Friday, January 7, 2011

Why The Dog Hasn't Barked

Decade Resources is a company that's had some very good drill results on the Montrose deposit of its partially-owned Red Cliff property. Recent results include 25.91 metres of 10.94 grams/ton of gold and 7.01 metres of 5.68 g/t gold. Other results from different holes in the same Fall '10 drilling program are less spectacular, but some of them are good. Junior explorers are hot now, and Decade ostensibly should have taken off on its findings.

But, it didn't. Unlike many explorers, Decade is well below where it was in the spring. When those above-mentioned results were posted, the market yawned; the stock went nowhere.

There are two reasons explaining why it would be stuck in the muck. The first one is plausible, given that the heat in the exploration market is relatively new. Decade isn't visible, so it's been lost in the shuffle. Other, more visible companies have caught the plungers' fancies but Decade hasn't. If this explanantion is true, then Decade will rocket up eventually - once it "arrives."

The second explanation is, the drill results aren't what they seem. Once obvious reason is that those two holes were anomalous. In a sense they are, because they were the best of the program. The other holes detailed in the press releases (here and here, respectively) don't show very high values. The first press release, though, does show a few drill core widths that are also encouraging.

Moreover, the 2009 drilling program for Montrose shows several drill core intervals that are comparable to the two best results from fall '10. Buried within are some impressive numbers.

So what could be wrong?

It takes some digging through Decade's website - specifically, digging through a technical report to find a map of those drilled holes. [Long .pdf file.] What it shows is, the tops of all those holes drilled - on the surface, where the drilling rig's been stationed - are all in a stright line spanning only 100 m. Several of those holes were drilled from the same surfacce location, with the drilling rig tilted to go into the ground at different angles. As much as six holes were drilled from one spot on the surface in this way.

So, there's not much wrong with the drill holes in and of themselves. What's off is the closeness of them. Those very good grades and widths in the drill-core samples match up to a small area and volume.

It's possible that Decade will drill a hole that's far away from the ones already drilled and strike a bonanza grade; that would likely make it take off, because it would suggest the deposit is much larger than it appears now. But, there's little more than general geology and hope backing that find up right now. It would be a game-changer, but there's no real evidence to suggest that such a game-changer is waiting there to be drilled and found.

In my opinion, that's why Decade stock sunk earlier and is bumbling along right now. Here's a one-year chart of it, from

The moral of the story: If you see an exciting news release but don't see the stock take off, you've gotten a clue to investigate the company further - to do your own due diligence - so as to find out what's off. In some cases, in many cases when the market's quiet, there won't be something wrong with the story. In a quiet market, though, you'll have to wait for some time for the significance of the results to be recognized. That takes patience, and sometimes faith.

In a hot market, like the junior exploration market is now, a stock not moving on eye-catching results adds further reason to burrow in and find out what might be wrong. Doing so builds up a habit that should be exercised with a stock that does take off - for good reason, or no reason. Finding what's off in stocks like Decade is good training for finding what's off in a stock that's rocketing upwards. Some go up because of a feeding frenzy and little else. Due diligence is the best way to avoid being needlessly burned.

Disclosure: None - I don't own any Decade.

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