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Insiders Are Buying Avalon Rare Metals

July 14, 2014 | About:
Markus Aarnio

maarnio

2 followers

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) 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

corporate-presentation-march-2011-6-638.jpg

(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.

corporate-presentation-march-2011-4-638.jpg

(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.

corporate-presentation-march-2011-5-638.jpg

(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.

chart.ashx.png

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.nimetön.png

(Source: Annual shareholders meeting)

The management’s compensation peaked in 2011 along with the share price.

chart.ashx.png

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.

corporate-presentation-march-2011-32-638.jpg

(Source: Investor presentation)

First products from the Nechalacho project should reach the market in 2018.

corporate-presentation-march-2011-33-638.jpg

(Source: Investor presentation)

6 Competition

Avalon will produce more heavy rare earth metals than its current competitors.

corporate-presentation-march-2011-11-638.jpg

(Source: Investor presentation)

Currently, China produces most of the world’s rare earths.

corporate-presentation-march-2011-16-638.jpg

(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.

corporate-presentation-march-2011-7-638.jpg

(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.

About the author:

maarnio
I have 15 years of investing experience. I have traded stocks, commodities and Forex markets.

Rating: 5.0/5 (1 vote)

Voters:

Comments

deanhan1
Deanhan1 - 2 months ago

Absolutely in full agreement with you. I'm long Avalon. Perfect buying opportunity. Been adding shares for past 6 months of so. Excellent future with strong management team. Mr. Bubar is a super CEO. Good luck to all longs. Thank you for your article and research!! Dean

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