price is concerned. Am I concerned about this? ABSOLUTELY!
“With our current weak market circumstances and the ‘sell in may go away’ phenomenon coming up, I would say shares of Orko could hit the $0.75 cent to $0.85 cent level before solidifying during good market conditions or when silver prices are on the move again.
“That’s the bad news.
“The good news is that Orko now owns 100% of the project and can entertain multiple offers from other silver companies. Right now we have four who have expressed interest and one that is being very aggressive and is already combing through the data as I write this.
“Could we see another company come in and swoop this asset up in the near-term? Yes, it is possible but not likely, as these things usually take time, leaving Orko’s share price vulnerable to downside risk in the meantime.
“Ultimately, I do believe that La Preciosa will be taken out at a decent price and reward Orko shareholders, but we are now in more uncharted territory. Pan American was the known entity that gave us and the market confidence in our buyout hopes. Those hopes have been dashed.
“The problem for me as a newsletter writer in this kind of situation is that I have subscribers who own shares at various entry points from under $1.00 to over $2.00. As of right now, some are still above water, others are break even, and some are drowning at $1.45.
“What should we do?
“First thing I have to do is remove Orko from the number one position on our TOP 10 List. They no longer deserve this listing but will remain as a recommendation. I will spend more time thinking about this and decide next week where they fit within our recommended companies when the April newsletter comes out.
“Personally, I am not going to sell my shares. I will remain committed to the fact that this is a quality silver asset that will get bought out at some point at a much higher level. I realize that it is quite likely that the share price could suffer further downside risk in the coming months and leave it with each individual investor as to what you do for yourself.
“I have given you the best information I have to help in making your own personal decisions. I know this is not easy. Some of you may sell now and buy back if it goes lower. Some of you may just bail and others may continue to hold on for an eventual buyout.
“The official line of the Mining Speculator will be to SELL HALF of your position now and HOLD the Balance.
“As a newsletter writer these are the toughest calls to make, but we deal with each situation head-on based on the best information we have.”
- Greg McCoach, Mining Speculator, April 6, 2012