1 The Company
One rare metals company has seen intensive insider buying during the last 30 days. Intensive insider buying can be defined by the following three criteria:
- The stock is purchased by three or more insiders within one month.
- The stock is sold by no insiders in the month of intensive purchasing.
- At least two purchasers increase their holdings by more than 10%.
Avalon Rare Metals (AVL, Financial) is engaged in the exploration and development of rare metals and minerals in Canada.
| Number of shares (June 16, 2014) | 122,244,820 |
| Fully diluted number of shares (June 16, 2014) | 138,670,856 |
| Share price | $0.46 |
| Market cap | $56.2 million |
| Tickers | AVL,TSX:AVL |
(Source: Investor presentation)
1.1 History
Avalon was founded in 1991. The company was formerly known as Avalon Ventures and changed its name to Avalon Rare Metals in February 2009.
1.2 Business Model
Avalon seeks to build shareholder value by becoming a diversified producer and marketer of rare metals and minerals and expanding the markets for its mineral products.
(Source: Investor presentation)
1.3 Projects
Avalon’s flagship project is the Nechalacho Deposit located at Thor Lake, Northwest Territories. Avalon also owns six other rare metals and minerals projects in Canada, of which two are active. These two projects are Separation Rapids in Ontario, and East Kemptville in Nova Scotia.
(Source: Investor presentation)
2 Management
The CEO Donald Bubar has over 35 years experience in mineral exploration in Canada. Donald Bubar has been CEO since 1995. Collectively, Avalon's management team has over 115 years of industry experience.
2.1 Insider Ownership
Avalon’s directors and executive officers own 2% of the company.
Here is a table of Avalon’s insider activity during the last 30 days.
| Name | Title | Trade Date | Shares Purchased | Prospectus | Current Ownership | Increase InShares |
| Donald Bubar | CEO | July 2 | 150,000 | Yes | 1,650,000 shares | +10.0% |
| Sergio Marchi | Director | July 2 | 10,000 | Yes | 10,000 shares | from 0 to 10,000 |
| Peter McCarter | Director | July 2 | 50,000 | Yes | 80,000 shares | +166.7% |
| William Mercer | VP | July 2 | 20,000 | Yes | 106,234 shares | +23.2% |
| Kenneth Thomas | Director | July 2 | 42,000 | Yes | 42,000 shares | from 0 to 42,000 |
There have been 272,000 shares purchased by insiders during the last 30 days. All these shares were purchased pursuant to a private placement.
Here is a table of Avalon’s insider activity by calendar month.
| Month | Insider buying / shares | Insider selling / shares |
| July 2014 | 272,000 | 0 |
| June 2014 | 0 | 0 |
| May 2014 | 0 | 0 |
| April 2014 | 0 | 150,000 |
| March 2014 | 0 | 250,000 |
| February 2014 | 0 | 0 |
| January 2014 | 0 | 0 |
| December 2013 | 100,000 | 0 |
| November 2013 | 0 | 0 |
| October 2013 | 0 | 0 |
| September 2013 | 0 | 0 |
| August 2013 | 0 | 0 |
| July 2013 | 0 | 0 |
| June 2013 | 0 | 0 |
| May 2013 | 0 | 0 |
| April 2013 | 0 | 0 |
| March 2013 | 0 | 0 |
| February 2013 | 0 | 0 |
| January 2013 | 0 | 0 |
(Note: Option exercises are not included in the table. There have been 475,000 options exercised since January 2013.)
There have been 372,000 shares purchased and there have been 400,000 shares sold by insiders since January 2013. The month of July 2014 has seen the most insider buying.
The insider selling occurred at higher prices in the March to April time frame.
2.2 Compensation
Here is a table of the management’s compensation during the last three years.
(Source: Annual shareholders meeting)
The management’s compensation peaked in 2011 along with the share price.
3 Financial Summary
3.1 Current Situation
Avalon reported the fiscal 2014 third-quarter, which ended May 31, financial results on July 10 with the following highlights:
| Revenue | C$16,158 |
| Net loss | C$1.4 million |
| Cash | C$3.2 million |
| Debt | C$0 |
Avalon closed a $2.2 million financing on July 2 and a $4 million financing on June 13. Avalon is now fully-funded for 2014.
3.2 Historical Developments
Here is a table of Avalon’s revenue and earnings since 2008.
| Fiscal Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| Revenue (C$) | 357,539 | 159,982 | 80,557 | 605,142 | 1,105,731 | 74,281 |
| Net loss (C$ millions) | 1.4 | 3.0 | 4.1 | 8.7 | 11.2 | 11.2 |
| EPS | -0.02 | -0.04 | -0.05 | -0.09 | -0.11 | -0.11 |
Avalon has not sold any rare metals yet. All the revenues are just interest income.
4 Shares
Here is a table of Avalon’s number of shares since 2008.
| Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 |
| Number of shares (millions) | 61.7 | 67.6 | 77.9 | 102.6 | 103.2 | 103.7 |
Avalon’s number of shares have grown 68% since 2008.
5 Outlook
Avalon is currently working toward completing an updated Feasibility Study in mid-2014 (August) for the Nechalacho project.
(Source: Investor presentation)
First products from the Nechalacho project should reach the market in 2018.
(Source: Investor presentation)
6 Competition
Avalon will produce more heavy rare earth metals than its current competitors.
(Source: Investor presentation)
Currently, China produces most of the world’s rare earths.
(Source: Investor presentation)
In the next 5-10 years, China may import heavy rare earths.
7 Risks
I believe the main risks with Avalon are negative earnings, no revenues, and the price of rare earths.
(Source: Investor presentation)
Avalon’s share price has followed the price of rare earths very closely in the past. Avalon is also a penny stock.
8 Conclusion
There have been five different insiders buying Avalon and there have not been any insiders selling Avalon during the last 30 days. All five of these insiders increased their holdings by more than 10% each.
The five insiders purchased their shares at prices ranging from $0.45 (C$0.48) to $0.56 (C$0.60). I believe Avalon could be a good pick below $0.56 based on the intensive insider buying. Avalon is currently trading at a P/B ratio of 0.5.
Disclosure: The author is long AVL.
