A thought on insider trading

After checking out a case of excesses in insider selling over the weekend There's been feedback about both the case and the whole subject of insider trading. I'm going to pick up on the second one here, as I've said what I wanted to say about the first in mail replies.

The first thing (which I actually mentioned in passing in The IKN Weekly last week, so it's still fresh in the memory) is that it's easy to read too much into insider trading. For sure it's an indication of what's going on, but most of the time the trades reported aren't that significant. The ones to take note of are few and far between, really. Things like McCluskey's blatant sales are noteworthy, but as an example, here are two filings culled from today that are...well, they're kinda interesting but I wouldn't bet on either.

The first is from Franconia Minerals (FRA.to) which has a dubious asset or two up on the US/Canada border in that gabbro area in Minnesota.

Jul 27/09	Jul 24/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-3,057	$0.250
Jul 27/09	Jul 15/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-27,773	$0.250
Jul 27/09	Jul 24/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-6,943	$0.250
Jul 27/09	Jul 15/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-12,227	$0.250
Jul 16/09	Nov 07/08	Redleaf, Andrew	Control or Direction	Common Shares	97 - Other	-601
Jul 16/09	Jul 07/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-5,902	$0.270
Jul 16/09	Jul 07/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-2,598	$0.270
Jul 08/09	Jun 30/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-153	$0.280
Jul 08/09	Jun 29/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-31,943	$0.270
Jul 08/09	Jun 26/09	Redleaf, Andrew	Control or Direction	Common Shares	10 - Disposition in the public market	-153	$0.280

OK, so there's selling here by the guy in question and that can't be a positive, right? But is it a stock-moving episode? Well, probably not. It's worth taking into account possible reasons for the sale (he wants to buy a new car, there's a chance to buy a decent real estate property next door to where he lives, he has taxes to pay...could be anything). Secondly, FRA.to is a bit of a dog and doesn't do much volume (the 3m avg is less than $15,000 a day), so it would take more than one trade to sell what he wanted to sell...and each trade has to be filed separately. So his sales are all spread out and give an overly negative impression. Hey, I'm not saying that there isn't a reason to be suspicious here. FRA.to might be about to spring some bad news on the market, or it might not. I don't know (and really I don't care much, either). All I'm saying is that there are plenty of logical reasons as to why this selling pattern above may be perfectly innocent.

The second example shows inside buying. Here's Cornerstone Capital's most recent inside trade filings.

Jul 27/09	Jul 27/09	Loveys, David	Indirect Ownership	Common Shares	10 - Acquisition in the public market	8,500	$0.080
Jul 27/09	Jul 24/09	Loveys, David	Indirect Ownership	Common Shares	10 - Acquisition in the public market	8,000	$0.080
Jul 23/09	Jul 23/09	Loveys, David	Indirect Ownership	Common Shares	10 - Acquisition in the public market	25,000	$0.090
Jul 23/09	Jul 20/09	McKay, Hubert Glyn	Indirect Ownership	Common Shares	10 - Acquisition in the public market	1,000	$0.080
Jul 23/09	Jul 20/09	McKay, Hubert Glyn	Indirect Ownership	Common Shares	10 - Acquisition in the public market	10,000	$0.080
Jul 23/09	Jul 17/09	McKay, Hubert Glyn	Indirect Ownership	Common Shares	10 - Acquisition in the public market	5,000	$0.080
Jul 22/09	Jul 22/09	McKenzie, Colin Burgess	Direct Ownership	Common Shares	10 - Acquisition in the public market	8,000	$0.090
Jul 22/09	Jul 22/09	McKenzie, Colin Burgess	Direct Ownership	Common Shares	10 - Acquisition in the public market	12,000	$0.085
Jul 13/09	Jul 10/09	McKay, Hubert Glyn	Indirect Ownership	Common Shares	10 - Acquisition in the public market	44,000	$0.080
Jul 13/09	Feb 20/03	McKay, Hubert Glyn	Indirect Ownership	Common Shares	00 - Opening Balance-Initial SEDI Report

So the guy is buying, and that's usually a good thing, right? When the people closest to the company action are willing to put their own money on the line in the from of shares, especially by buying on the open market and not exercising cheap options, that points to confidence within the company about its future, right? Well yes, that again is a possible and logical conclusion to all this. Can't be a bad thing that they're taking a bigger stake in their own game. But we should still mitigate this kind of action, too.

• The stakes are small. At 8c and 9c a pop, all the trades you see lined up there come to less than $10,000.
• Again, CGP.v does small average volumes, and filling orders takes more than it would for a highly liquid stock
• Inside buyers tend to have patience, with few of them bothering to play the market and flip stock. What we might have here is a company that sees 8c as a cheap number when looking three to five years into the future. As such, there's hardly any need for us lil retail dudettes and dudes to rush in after them. Plenty of time to assess this minor positive in the light of fuller DD on the company.
• etc

So under normal circumstances, I wouldn't have bothered publishing or talking about the two sets of inside trades seen above, as one should take care and not read too much into most of these things. Yes, they're an indication, but no they're not the be-all-and-end-all of future pointers for a company. The only ones I care about are the ones I mention and that's after reading the daily digest page every day and filering dozens and dozens of filings...then, maybe one or two are worthy of note (like on Sunday). In the end, a much better indication of what's going on at a company is contained in the financial reports. So read them and do some real DD, dude.

Photo of PDAC '09 (and a snippet of Ecuador news)

...sent in by a regular reader.

Thank you, regular reader.

Meanwhile, Ecuador's Vice Minister of Mining José Serrano (I think that's his title) put on the full trumpet display at PDAC yesterday afternoon and announced to a packed audience of 80 people that Ecuador was now officially a country free of legal bullshit for miners and that everybody could mine. Word is that Serrano has kept his job all this time because he's the only one in the mining ministry that can speak English

So here's Corriente's PR last night on the issue (CTQ was so excited it couldn't wait for this morning). Expect similar literature from the other Ecuador-exposed miners. By the way, they chose an 80-seat capacity room to make the announcement so as not to embarrass him.

UPDATE: Another regular reader sends in his PDAC '09 photo. Thank you, other regular reader.

Reaction to the Ecuador referendum result (and a word on Cornerstone)

Correa supporter celebrates getting to within one metre of Studmuffin

Correa calls for unity, peace, love, 'not the end but the beginning' and every other cliché you've come to expect from a politico that whips his opposition's ass in fine style. What he actually said was, "I call on all Ecuadoreans of good will and faith to put their shoulders and hearts together and build together the Ecuador that we have been fighting and hoping for and which starting today is approaching reality."

Jaime Nebot (the face of the opposition and Guayaquil's mayor) says he's willing to sit down with Correa. Well, after getting his ass whipped soooo badly what else could he say?

Simon Romero writes fruitfly level analysis copy on his laptop in a bar in Caracas (and don't deny it, Simon...you were spotted).

Meanwhile, Ecuador exposed stocks like Corriente (CTQ.to) (ETQ) and Dynasty Metals (DMM.to) jumped at the bell but then immediately sold off. The news is positive for them, no doubts about that, but the greater fear in world markets is outplaying the local political factor this morning. So be it.

Meawhile, here's an under-the-radar play on Ecuador that is worth a second look. Cornerstone Capital (CGP.v) has been added to the S&P factual stock stable this morning, and you can get your copy of the file right here. Totally free. My stars, I look after you guys.

Cornerstone isn't a bad play on Ecuador right now because:

1) It's cheap. Real cheap. Beaten down with the others, but not rebounded yet.
2) It has plenty of cash at bank to fund its planned operations ($4m or so as at 2q08 filings)
3) It has plenty of interesting/prospective concessions in Ecuador, and now that the new mining law almost certainly won't limit any company to just three it will benefit from the news of the final publication in October. Trust Otto on that one.
4) Perhaps most importantly, it's in JV in Ecuador with Newmont (NEM), and once mining exploration gets underway again NEM can decided whether the projects at CGP.v are worthy of it spending $4m as a 51% buy-in. IF CGP.v gets its free ride from NEM at the Ecuador projects, expect the share to pop back to the 40c pre-stoppage levels of March.

This one is a high risk play...be very clear about that. However it's a good looking microjunior that has a nice chunk of cash at bank (important) and plenty of possible blue sky, so the high risk is offset by the high possible reward. DYODD please. I disclose that I do not own (and in fact I've never owned it), but it's one of those stocks I've always had an eye for.