Nikolay Tomov
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Canaco Resources Inc. (CVE:CAN), (PINK:CANWF) Trying to Reach the Old Glory?

by Nikolay Tomov May 26, 2011
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The shares of Canaco Resources Inc. (CVE:CAN), (PINK:CANWF) seem to have put an end to their three-month fall on the TSX Venture Exchange. The last three sessions they are going steadily up, trying to regain the old glory. The stock is still very far from the 52-week high of $6.45 set in mid-February, though.

Canaco_Resources_-_Logo.jpgWe shall see if CAN will manage to form an uptrend, or another decline will start. For now, the mood is positive - buyers seem to be in control of the market. Within a week, the stock jumped by 28% on the CVE. Yesterday, the rise was reinforced by a large volume of 2.26M shares. This beats almost five times the average trading activity for the last 30 days.

The current up move of CAN might have been supported by a positively-sounding company announcement from Tuesday. In the release, Canaco disclosed the results from six diamond-drilling holes that targeted gold mineralization west of the Magambazi Main Lode at the company's Handeni project in Tanzania. Canaco states that the results outline a new high-grade mineralized lode at the Magambazi zone.

Canaco_Resources_-_Chart_-_26_May_2011.jpgProbably, the encouraging news impressed part of the investors and contributed to the shares' rise. Several earlier developments might also have a favorable effect on the future performance of the stock. Canaco is financially strong. In late March, the company secured a very huge financing by raising funds totaling $138M.

Moreover, Canaco is expanding. In the beginning of April, it announced its intention to acquire nine additional licenses in Tanzania, thus increasing its land position by 1,200 square kilometers.

Of course, not everything is fine for Canaco Resources. The company is still in the exploration stage, and has not commenced production. Accordingly, the business has not yielded any earnings by far. The net loss for the six months ended Dec. 31, 2010 was large - over $23M. The main part of it - $20.5M - came from stock-based compensation.

Canaco is raising capital by equity financing. This leads to high stock dilution. For reference, the average number of outstanding shares in 2010 has jumped by approximately 69% in comparison with 2009.

One final remark - the current market value of Canaco is $879M, which is way too much compared to the net worth of the company. This implies Canaco Resources is overestimated by investors. In such a case, will the shares be able to climb to their old glory and go beyond the $6 level?

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