KWG Resources Inc. (CVE:KWG) (PINK:KWGBF) added over 17% after the company announced that drilling will commence on the Big Daddy chrome deposit. However, the price action didn’t follow up on Friday and the stock might be up for a significant correction.
KWG stated they will make 12 holes under a core-drilling campaign testing the continuity of the chrome deposits at 450 to 600 meters. Reults of the previously done visual geological analysis will be reported amid the work as well.
Share price rally stopped before the resistance at 14.5 cents. Previous attempts to break it had lower volumes, but even with that additional thrust, it’s now clear that breakout won’t happen. KWG stock price is prone to large swings, and this situation may very well lead to uptrend reversal as well.
News simply provided update on ongoing operations, but had no financially sound background. With no fundamental changes in play this can only lead to temporary price burst, with some possibility of consolidation under inflated pricing. 12 cents could become the new strong support, since it worked well as a resistance area throughout 2010.
The current share price puts KWG market cap at more than $77 million. The net tangible worth of the business is around $33 million. The company has no revenues and thus the market value is fairly bound to the documented worth of KWG’s mining properties.
