Introduction: The Zombie Search and Rescue Mission is a collaboration between Allan Barry Laboucan of Allan Barry Reports and John Kaiser of Kaiser Research Online premised on the idea that not every zombie junior deserves to disappear, that some zombies are juniors with serious management teams whose goals were sabotaged by the Great Bear Market that began in 2011 and an assault by the financial sector and regulators on the Canadian institution of high risk high reward venture capital listings (see The Four Structural Changes that are killing the Canadian Resource Juniors - Dec 11, 2015). In the wake of a five year bear market more than half of TSXV listings in the resource sector ended up with less than $200,000 working capital, most of them with negative working capital at the start of 2016. Because of their inability to repair their balance sheets and stock exchange listing rules that result in suspension only when financials are not filed on time or stock exchange fees are not paid, these companies became known as "zombies": companies that were effectively dead as far as new wealth creation potential was concerned but whose shares were still able to be purchased by investors unaware they were buying the living dead. This generated an outcry in some quarters that these "zombies" should be purged from the TSXV; not surprisingly much of this outcry came from financial cartels eager to eliminate all potential competition outside their umbrella of "backed" juniors. Although the bear market ended during the last week of January 2016, the turnaround has benefited largely those juniors which had avoided zombie status. While the percentage of zombies trading below $0.10 has dropped, the number of juniors with negative working capital is still rising. It is the mission of ABL and JK to identify those zombies which deserve to be rescued, those that might deserve to be rescued, and those that should be left to wander alone towards their extinction.
A ZSRM Episode: Each episode focuses on a segment of the alphabet of the search results generated by the KRO Search Engine using the Zombie Criteria. JK and ABL engage in an interactive preliminary "investigation" of distressed juniors by using the KRO Search Engine and other KRO features to search for "zombie" companies and check them out in order to make a "yes", "maybe" or "no" decision as to whether or not the junior deserves to be rescued from the Zombie Wasteland. Where ABL and JK are unanimous about a yes or no, that company will be tagged as a Zombie Rescue Target - Yes or Zombie Rescue Target - No. The rest will be tagged as Zombie Rescue Target - Maybe. All of them combined are available through Zombie Rescue Target - All. The 3 zombie categories are available as Special Parameter criteria in the KRO Search Engine (the 4 links above are direct links which to work require one to be logged on as an active KRO member).
Zombie Criteria: a zombie is a listed and still trading junior with an apparent focus on the resource sector which has less than $200,000 working capital as of the most recent financials, but no worse than $1 million negative working capital, and trading below $0.10. The Zombie Search criteria consist of "listed and trading companies," and "only resource companies" in the Special Parameters box, "less than $0.10" in the Price Range box, "negative $1,000,000 to positive $199,000" ranges in the Working Capital box, and all the Project Priority boxes unchecked (the companies with no projects will otherwise not show up). The $0-$199,000 working capital range is included in the zombie definition because that is barely enough money to stay alive for another year, and in many cases the true working capital is negative because current assets include non-cash equivalents such as "receivables" that will never be received or "marketable securities" that have no bid. If the search does not deliver too many hits, clicking "all pages" after the first group displays will display the entire list.
Warning: All the companies discussed are in danger of being abandoned by management, bankrupted by creditors, harshly reorganized, privatized at negligible value, suspended or delisted because they lack the capital needed to repay accumulated debts and fund the ongoing costs of being a publicly listed company. The ZSRM discussions are intended as an educational description of how the junior resource space operates, not as a judgment on the viability of any company. Readers are forewarned that pervsity of the junior space is such that the zombies which deserve to be resurrected have a lower chance of being resurrected than zombies that deserve to disappear. Blindly investing in zombies tagged as rescue targets could turn out far less profitable than chasing zombies sentenced to death. Anybody interested in this form of extreme bottom-fishing, which yield extraordinary gains when done right, absolutely must conduct their own detailed due diligence!
ZSRM Business Rationale for John Kaiser and Allan Barry Laboucan: ABL operates Allan Barry Reports which conducts audio-video interviews, blogs about trends, and writes about Radar Screen Picks. The sole revenue source for ABR is sponsorship by public companies eager for eyeball traffic attracted to the content hosted by ABR. The quirky nature of the ZSRM episodes, the historical nature of the discussion, and the tantalizing possibility that some zombies may gloriously resurrect themselves attracts audiences to ZRSM episodes long after they initially aired. As part of each interview ABL updates audiences about sponsor companies. JK operates Kaiser Research Online, an information portal which covers all Canadian listed companies involved in the resource sector. Information wants to be free, but knowledge never comes free. KRO's sole revenue source consists of membership fees paid by users seeking the power of search applied to resource companies and JK's Bottom-Fish and Spec Value Hunter recommendations. ZSRM showcases the power of the KRO Search Engine and the information resources available to members who wish to conduct efficient "due diligence" on zombies and any other resource stock. ZSRM educates investors "by example" as to how the junior sector functions; the more investors get educated about the junior space, the greater the pool of potential subscribers to KRO.
The Future of ZSRM: The conditions that made the concept of a Zombie Search and Rescue Mission possible will not repeat themselves for a long time, and their effects will gradually diminish. Those conditions were the China driven metals super-cycle that started in 2003 and the gold bug cycle which broke out in late 2005 before peaking in 2011, following which the resource sector underwent a brutal five year bear market that coincided with structural changes in the financial sector that threaten the viability of the public resource junior sector as a Canadian institution. In JK's view the only potential new driver for a super-cycle is India, but even at a GDP growth rate of 10% India's economy cannot hit a super-cycle tipping point before 2025. Bull cycles for non-precious metals will be metal specific and driven by security of supply forces. The outlook for gold is much better in the near term because the global economy continues to expand, the ability and will of the United States to maintain its status as sole super-power is diminishing, and significantly higher real gold prices are needed expand new mine supply to feed gold demand driven by geopolitical uncertainty. JK believes that the resource sector bull market that began in the last week of January 2016 has at least two years of running room. The companies which are the focus of ZSRM ended up in their current predicament as a result of the prior bull cycle. They will either disappear or get resurrected and as such the number of zombies will decline. The premise behind ZSRM is that many juniors were roadkill created by the end of the bull cycle and a structural change juggernaut in the financial sector. JK and ABL believe that the system will adapt to the changes and the resource juniors will once again flourish. The ZSRM is not interested in the new failures created by the emerging bull cycle. At some point the Zombie Search and Rescue Mission will become irrelevant in its current form.
Current Zombie Fundamentals: The graphics below reveal the current distribution of working capital among the TSX/TSXV listed resource companies, and the monthly financing history of TSXV listed resource companies.