Traders, sensing that Gunpowder Gold Corp.(OTC:GUNP) might soon fire the first shot for actual operations, rushed to buy the company’s stock yesterday. This led to an all-time high for the volume and an increase in price. What caused this trading frenzy was a company announcement. This Wednesday, Gunpowder announced that it has acquired the right to conduct operations at the Dome Rock property in Arizona. Gunpowder Gold Corp. is a gold exploration company, seeking to acquire properties like the above, believing that they possess gold reserves enough for the company to become a major player in its field. So, the question remains – why is the Dome Rock project so inspiring for investors, and so important for the company?
The answer to this question lies in the very nature of this new property. This is the first project of the company to be announced. The hype yesterday is not due to promotions, yet the news reached enough investors for the volume to exceed 2.7 million shares. This is a huge success for a company with an average daily volume around a thousand shares. As mentioned, the project is located in Arizona, near other properties, proved to have been very lucrative to other mining companies in the past. In this aspect, high hopes are associated with the development of the Dome Rock property, which consists of 62 unpatented mining claims. [BANNER]
All of the above is the bright side of the project. There are other indicators, which have to be considered. First of all, while the volume was extremely high, it was actually reached only through several trades for the day, so an actual high interest and demand for this stock are out of question at present. Second, the optimistic statements of the company about the project are not based on the actual feasibility of exploration and mining, but mostly on success stories regarding surrounding properties. In reality, it means that while other companies might obtain hundreds of gold oz from the surrounding area, it is not certain that Gunpowder will have the same opportunity. One should also not forget that up to 2010 the company was engaged in a different field, so there are no past operations to confirm that Gunpowder is actually capable of turning projects into profits.
This is why besides optimism, caution should be applied when considering the company’s stock as a potential investment. Yes, the first bullet in the magazine for Gunpowder is a fact now. Still, it is the future that will tell if the company has the quality and might operate like a real weapon, or whether the announcement from this week was just blank ammunition that sounds high but has no effect whatsoever.
