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Hey Lou,
I am wondering what you think about Stornoway Diamond Corporation. I have been following them for about 3 years now done quite a bit of research and I tend to believe that this stock will reach $10.00 in 3- to 5-years. Do you know much about this company?
Thanks,
Mark.
Hey Mark,
Thanks for the assignment.
I haven't scrutinized the shares of Stornoway Diamond Corporation in a long time but its always informative to revisit a case and conduct an analysis. What has not changed is the company's pursuit of the Renard diamond project in Quebec.When complete, Renard will be the province's first diamond mine with an estimated life of eleven years with room for extensions. The major investor in the project is the province of Quebec through an investment corporation. The research conducted on your behalf indicates that management expects to reach ramp-up and commissioning in the first half of 2016 and commercial production after that.
The next big push for the company will be to secure the $880-million needed to finance construction of the mine. In the current environment money has been tight for all mining projects and that is the risk with SWY. If they announce a favourable financing deal you can expect that the shares will move higher on the news. Your $10.00 per share target may be achievable given that the stock has traded at those levels before, but let's not get too far ahead of ourselves.
An analysis of the charts will provide further and better particulars in the evaluation of these shares.
The three-year chart represents a situation where a long decline has given way to a range bound pattern with support near $0.50 and resistance near $1.00. The shares oscillated in the range twice in 2013 and started to pull back from the $1.00 range in October of 2013. What is observable on the extreme right hand side of the chart is that the stock is meeting resistance along the 50-day moving average.
Adding to the risk factors associated with SWY is the average daily volume over the last 30 days of 104,896 shares and the market capitalization of $118.66-million. Liquidity and competitiveness are the issues associated with these metrics.
The MACD on the six month chart generated a buy signal in early September of 2013 when the shares touched $0.50 and ran to $1.00 by mid October. By late October the momentum indicators turned lower informing the astute investor that it would be prudent to harvest profits. At this writing the RSI and MACD are again turning lower as the stock hits resistance along the 50-day moving average.
The SWY story is a speculative buy based on how far the management team has advanced the deposit. If you like the story and can tolerate the risks associated with the need to find $880-million under less than robust market conditions, keep in mind that an investment based on one outcome is a gamble just like betting on "Little Joe" in the fourth race at Belmont. In both cases you need to have it handicapped right to get paid.
Make it a profitable day and happy capitalism!
Have your own question for Lou? Send it in to lschizas@globeandmail.com.
Lou Schizas