The Silent Crash

This chart (click to enlarge; all graphics in this article at Carlo Magnifico's chartbook) illustrates how stocks began to underperform commodities as the recent commodity bull began. The methodology used here was to create a ratio by dividing the Dow Jones Industrial Average by the Reuters/Jefferies commodity index (the leading benchmark for commodities as an asset class). During commodity bear markets the Dow Jones Industrial average does well, while during commodity bulls it goes into the tank. The large symmetrical triangle has scary implications, explained below.

By Peter McKenzie-Brown

In real terms, in recent years the Dow Jones Industrial Average has been in a "stealth correction" - or, less generously, a silent crash. Growth in M3 money supply is now hidden, so it is not obvious that the US Fed is printing money at the astonishing (estimated) rate of 17% per year. One result is that, while in nominal terms the Dow has appeared fairly flat for the last couple of years, it has actually been in a tailspin.

It's dropping in euro, pound, yen, yuan and Canadian dollar terms, to name a few. More importantly, it is dropping in terms of real money (gold bullion) and other commodities - products from underground and from land and sea, the value of which is independent of the printing press. Since 2001, putting your money into traditional US equities has mostly been investing in a silent crash.

If you believe in technical indicators, that situation could get much worse. The chart explains this graphically. Technically speaking, its most important feature is that the two lines form a large symmetrical triangle. According to the massive classic on technical analysis, Edwards and Magee’s Technical Analysis of Stock Trends, roughly 75% of symmetrical triangles are continuation patterns – that is, they suggest a major turning point.

A breakout is a technical event in which a stock or commodity price “breaks out” above the high (or below the low) trading pattern lines that enclose other price points. Breakouts are used by technical analysts to predict substantial upside or downside movement. Think of them as a kind of tipping point. Critical mass creates unstoppable momentum.

Until we see a major breakout, in theory the chart could go either way. However, for the reasons this blog has been discussing for about a year, I believe the slight breakout we are now seeing is the beginning of a big drop. I have covered many of the causes – for example, dollar weakness, peak oil and its ties to gold prices, developments in the natural gas markets, Asian growth, financial crisis and so on – in earlier posts.

To understand the tremendous momentum behind the collapse in the Dow relative to commodities, you need to appreciate the strength of the commodity rally.

The chart above illustrates the power behind this commodity bull. The blue lines show the long, drawn-out collapse in commodity prices from 1980 to 2002. The red and green lines show a bull of tremendous virility – perhaps, if we can believe the recent breakout, one that is getting stronger still.

My last chart compares the performance of the Dow to those of proxy indexes for shares in oil (the XOI), natural gas (the XNG) and gold (the XAU). The strength is there. Like the commodities whose prices back up their profits, there is little sign of the commodity stocks slowing down.

Note: Donald Ross, a correspondent, offered an alternative interpretation to the symmetrical chart presented at the beginning of this post. He also sent comments which deserve to be quoted in full:

I don't think that you (really Carlo) are correct in drawing a Symmetrical Triangle here. From Edwards & Magee (regarding Triangles):

"'Remember that it takes two points to determine a line. The top boundary line of a price area cannot be drawn until two Minor trend tops have been definitely established, which means that prices must have moved up to and then down away from both far enough to leave the two peaks standing out clear and clean on the chart. A bottom boundary line, by the same token, cannot be drawn until two Minor trend bottoms have been definitely established.'

"Simply extending the Major trend line to form the bottom of a pattern would only be accurate if the reversals from the Minor tops reached down to, and reversed up again, at the trend line.

"I think that this chart is showing us a Descending Triangle, which is more often a bearish indicator than a Symmetrical Triangle. I've taken the liberty to draw on Carlo's chart. I'd like to know what you think. I must also point to the Edwards and Magee "caveat" at the end of the chapter on Triangles:

"'..., but the coarse, triangular patterns which can be found on graphs of monthly price ranges, especially the great, loose convergences which can take years to complete, had better be dismissed as without useful significance.'

"Your article, Peter, and Carlo's work, are extremely significant in my opinion. Ninety-five years of the un-Constitutional Fed's un-Constitutional activities have brought us to the end of the latest, and greatest, example of the fallacy of fiat currency."

Donald's interpretation of this chart, the descending triangle, is even more bearish than the symmetrical triangle discussed above. Here it is.

The Buck Stops Where?!

This long-term head-and-shoulders reversal suggests that the US dollar – measured against the currencies of its trading partners – has just begun a collapse toward the 40-point level. One of the most common reversal formations, the head-and-shoulders pattern offers a rough measure of how painful the coming move will be. From the time the pattern broke through neckline support (mid-year 2007), you can project the coming price decline. First, measure the distance from the neckline to the top of the head (41 points). Then subtract this number from the neckline (81) to derive the 40-point target.

The only bright spot in the US dollar gloom is that, after the breakdown, head-and-shoulders patterns tend to return to the neckline before resuming their downward movement.

By Peter McKenzie-Brown

This is the third column in a series describing the relationships among the prices of gold, oil and other financial instruments.

The first concluded, in part, that the price we are paying for gold is directly related to the price we are paying for oil, and that gold's fast-moving price reflects a rapidly deteriorating situation in the petroleum industry. The second column used technical analysis to show the inverse relationship between stocks and commodities. When you are in a bull market for stocks, commodities decline, and vice versa.

In this third and final commentary, I want to use technical analysis again, but this time to show how the fall of the US dollar fits into the picture. The chart above shows the volatility of the greenback over the last 25 years. It also shows the very worrying head-and-shoulders reversal pattern, which developed during a 15-year period.

Why is the US dollar in such deep doodoo? Let me count the ways: Recession; rising inflation; trade deficits; government debt; consumer debt; a credit crisis; a house-price crisis; a banking crisis; dependency on foreign oil; huge reserves in countries (China, Russia, Saudi Arabia) that have deep-seated issues with the US, and have recently been investing in other currencies to get better returns; US dollar outflows to invest in overseas assets; the shift of manufacturing and many services to overseas locations; an economy 70% dependent on consumer spending, which is drying up; a steady stream of interest rate cuts from the Fed.

The blood-letting isn’t over yet, and that has important implications for both gold and oil.

This chart shows how, like the Dow Jones Industrial Average, gold and oil prices tend to move counter to the value of the US dollar – the currency in which most international commodities are now priced. Following are a couple of even more dramatic pictures of the same thing.

The two small charts factor in the relative value of the dollar directly. You can click on the charts to see them full-size, or view them and other graphics from this series, updated, by clicking here.

The Partners Strike Back: These charts are based on a measure of the greenback known as the “trade-weighted” dollar, because it compares the US dollar to the basket of currencies – Euros, pounds, yen, Canadian dollars – used by America’s major trading partners. If the greenback is collapsing against those currencies, how will the trade-weighted partners respond?

We Canadians would just love a rising loonie if all we wanted to do was buy real estate in the cratering US market. Our dollar has risen by about one third in US dollar terms in the last year, so American goods and services are much cheaper than they used to be. However, Canadian goods and services are now more expensive in the US, and that has made it much more difficult to sell to American buyers. The same is happening in the economies of East Asia and Europe.

The rest of the world could respond to this dollar debacle in a couple of ways. One possibility is “competitive debasement” of national currencies. In this scenario, countries hurt by the falling buck would find ways to shore up the greenback by debasing their own currencies.

Could that work? For a while, perhaps. However, as long as US dollar fundamentals are bearish, the American currency will continue to slide. As they say, you can put lipstick on a pig, but it will still be a pig. The world's multi-trillion dollar foreign exchange markets can only be fooled for so long.

Another response to the declining dollar has already begun. Europe, Japan and China have begun a shift away from reliance on US consumption for their trade. For example, in 2000 30% of Japan's exports went to the US; last year it was only 20%. China now has more than 300 million middle class people with the savings to afford a good standard of living (think of the American dream 50 years ago), and they are ramping up consumption. Europe and China are each other’s largest trading partners, and the beat goes on.

Can you think of any historical analogues to this situation? Perhaps the best is that of the British Empire, which began to lose its global dominance 90 years ago. Britain lost its reserve currency status as the US rather than England began to serve as the workshop of the world. Its financial power and military might soon followed.

What country could be in a position to take over from the US? China? Could be.

If you believe the flight to gold is a flight to value, safety and security during turbulent times, the following chart suggests that more big moves lie ahead.

The chart shows two cup-and-handle formations since the famous gold spike of 1980. For technicians, cup-and-handle formations are among the most powerful indicators of upward movement.

The green box shows the handle of a formation which developed between 1996 and 2005. After that handle broke upward, gold prices formed a second handle (blue box) which has now also broken upward. This extra-large cup-and-handle formation - 28 years in the making - is a powerful indicator of more upward movement to come.

Remember: gold is a proxy for most commodities, so this pattern is also bullish for petroleum.

The Great Divergence

By Peter McKenzie-Brown

Think of gold as a proxy for commodities – essentially metals, energy and forest and agricultural products. If you can buy that idea and you are heavily into equities outside the resource sectors, this chart should make you very nervous. It shows how much a single unit of the Dow Jones Industrials would cost in ounces of gold. Most recently, about 12 ounces would buy you one DJIA. By contrast, seven years ago you would have had to pay 41 ounces.

How useful is this information? In my view, it is something equity investors should take quite seriously. You will note that the chart begins at the exact tail end of the great commodity bull market of the 1970s, and the start of a 20-year commodity bear. By contrast, the huge downtrend since 2001 represents the beginning of a commodity bull which may put earlier markets to shame. For more on the bull in bullion, listen to this podcast of a conference call with investment analyst and best-selling author Don Coxe.

It seems to me that the chart is instructive for a number of reasons – the most important of which is to serve as a reminder that at the peak of the last commodity bull market, one ounce of gold would have bought you one unit of the Dow. Will we see the gold/DJIA ratio back to the levels of the 1980s – say, one DJIA for six ounces of gold or even fewer? Stay tuned. A doubling of the price of gold would do it, and the continued crumbling of the Dow would help. Some combination of rising commodity prices and declining share prices is likely.

There is support for this idea in an academic study conducted a few years ago by researchers from Yale and the University of Pennsylvania’s Wharton School. In a paper titled “Facts and Fantasies about Commodity Futures,” Wharton finance professor Gary Gorton and K. Geert Rouwenhorst, finance professor at the Yale School of Management, actually concluded that commodities are not as risky as stocks. Most important, commodities are “negatively correlated" with stocks and bonds, meaning their prices tend to rise when stock prices fall, and vice versa. That actually explains the huge divergences between gold and the Dow in the chart, which encompasses negatively correlated bear and bull markets in stocks and commodities.

Without putting too fine a point on it, the Gorton and Rouwenhorst report concluded that during the 45-year period they studied (1959-2004) you’d have made more money in commodities than in stocks, with less volatility and a better inflation hedge – even during a long period which covered alternating bull and bear markets. How well could you do if you were investing in commodities during a raging bull market like the one that exists today? Think about it.

Gold-Oil: I created the charts in this article with my friend Carlo Magnifico. He’s one of the more interesting technical analysts I know, and his home page is worth studying.

Here is our chart showing the gold/oil ratio. Basically, it suggests that, since the recent commodity bull began, an ounce of gold has been worth 8-14 barrels of oil. This ratio got wildly out of kilter after the 1986 oil price collapse, and stayed out of whack until oil supplies began to tighten at the beginning of the millennium. During commodity bulls, as illustrated here, the ratio tends to be much tighter. The chart suggests that at this writing gold is somewhat undervalued relative to oil.

As Carlo explains, “gold and oil both have real value and can’t be created out of thin air. There is always some sort of demand for both, and that demand is purely based on current supply, basically gold and oil are always at fair value against all paper currencies every day. So since gold and oil never change in value, they can be measured against each other.”

“If there is a major gold/oil divergence (disconnect),” he adds, “have a good look at the fundamentals. That will tip you off to opportunity.”


Gas-Oil: If you are an energy investor, this chart – the ratio of oil to natural gas prices – is more interesting still. Partly because oil and natural gas are both hydrocarbons and industrial consumers can often switch them for each other, a big price divergence means a correction will soon take place.

As this column pointed out last December, the decoupling of oil and gas could not last. I suggested then, and I still believe, that a natural gas squeeze is on. Check the chart. The dashed blue midline is a powerful magnet.

New Ideas at Play

These core samples are from the first hole drilled at the Captain deposit. For more, click here.

By Peter McKenzie-Brown

On a number of occasions, I have provided personal comments about Stratabound Minerals Corp. in this blog. To make my own position clear, I am a director and officer of that company, and I do not have any credentials as a broker or investment advisor (see disclaimer below). Encouraged by a news release that came out yesterday, this column summarizes my year-end thoughts on the company.

“Oil is found in the minds of men” (and women) is an expression that used to be common parlance among petroleum geologists. The notion is that, without good geological understanding of a potential play the explorer is likely to drill in the wrong spot or to the wrong depth, and consequently have nothing to show from an exploration budget.

Today, the concept is so ingrained in geological thought that I rarely even hear the expression used. This doesn’t mean it isn’t true, though. The idea applies to all kinds of geological activity – whether in the search for oil or the search for gold. But as potential resource plays become smaller, it is important to think differently. That’s why I like Stratabound’s exploration slogan: “New ideas at play.” Mineral resources are still the result of geological thinking, but new technology and new market conditions call for new thinking.

Stratabound’s 2008 exploration program will be a busy one – a reality confirmed by the fact that the company recently closed a $2.5 million financing. That’s a lot of money for the company’s exploration war chest. If you are a minerals exploration company with new ideas at play, exploration funding is just what you need.

Elmtree: What will the New Year bring for Stratabound? Given the company’s well-stocked treasury and 2007’s exploration successes, there will probably be a continuation of the good exploration news. That news essentially doubled the stock’s price during 2007.

Stratabound has been drilling two projects in New Brunswick, a small Canadian province. One, known as Elmtree, has shown consistently interesting gold and silver assays, but has also tested positive for lead and zinc and the less common elements antimony and indium. While Elmtree is primarily a precious metals discovery, the other elements discovered down hole are sweeteners that could improve the property’s economics.

The company has sent numerous samples from the 41 holes it has drilled at Elmtree to a lab for analysis. The resulting assays are being used to prepare an initial resource estimate of the property. These geological reports can only be prepared by licensed geological consulting firms, and preparation is governed by strict regulatory controls. Commonly known as “43-101 technical reports” after the regulation that defines them, Stratabound’s 43-101 will give investors a sense of whether Stratabound’s Elmtree discoveries are commercial. This report is likely to be released early in the New Year. Stay tuned.


Captain: Stratabound’s Captain deposit is at least as exciting as the Elmtree discovery. Captain is located 40 kilometres to the south of Elmtree within New Brunswick’s world-class Bathurst Camp, a major base-metals mining region. The most recent news release focused on the discovery’s copper, cobalt and bismuth potential. These metals have outperformed even gold and silver on world markets in recent years; the recent copper price is around $2.90 per pound; cobalt is $43.00 per pound; bismuth is $14.50 per pound.

Here is a summary of the first three holes in the company’s exploration program.
• Hole 1: 57.5 metres grading 1.0 per cent copper and 0.05 per cent cobalt, including 7.5 metres of 3.2 per cent copper and 0.07 per cent cobalt.
• Hole 2: 47.5 metres grading 1.1 per cent copper and 0.04 per cent cobalt, including 6.5 metres grading 3.7 per cent copper, 0.12 per cent bismuth and 0.07 per cent cobalt.
• Hole 3: 58 metres grading 1.2 per cent copper, 0.07 per cent cobalt, including 8.5 metres grading 2.3 per cent copper and 0.10 per cent cobalt, plus 8.0 metres of 2.3 per cent copper and 0.04 per cent cobalt.
Interestingly, you have to study the tables in the news release to learn about the play’s gold and silver assays, which are appreciable.

Technical Analysis: On an earlier occasion, I wrote an explanation of technical analysis, using Stratabound Minerals Corp. for purposes of illustration. In that study, I explained the lines in this chart as rising resistance (the blue line) and the trading channel (the green and red lines.) My last comment on this came out just as the stock rose through the red line, possibly representing a significant breakout – what technicians look for when they are buying stocks.

The market had other ideas, and the stock soon dropped back into the trading range, but with a difference. You will note that for the most part since last September the stock has been trading above the blue line, suggesting that “rising resistance” has become “rising support.” Put another way, this means that when Stratabound touches the blue line in the future, it will be signaling a buying opportunity. That’s the technical side of the story. For a current view of this chart, please click here.

Although the writer is a director and officer of Stratabound, the thoughts and views herein are mine only and not those of Stratabound. I am not registered in any jurisdiction as a broker or investment adviser, so nothing herein should be construed as advice on whether to buy, sell or hold shares of Stratabound or any other company mentioned herein.

On the Technical Analysis of Stocks

In an earlier post, I did a longer-term technical analysis of the chart of Stratabound Minerals Corp. Yesterday's market activity saw the stock break through a trading channel, though, so I think it deserves more commentary. (For a current view of the technical chart shown above, click here.)

Rising Resistance: In the chart, the blue line represents long-term rising resistance.

In technical analysis, resistance refers to the price at which a stock or market can trade, but which it cannot exceed, for a certain period of time. For recovering stocks like Stratabound, I prefer to create a line known as "rising resistance" - rising (in keeping with recovery), but still a line of resistance. In this case, I drew the line through two points: a significant low as the stock was collapsing and a significant high after shares began to recover.

That line lasted for four years - until last week's breakout, which essentially shattered this technical feature of the chart. It "shattered" resistance by going through it and staying there more than three days; breakouts are a function of both direction and duration.

A breakout is a price movement through an identified level of support or resistance. Usually (as in this case) it is associated with heavy volume and increased volatility. Traders often buy the underlying asset when the price breaks above a level of resistance (an upside breakout) and sell when it breaks below support (a downside breakout). Breakouts can influence stock performance by triggering higher-volume buying or selling.

Trading Channel: The red and green lines describe a medium-term trading channel.

A trading channel is the space in a chart between an asset's support and resistance levels. By definition, the price of the asset will stay between support and resistance levels until a breakout occurs. Range traders try to buy an asset when its price is near the bottom of the trading channel and sell it when the price gets close to the top. Buy low, sell high. They profit from the price spread.

Trading channels may be flat, ascending or descending. This one has been ascending for about two years. Like long-term rising resistance, it has now experienced a breakout.

In such a short period, to have breakouts in two areas - that is, in respect to both long-term rising resistance and medium-term trading channel - is extremely bullish for Stratabound.

Personally, I would expect to see the stock pull back and consolidate within the trading channel for a while. If it does not back off and consolidate, where will the stock price go? There is some overhead resistance at 50 cents, and stronger resistance at 60. Those points seem like logical stops along the way.

Voodoo or Philosophy? There is a lot of debate among economists and traders about whether technical analysis (also called "chartism") actually works - and if so, why. Technical analysis is the practice of trying to predict stock prices by examining trading patterns and comparing the shape of current charts to those from the past.

Some thinkers, like ultra-cynic Burton Malkiel, are even skeptical about fundamental analysis. Fundamentalists would study such business fundamentals as Stratabound's business environment and the company's business plan to forecast how its stock price is likely to perform.

On the matter of technical analysis, Malkiel is downright scathing. You cannot predict future stock prices on the basis of past stock prices, he thunders. Like Malkiel, the more extreme critics deride technical analysis as hocus-pocus, not far removed from tea leaf reading.

But technical analysts beg to differ. They insist that the stock market moves in broad patterns, and that those patterns can be recognized by careful charting and an understanding of stock market history. In the mainstream business media there is a constant stream of references to resistance and to its polar opposite, support. This suggests that technicians may be right, and it also suggests a credible theory why. TA is effective simply because its ideas have become so pervasive.

According to this notion, its value has little to do with any scientific merit it may or may not have. When a technical breakout is visible, investors pile into a stock (or, if the breakout is to the downside, get out). Practically speaking, in other words, technical analysis operates largely as a self-fulfilling prophecy.

The Collective Mind: For me, a more interesting explanation makes sense. Briefly, a stock's chart reflects a huge number of investment decisions. Those decisions reflect all known information about the stock in question, and the needs and desires of investors. The decisions those investors make constitute a kind of collective thinking about the company. That group mind shows itself in particular patterns on the chart.

According to this view, the collective mind can be understood by drawing simple patterns on a chart, and it can be calculated with the aid of such indicators as MACD and RSI. (Both of those indicators are shown on our sample chart - just below and above the chart itself.) These indicators are based on simple mathematical formulas, but they can be very powerful. For more information about these indicators - and about chartism in general - go to Investopedia. Another great site is Stockchart's Chart School.

Of course, if TA reflects a collective mind, then as a discipline it can become rather complex. For example, this study - current version available here - discusses key indicators as Stratabound's stock price moved up, and projects important price points it will encounter if it quickly moves higher. Generally speaking, the indicators in green are positive. Those in red are alerts; they suggest probable resistance points, based on recent share price performance.

As I revise this blog entry (October 5), the opinions generated by Barchart's internal indicators are all on the buy side. In time, of course, that will change; all stocks fluctuate between buy and sell signals. For more information on this kind of analysis, study the Barcharts site. As your understanding of these indicators grows, you may find this kind of analysis to be quite helpful.

In this commentary, I have offered a sketch of TA, illustrated with studies of Stratabound Minerals Corp. - a junior mining company based in Canada. I am not recommending that you buy this stock or sell it - I am a director and an officer of the company, so I cannot. I do think, however, that it offers a good case study of technical analysis in action.

Although the writer is a director and officer of Stratabound, the thoughts and views herein are mine only and not those of Stratabound. I am not registered in any jurisdiction as a broker or investment adviser, so nothing herein should be construed as advice on whether to buy, sell or hold shares of Stratabound or any other company mentioned herein.

Technical Analysis - Stratabound Minerals Corp.

This seven-year chart suggests some trends in stock performance. The blue line is rising resistance, which has recently been breached (a bullish signal). The red and green lines suggest a trading channel, formed over the last 18 months. For a current view of this chart, please click here.

Much of the excitement seems to be related to speculation about the Captain exploration project. Here is a photo of core from hole #1, a copper-gold play: For more photos, click here.

Post updated September 23, 2007.

Although the writer is a director and officer of Stratabound, the thoughts and views herein are mine only and not those of Stratabound. I am not registered in any jurisdiction as a broker or investment adviser, so nothing herein should be construed as advice on whether to buy, sell or hold shares of Stratabound or any other company mentioned herein.

Exploring a New Gold Province

By Stan Stricker

Geology, infrastructure and sound government make New Brunswick an overlooked nugget in the search for gold.

I think the quest for gold is becoming increasingly attractive in the Canadian province of New Brunswick. Indeed, I think it’s one of the best places for junior companies to explore, and there is a strong case for making it an exploration priority. In a nutshell, here’s why.

Geology: Start with the big picture: Canada is huge. The country is 40 per cent covered by the metals-rich Canadian Shield, and it has tremendous mineral riches in the Cordillera (the mountain ranges in the West.) This much is widely known.

Not so widely appreciated is that Appalachian Canada has also been home to some of the world’s richest metals discoveries. The greatest of those have been in New Brunswick, which boasts highly prospective geology and world-class deposits. For example, the world’s largest accumulations of volcanic base metal deposits are New Brunswick’s Bathurst Mining Camp, the Abitibi Greenstone Belt in Québec and Ontario, and the Iberian Pyrite Belt in Spain and Portugal.

However, most of New Brunswick’s metallic mineral production has come from lead, zinc and silver mining. While there has been some gold production in recent years, the provincial history of gold exploration and production runs neither long nor deep. I think the development of world-class base metals mines has distracted mining companies from the hunt for gold. This is changing. For example, in recent years the company I operate, Stratabound Minerals Corp., has invested in gold prospects in the province, and we have been rewarded with a number of high-potential discoveries.

Infrastructure: There is also the matter of manpower and infrastructure. Mineral production is an important part of the provincial economy, which sports mills and smelting facilities to process base metals. Base and precious metals production in the province amounted to $1.5 billion in 2006; the industry employs more than 2000 men and women. This provides a skilled work force for prospecting, drilling and mining operations.

The Bathurst Mining Camp has access to tidewater at the ice-free, deepwater port of Bathurst. This means metal concentrates can be shipped inexpensively to smelters around the world, wherever the best terms can be negotiated. Stratabound benefited from this when we operated our CNE lead-zinc-silver mine in the early 1990s.

The province also has rail transport and good roadways. Of particular importance to exploration companies like Stratabound, the well-developed forestry industry means an extensive network of logging roads, which provide ready access to most mineral properties. As a result of all these factors, costs are generally lower than in other parts of Canada.

Policy: New Brunswick typifies the political stability, economic sophistication and resource extraction expertise of Canada. Of equal importance, the provincial government is a great partner for the mining industry. It rewards successful prospectors, offers cash incentives to encourage exploration, and has an attractive, stable tax regime for producers.

For example, my company recently received a resource development grant for one of our projects in the Bathurst Camp. As a matter of fact, we are the first and only company so far to receive funding through this newly announced program. As Natural Resources Minister Donald Arseneault explained when he awarded this grant, his government is keen to attract new investment, but “we also want to ensure that existing companies in the province” – like Stratabound – “are taking full advantage of deposits already identified.” This program requires that companies at least match the amount of the grant in their development work. To my mind, that is a sensible approach to government policy.

Exploration for Gold: New Brunswick’s advantages of unsurpassed infrastructure and sound policy would be irrelevant, of course, if the province did not have geological potential for precious metals. The potential clearly exists, yet the province is notably under-explored for gold.

This is changing, and Stratabound is a leader in this development. We have commissioned a resource estimate and technical report for our Elmtree gold property, which has been our major drilling focus for the last two years. We recently staked a large number of claims as a result of our Big Presque Isle gold discovery – in an area that had never before been explored for gold. The discovery was made in rocks exposed during highway construction through the potato fields of western New Brunswick – near the village of Florenceville, which calls itself the “French Fry Capital of the World”.

As the reality of unexplored yet prospective land becomes better appreciated, it will encourage more grassroots exploration for precious metals. Stratabound is a Calgary-based company, and we have high-potential properties in Ontario and Québec as well. However, our hearts will probably always be in New Brunswick.

A professional geologist, Stan Stricker is president of Stratabound Minerals Corp.

Stratabound's Prospects

The map shows the hard-rock geology of New Brunswick. The location of Stratabound's Elmtree discovery is indicated in the top centre of the map. The Captain, CNE and Taylor Brook deposits are nearby, in the Bathurst Mining Camp.

We have successfully raised the capital we need to implement an effective exploration strategy, which can be summarized as follows:

First, Stratabound is working toward building a resource base in the Bathurst mining district of northern New Brunswick, focused on our Elmtree, Captain, CNE and Taylor Brook deposits. During the 1990s we explored and partially developed the latter three properties, successfully bringing into production a small open pit zinc-lead-silver-gold mine on the CNE property. CNE ore utilized Noranda’s Heath Steele Mines for milling. Our intent is to reach an economic threshold based on Elmtree as a stand-alone operation or based on a central milling facility that will process precious and base metals from Elmtree and one or more of the other Bathurst properties. To this end we have stepped up operations in the area. We recently leased a 4,000 square-foot office, core handling and storage facility in Bathurst, and have taken on additional personnel.

Second, we have been acquiring exciting new properties and undertaking grassroots exploration in eastern Canada. Our work is guided by favourable geology in high-potential areas, geochemical evidence of ore-generating processes (alteration and mineralization) and geophysical evidence of drill targets (conductors).

Elmtree: Since 2004, our primary exploration target in the Bathurst area has been the Elmtree prospect. We have drilled 48 holes to date, most of them encountering mineralization, including many commercial-grade gold intercepts. In addition to gold, these intercepts often contain silver, zinc, lead, antimony and/or indium.

We have commissioned an initial mineral resource estimate and associated Technical Report for Elmtree that comply with National Instrument 43-101. We believe this authoritative resource report will provide a solid basis for improvement in the company’s value. Of equal importance, we expect the report to contain recommendations in respect to continued drilling to further enhance the resource.

Captain: The province of New Brunswick has awarded the company a $100,000 grant under the province’s new Deposit Evaluation Program (NBDEP). This represents the first award by NBDEP, and Stratabound was the only successful applicant. We will begin drilling the Captain copper/gold deposit this month. We have reviewed and compiled all the historical drilling and other geotechnical data from the 1950s onward in preparation for the drill program. We anticipate we will then proceed with a NI 43-101 resource estimate and report.

Western New Brunswick: The company’s inventory of new properties includes exciting new gold discoveries on our Big Presque Isle and Lamoreaux Corner claims in previously unexplored areas of western New Brunswick. Since then we have staked four other properties that are on trend along the new section of the Trans-Canada Highway that is currently under construction along the Saint John River valley, near the U.S. border. We are awaiting results from an initial small drill program on Big Presque Isle and Lamoreaux crossing, as well as assay results from the sampling of additional mineralized outcrops.

Melchett Lake, Ontario: In September, we will begin drilling another recent acquisition at Melchett Lake, Ontario, situated 130 kilometres north of Lake Superior. Our target is an 11 kilometre-long felsic volcanic sequence, capable of hosting large-tonnage volcanogenic massive sulphide (VMS) zinc-lead-copper-silver-gold bodies. Two areas on this property are already known to have high-grade, surface VMS showings.

Enja, Québec: As this report goes to press, we are mobilizing camp and crew for a geochemical exploration program on our Enja property in northwest Québec. This work will follow up airborne geophysical targets identified last winter. Enja is located in high-potential terrain for both precious and base metals. The region presently hosts gold camps at Detour Lake and Casa Berardi, as well as the Selbaie VMS deposit, a major past producer of copper, zinc, gold and silver.

Disclaimer: I am a director and an officer of this company, and publishing this statement to shareholders is not a solicitation to buy the stock. This information is also available on Stratabound's website and on Sedar.