Millrock Resources Highlight

October 7, 2011

Our Vulture View Looking Ahead (for the Little Guys). (Original from September 25 GGR)

With that small, graphic example of the economic earthquake underway, needless to say that most of the smaller, less liquid and more speculative miners and explorers that we use a portion of our trading line to „game‟ here at Got Gold Report were taken behind the barn and summarily shot this past week. True panic, cascade-style low-volume selling occurred on some of them. When there are many sellers trying to get out, and they just don‟t care what the price is at the time, then the price can move!

We think it is important at times like these to remember that in a panic selloff, "value" becomes an abstraction, a theory. Instead, the raw and brutal laws of pure liquidity show their absolute dominance in such times. When there are more than a million shares of an issue on offer, but only a few tens of thousands of shares on the bid (or less), the price contest is no longer fair or for that matter, accurate.

We think it helps to view the shares of the small resource companies we love to game here as more like long-term options. Options that don‟t expire unless the company does. Options can be very volatile and options traders are used to that high volatility. So should we be.

Speaking in theoretical terms about no particular company, when there is panic in the air it really just doesn‟t matter what the price of something is. … We really mean that.

Vultures learn not to worry so much about price at times like now and like we saw in 2008. Really, what difference does it make what something sells for in a panic? It‟s not a real "value," you know. It is a distressed, on-sale price, nothing more. Nothing has changed about the company we like very much, except that the market cap has fallen off a cliff. It‟s cheaper now. We can own more of it for the same money, assuming we have some, isn‟t that a good thing? We are certainly not going to sell at a panic price, so why does it matter to us?

Except for the issues we really, really want to add shares in, a panic sell-down is merely our chance to understand exactly how much volatility is possible for the other issues we hold or track, even in an anomalous, panic event. That‟s easy to say, we know, but to the extent one can adopt that kind of philosophy it really will make life more pleasant. Nasty sell-downs are just time killers to Vultures, moving the eventual day of profit taking farther out in to the future. Page | 4

Ah, but for the issues that we really, really want to increase our "size" in, these anomalous panic sell-down events are true gifts from the Trading Gods. It is a chance to add shares in the companies we have developed strong confidence in at super-bargain prices. Isn‟t that what our reserves are there for? To deploy into super-bargain prices on the companies we really like, or perhaps the ones we sure did want a piece of before but they got away from us…

Consider the chart just above as an example of how even "good companies" can get panic sold into extremely low prices. This happens to be a chart for Millrock Resources, a company my good friend Brien Lundin (who writes the popular Gold Newsletter and runs the New Orleans Investment Conference) was pounding the table on in late 2008, when the world seemed to be coming to an end, then at 5-cents a copy. We thought then that Brien was probably right and took a Vulture sized position in Millrock. Believe it or not, in mid-2009 we also took part in a private placement in the company at four times our original entry price (at .20), such was our confidence in the management team and in my guru buddy.

So that our point here is not lost, let‟s state it clearly. We have long since taken profit on MRO.V once, to get to Free Shares, twice to reduce size and to exercise our options, thrice to get to Free Shares on the options, and a fourth time to get to our most coveted position, to Trophy Shares, which we hold most of to this day. Trophy Shares have earned the right to stay in our „port‟ until doomsday, or until we become disenchanted with management or the company (which we view as unlikely in the MRO.V case).

The point is simply that Millrock had no business trading down to 3-Canadian cents each. It had no business trading then less than 40-cents or perhaps 30-cents, let alone all the way to single digits, but when there are only sellers and no buyers it just does not matter a whit what some small resource company with light liquidity and little or no institutional support "ought" to be priced. It ends up being low-priced-to-the-extreme by an irrational and panicked market.

Millrock – and many other stocks we follow - proved the theory that extreme mispricing is not only possible, it is expected during times of severe market stress. Please don‟t take this as being cavalier, but so what?

We figure that even if we plunge into another 2008-style abyss, the world is going to want gold and silver above all other assets, and therefore it will also want the miners and explorers that are looking for and producing them.

During the panic phase, there seems to be nothing but down on the charts, but the panic phase will not last forever. As card-carrying Vultures, we have already waited patiently and attempted to buy our various positions at what should have been overwhelming support in any normal market. In some cases we waited until the issue we track reached our coveted „Stupid Cheap‟ before we pounced, so we are in at already "low" levels in a normal, but beaten up market.

In a panic scenario, even if our positions trade to as much as 50% or more below our entry (and who cares if it does in a panic), the vast majority of other shareholders in that same company paid a ton more.

What is surprising to us is that when we look back over the charts from 2008 we are struck by just how few shares actually traded below a certain level on so many of the Little guys we track. Take a look again at the Millrock example above as evidence. The 2008 collapse for MRO.V was definitely not a high-volume affair. (That can make it challenging to put on a position in size near the ultimate lows).

The good news? Well, it may sound Pollyanna to say it in the current environment, but we can say with authority that once the panic subsides (and it WILL subside at some point), once the extreme negative liquidity event expires, guess what? An amazing transformation occurs over a relatively short period of time. Seemingly as if a switch is thrown the liquidity turns from hugely negative to modestly positive. Optimism and positive liquidity begins to take hold and presto, it doesn‟t really take all that much buying pressure for the stock to move! Look again at the Millrock example above. From 3-cents to $1.05 in two years is at least a 30-bagger is it not? In December of 2008 when the world felt like Armageddon revisited, one million shares of Millrock could be had for $30,000 (if one was patient and diligent on the bid then). That same million shares would peak two years later at just over $1 million.

That‟s the power of penny leverage. The vast majority of people who attempt this game get frightened and they panic-sell when the "pain" gets to be too much to bear. A Vulture is wired differently. It is Vultures who are there to buy when others are panicking.

How many market-wide panic opportunities are we likely to get in a trading career? Believe it or not, most people can count them on one or both hands with digits left over. Panic-motivated extreme sell-downs are rare, but temporary opportunities. To be welcomed, to be embraced and to be taken advantage of – in the market‟s chosen timeframe, not ours.

Vultures, … ahem, true Vultures, are immune to panic, worry and fear. No, that‟s close, but not quite right. True Vultures become excited and energized by the fear, panic and worry of others.

Indeed, we pretty much live for it.


"Are you a Vulture or a mouse?"


Other VB Notes

Vultures can access all of the full-size Vulture Bargain charts and our "VB Possibles," the Vulture Bargain Companies of Interest or VBCIs by logging in to the subscriber pages. We are constantly updating and commenting in those charts, and that is where we intend to do most of our "communicating" about the VBCI issues. The list is too large to comment separately on all of them in this format, and indeed our intention is to reduce the number of VBCI issues over the next little while to a more manageable number. We have placed notations in some of the issues that we intend to remove so they don‟t go off the list without any warning. Removal from the list is not necessarily a direct comment about the company. We want to remove some, so some have to go, that‟s all.

We came very close to naming two new VB companies with this report, but with the possibility of a panic-sell still evident, we decided that new VB‟s will have to wait and can always be done separately in special updates. For those who are interested the two companies we strongly considered were Pinetree Capital (PNP.T) and Millrock Resources (MRO.V). That would have been the second run for Millrock for us, but it fetched up above our buy target before we could get any word out.

Conclusion: Having missed our chance to reduce size ahead of a scary September, and having already deployed nearly all of the amount of our BWC that we had earmarked for "The Little Guys," we concluded last time that we had "more or less "made our play" for the 2011 Vulture Bargain Hunting Season." We were hopeful that we were about to move into a better environment for small resource companies a month ago, but instead a we got what appeared to be a September to Remember in all the wrong ways! This time, at least for us, the signs of a full-blown Charlie Foxtrot didn‟t show until it looked like one might be getting underway. A major meltdown possibility seems now, on Tuesday, September 27, to have been averted – maybe, but again we missed our chance to exit about half our positioning "in all but a few companies." We said last time that the few we will retain all of our positioning even if we thought "the worst" included "Timberline Resources, Trade Winds Ventures, Riverstone Resources, Constantine Metal Resources, Lincoln Mining, and Northern Tiger. (Not including Trophy Shares which have earned the right to stay in the „port‟ until doomsday)."

Well, what can we say, except that Trade Winds rewarded our confidence and our appetite for the others is very much the same – except we are now in panic liquidity vacuum watch for now and for the near future. We are thinking cheap around here, very cheap for additions, or not at all. Vultures will know when we have called the "all clear" when ALL of the blue panic targets have been removed from the VB and VBCI charts in the subscriber section. Until then we are very opportunistic birds in "Vultureville."

(Ed note: A majority of this offering was written on Monday, September 26, for delivery early on Tuesday. However, unavoidable distractions prevented delivery until Tuesday afternoon.)

Until next time, AGAIN think cheap when adding or not at all and good Vulture Bargain Hunting!

Disclosure: The above contains opinion and commentary of the author. Each person should study the issues carefully and, as always, make their own informed decisions. Disclosure: The author and/or his family currently holds a net long position in the following "Vulture Bargain Candidates of Interest" or "Vulture Bargain Stocks" mentioned in this report or within the last year: Timberline Resources (TLR), Paragon Minerals** (PGR.V), Hathor Exploration** (HAT.V), Bravo Gold (BVG.V), Millrock Resources** (MRO.V), Riverstone Resources* (RVS.V), Constantine Metal Resources* (CEM.V), Rye Patch Minerals** (RPM.V), Nothern Tiger Resources (NTR.V), Golden Predator Resources (GPD.TO), Northern Freegold Resources (NFR.V), Aldrin Resources (ALN.V), Lincoln Mining (LMG.V), Thundermin Resources (THR.T), Trade Winds Ventures (TWD.V), Canada Energy Partners (CE.V), Dorato Resources (DRI.V), Arcus Development (ADG.V), Argus Metals (AML.V), Corvus Gold (KOR.TO), Manson Creek Resources (MCK.V), Tarsis Resources (TCC.V), Pinetree Capital (PNP.T) and currently holds various other long positions in mining and exploration companies.

The author receives no compensation from any company mentioned in this report with the following exceptions: Bravo Gold, Millrock Resources, Rye Patch Gold, Timberline Resources, Constantine Metal Resources, Norvista, Lexam VG Gold, Calvista and Trade Winds Ventures are sponsors of

Last updated September 23, 2011 *Denotes holding Free Shares or **Trophy Shares only.

Disclosure: The author and/or his family hold long positions in all the VB companies.

As always we expect all Vultures to do their own full due diligence and to never rely solely on anything we say.

Every Vulture is responsible for himself … as it should be. Please review our relevant disclosures located on every GGR web page. Caveat Utilitor.



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