Newrange Gold Corp. (TSXV:NRG / OTC: NRGOF)
“Where Exploration INTERSECTS Discovery”
When it comes to beating the market – earning an investment return greater than that of a specific benchmark – it seems that nearly everyone has a tip or trick to share. The problem is that many of these so-called sure bets are short-lived and often result in those who are less informed, typically retail investors, holding the bag. In this article, we’ll look at why insider buying is a great metric that can show if a company is worth paying attention to.
This is particularly true of industries like the mining exploration sector, where important information is often hiding within masses of geological and engineering jargon. That’s great for those with the technical knowledge to decipher it, but not so great for the average retail investor who may have trouble understanding what the information means and how it is relevant to buying, selling, or holding their position. Instead, smart investors rely on a variety of proxies to gauge the future success or failure of publicly traded companies and use this information to evaluate a stock’s value.
One crucial piece of information that all investors can gain valuable insight from is whether a company’s insiders, such as management, directors, or other major shareholders, are buying or selling shares of their own company.
Newrange Gold Corp. (TSXV: NRG, OTC: NRGOF) is a good case study of this phenomenon.
You may have heard of insider trading, an illegal practice where company insiders act on material information not yet available to the public. However, insider buying, where company officers, directors, or executives buy or sell shares of their own company based on publically available information, is perfectly legal and could be a strong signal for other investors.
Fidelity Investments manager Peter Lynch once said, “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.”
Intuitively, this argument makes a lot of sense; other than company insiders, who has a more accurate read on a company’s current position and future prospects? No one. Even when acting upon information that is already available to the public, company insiders are way ahead of analysts, portfolio managers, and other investors in their ability to action on it.
However, not every large purchase or big sell is indicative of an upcoming shift in the market; investors need to read into the transactions carefully, most notably the who, the what, and the why.
Some companies require new executives to purchase shares of the company; others provide favourable loans to encourage the purchase of company shares by executives. Either way, while this is a good business strategy, it is not a buy signal to outside investors. Similarly, insiders could be selling for many reasons – a house, a boat, a vacation – that have nothing to do with the company’s prospects.
When examining a company’s insider transactions, which you can do here on SEDI, pay attention to who has made the purchase. Those who are directly involved with the company’s day-to-day operations, like the CEO or CFO, will have more up-to-date information about the company’s outlook than someone on the board of directors. Transactions by multiple parties are also something to watch. One CEO could be wrong or overly optimistic, but if several insiders have all initiated purchases of their company’s stock, it sends a much stronger signal. Investors should also be prepared to buy and hold; insiders who are buying are doing so because they believe the company shares will increase, but those anticipated gains may be months or years away.
The mechanics of insider buying are often the strongest with small and medium-sized businesses, like Newrange, where information is more widely disseminated within the company than with larger companies.
In early February, as disclosed on SEDI, CEO of Newrange, Robert Archer, bought over a million shares of the company. On its own, this is an important signal. However, given that the company announced on February 8 its extensive drilling program at North Birch had commenced, the insider buying could also signal that the CEO has confidence in the winter exploration program’s potential results.
In this case, the insider purchase of Newrange’s stock proved to be partially accurate, when on February 23, it was announced that continued drilling at the company’s flagship Pamlico Project, located in Nevada, yielded the discovery of a new high-grade, oxide gold mineralization.
“The discovery of more high-grade gold mineralization close to the Merritt Zone is an exciting development and appears to validate our hypothesis that multiple high-grade zones surrounded by halos of lower grade exist over a much broader area,” commented Archer. “While historic mining may have removed some gold from the hills, we are confident that other, buried zones remain to be found.”
The North Birch Project, located east of Red Lake Ontario, is situated close to another previously profitable producer and has shown promising gold showings just south of the main target, which has yet to be drilled.
If you are interested in a gold exploration company where the CEO is actively investing in his own company, take a look at Newrange Gold Corp. (TSXV: NRG, OTC: NRGOF).
Newrange is a precious metals exploration company engaging in the acquisition, exploration, and development of projects in promising mineral regions. Originally incorporated as Columbian Mines Corporation in 2006, by 2016, the company had grown enough to diversify into the US by acquiring the high-grade Pamlico Gold Project, located in the Garfield Hills of Mineral County, Nevada. The company changed its name to Newrange Gold Corp to reflect its increasing geographical diversification.
Today, Newrange continues to focus on delivering shareholder value through the exploration and development of favourable projects, including the Pamlico Project and the North Birch Project.
Disclaimer: NAI is being compensated for this content. Materials contained in this content are for information purposes only and is not intended to constitute an offering of securities in any jurisdiction. Nothing on this content should be construed as an offer, solicitation or recommendation to buy or sell products or securities.