By: Tomas Ronolski - AllPennyStocks.com News

Thursday, August 15, 2013

The markets can cumulatively turn a cold shoulder to an industry, perhaps based only on sentiment, not necessarily on just cause. For example, in 2012, homebuilders were still being punished to hit multi-year lows even though housing starts in September were at their highest level in more than four years. Investors that had the foresight to see the disconnect had the opportunity to grab shares of companies like PulteGroup, Inc. (NYSE:PHM) or Toll Brothers, Inc. (NYSE:TOL) as they reversed and delivered several-fold returns. When it comes to gold, analysts have been jumping on the bandwagon to lower 2013 targets with the decline in prices for the precious yellow metal over the past year. At the same time, the World Gold Council has said that India may hit a record level for gold demand in 2013, possibly exceeding 1,000 tonnes. China is consuming gold at a pace this year that has the country threatening to overtake India as the world’s biggest importer of gold. It seems that gold’s fall could be a little misguided and based primarily on fear that the U.S. Federal Reserve is going to taper its monetary stimulus, not on what’s happening with gold globally.

Major gold producers are seeing a rise in value as investors see the opportunity. Shares of Barrick Gold Corp. (TSX:ABX) have risen from lows of $14.22 to above $20 in six weeks (40% gains); shares of Goldcorp. (TSX:G) are up 37 percent in the same time; and Kinross Gold Corp. (TSX:K) has climbed more than 30 percent.

Point being: Gold’s not done; it’s reacting to pessimism from investors thinking that taking away the punchbowl of quantitative easing by the U.S. central bank will put exorbitant pressure on the metal. The majority of those pressures could already be baked-in with the tumble in bullion in 2013.

Big miners will feel the impact of any future fluctuations in gold more than juniors when the U.S. Fed finally does announce unwinding its stimulus. On that point, a well-positioned junior like Sphere Resources Inc. (TSX-Venture:SPH.H) may provide the best opportunity for share appreciation in the near and long terms.

The company holds properties in some of the world’s most prolific, high-grade gold regions: Nevada in the U.S. and Red Lake District in Ontario, Canada. The adage of “if you want to hunt big elephants, go where big elephants have been seen before” resonates through the company’s portfolio. Sphere’s properties are enveloped by majors such as Barrick, Goldcorp, Kinross and Newmont Mining Corp. (TSX:NMC).

In Canada, the Dome/McManus property is just over a kilometer from Goldcorp’s Red Lake Mine that in 2012 produced 622,000 ounces at a grade of a whopping 23.92 g/t gold.

The 4,540-acrea Ziggurat gold property in Nevada has many of the same characteristics with Carlin-type gold and major miners enveloping the land. Neighbors to Ziggurat include Kinross, with its 15-million ounce Round Mountain and Gold Hill mines, and Newmont, with its 3-million-ounce Northumberland gold mine.

The Poker Flats property in Nevada is known to host Carlin-type gold mineralization and believed to also contain high-grade gold mineralization as well. In this case, the company believes that a fault system adjacent to Gold Standard Ventures Corp.’s (TSX-Venture:GSV) Railroad project passes straight through the Poker Flats property. Sphere is able to learn from their neighbor with Gold Standard already completing initial drilling and now allocating $3 million to commence a 9,000-meter drill program to explore the most promising targets. Gold Standard’s program will initially focus on extension of the high-grade gold mineralization encountered in the lower breccia within hole RR13-08 that intercepted 73.5 meters grading 3.67 g/t gold. The lower breccia is known to be a gold-rich environment, with the aforementioned intercept essentially open in all directions.

With the similarity of attributes of the Sphere property and the Railroad property, the direction of the fault and the close proximity of the two properties, it is probable that Poker Flats contains areas of high-grade gold as well. The company intends to focus its exploration effort on these areas of the Carlin Trend that has produced billions of dollars in gold over the years.

Sphere has embarked on a novel approach for funding of development of these promising properties through a corporate bond approach. It’s no secret that funding has become a challenge in recent years for miners, no matter how stellar the location of properties. Sphere delivered a message in July updating shareholders on its offering of up to US$10 million of a five year senior secured debt instrument through a private placement. Potential investors identified by its New York advisors have been assessed and a final update on the bond issuance should be coming shortly. This unique approach should give the company a competitive edge over other miners seeking funding as well as protect shareholders from the toxic financing that so many companies are forced to undertake in order to get boots on the ground at projects. Upon completion of the raise, the initial focus will be on immediate development at the Poker Flats project.

Sphere has to get the drill in the ground to prove-up their resources, but the odds look to be in their favor at Poker Flats. Historic drilling on their Canadian properties, along with the industry behemoths that are mining the local land, coupled with a non-dilutive money raise, all makes this junior miner look extremely promising. Given a market capitalization of a little more than $1 million for Sphere, as compared to $54 million for Gold Standard, it would not be a stretch to view the company as undervalued and under the radar. Gold will soon be again in fashion, so keep your eyes on this company. Proper due diligence is, as always, encouraged.

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