“This tiny Aussie explorer could be ‘The Big One'”

Teased stock with "largest and highest grade deposit of this resource on the ASX" from Alex Cowie's Diggers and Drillers

By Travis Johnson, Stock Gumshoe, November 8, 2011

I like to toss some Thinkolatin’ Down Under for our friends in Australia every now and again, since I know many of our most ardent fans are in the lucky country … so this one from Dr. Alex Cowie for his Diggers and Drillers newsletters caught my attention.

The ads for this letter sound similar to US teaser ads, for good reason — the publisher is part of the vast Agoraplex of related global publishers. So it won’t shock you to hear stuff like “this could be the big one” or “tripling your money”, or to hear that he’s got a special acronym for his system for picking resource stocks (in this case, it’s BMAC for Balance sheet, Management vetting, Asset exposure to the favored commodities, and Coverage lacking from analysts, none of which sounds particularly worrisome or revolutionary).

Oh, yes, and there are plenty of photos of him in front of small airplanes and helicopters, to underline the fact that he goes to visit his companies onsite and risks life and limb in that pursuit … after all, since he’s taking his life in his hands flying little planes across Botswana, shouldn’t we pay him for a subscription? It’s the least we can do, really.

But that’s not what we’re going to do, of course — being intrepid freeloader sleuths, we’d rather find out what stock he’s touting without subscribing. He teases a couple picks in the ad, but one of them caught my attention to look at first — that “big one” stock. So how does he pitch it?

“A ‘stunner’

“I’ve been following this company for the previous six months. It passed every stage of my “BMAC” forensic filter.

“Its balance sheet is in great health – its debt is low and its cash-flow high.

“The company looks great on paper and has just started exploring for a recession-proof commodity that shows signs of being in the early stages of truly game-changing bull market. The deposit looks massive and is the highest grade of its type on the Aussie market.

“It’s not gold, oil, copper, silver, iron ore or any resource you’d usually associate with big profits. In fact, you can’t even trade this commodity on the open markets.

“That’s partly why it’s gone completely unnoticed by the analysts on Collins Street and Martin Place.”

What’s not to like, right? Except for the fact that he won’t even tell us what commodity they’re exploring for. We know it’s in the US, that it’s an Aussie listed stock and that their deposit might be the best of it’s kind on the Aussie market.

He throws out a few more details here:

“You see, this company is moving in on what could be as much as 5.2 billion tonnes of the purest form of a very, very valuable resource. Now I can’t reveal what this resource is as it would give too much away on this tiny firm, and that would be unfair to my current readers.

“But I CAN tell you that I spent half a day with the geologists on the job of this project. They are very excited by what they see. And so am I! Early tests show signs of a grade potentially as high as 34%.

“That would make it the largest and highest grade deposit of this resource on the ASX.

“But that really could just be the start. Make no mistake… I think this could be ‘The Big One’ over the next couple of years.”

So what is it? I know what you’re thinking, “but Gumshoe, it’s not enough information! How will you ever solve the puzzle?”

Oh, ye of little faith! Don’t forget the mighty, mighty power of the Thinkolator! It’s true, we can’t give you this answer with 100% certainty as we usually like to do, but we feed the clues right in and the answers eventually come trickling out … this “very, very valuable resource” is potash … and the “purest form” of potash that he’s teasing is sylvinite (I don’t know if that’s really the “purest form,” but it is apparently one of the forms most favored for fertilizer purposes).

And the specific pick he’s pitching? Thinkolator sez it’s almost certainly Transit Holdings (TRH in Australia, TSTZF on the pink sheets — our advertising partner Marketclub just started to implement Aussie data, so you can see the free trend analysis here), a potash explorer on state land in Utah.

It’s a tiny one, too — the market cap is just under $100 million (the Aussie dollar has been very strong, it’s about A$60 million). The Aussie shares trade with some liquidity, but do be careful if you try to trade these on the pink sheets — they can easily go for a week or two without trading, mind the price in Australia, do your currency conversion, and set careful limit prices on the pinks if you turn out to be interested in buying the stock — and, as for all illiquid pink sheets listings of foreign stocks, don’t get in if you’re likely to want to get out in a hurry, this isn’t necessarily a bad way to own a piece of a company for the longer term but it is a bad environment for trading in and out, selling is often tougher than buying.

Transit is transitioning from a focus on iron ore in Australia, with the spinoff of their iron ore subsidiary over the past year (Radar Iron, they still own 37%), so that they can focus on this potash project.

And I wasn’t entirely sure that we had a perfect match for the tease — the numbers match up pretty well, with the total potential resource and the possible quality of the ore being reflected in the company’s press releases (have to use careful words, they don’t have a compliant resource estimate yet), but the kicker and confirmation came in the annual report the photo that I assumed Alex Cowie had taken on his trip to the site was actually lifted directly from Transit’s annual report.

So they are drilling, which is the reason for potential news and catalysts this year — they’ve completed one hole and started drilling the second one a couple weeks ago, with a four-hole program planned. I don’t know exactly when results will come in from those cores, but presumably it will take a couple months of study — perhaps preliminary results will be released in the next month sometime but I don’t really know how long it takes to get real results for potash drilling.

They aren’t really “cash flowing” as you’d normally use that term, but they do have enough money to proceed with this exploration program, and presumably they’ll be able to get plenty of funding if they’re able to release a bankable feasibility study sometime early next year — they had planned for such a study to be out by the end of this year, but that was a year or two ago and these things always take longer than expected. They also say they’ve executed a “memorandum of understanding” to “facilitate exploration for potash on Federal lands,” so it looks like they’re working on both state-owned land and federal land for this potash salts deposit. If you look them up on Bloomberg to get the basic info you’ll see noted that they’re profitable and have a trailing PE of around 20 or so, but that must be a reflection of the iron ore assets — the potash project is not going to be profitable for a while unless they sell part of it, and that’s really what you’re buying here if you invest in the shares.

The potash project is called the Paradise Basin Potash Project, and it looks like it will be a deep underground project, the drilling is going to almost 2,000 meters so this won’t be a strip mining operation — they’ll be extracting the sylvinite through some sort of solution and pumping, I guess. You can see the description of the project and their latest updates in the quarterly activities report here.

Will it be the “big one?” Well, that’s your call — I do think that demand for raw material fertilizers like potash and phosphate will continue to grow in the years ahead, so that should give them a decent foundation if they’re able to begin producing at some point in the next few years, but obviously a lot can happen in the interim — as even investors in big fertilizer names saw when the financial crisis drove their pricing down by more than 50% in some cases.

Potash hasn’t bounced back as dramatically as commodities like gold or copper or oil did, so perhaps it won’t be quite the same kind of roller coaster ride next time around … but it’s worth remembering that junior explorers are very dependent on good perceived future pricing to get funding and investor attention. They do have funding for the near term to finish this drilling program, but they’ll need a lot more money to actually develop the mine (or whatever you call an underground potash salt extraction project).

Transit will be changing its name to Potash Minerals at their annual meeting next week, so that in combination with any possible release of drilling results that leads to a compliant resource estimate could easily help the shares, but it’s likely to be a bumpy ride.

Cowie teased a couple other ideas in the letter, too — if there’s interest, I’ll dig into his gold miner and other teased stocks in a future note. And of course, if you’ve got any thoughts on potash or on Transit Holdings, feel free to shout them out with a comment below — you wouldn’t have to read much to be more expert on the company than your friendly neighborhood Gumshoe this time around.


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18 Comments on "“This tiny Aussie explorer could be ‘The Big One'”"

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The Big M
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The Big M
November 8, 2011 3:15 pm

Nice digging Travis! Thanks for the local insight – happy to hear about the other prospects if you have a chance.

dave
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dave
November 8, 2011 3:22 pm

One could probably get more bang for their buck with aaa.to or fed.v or wpx.to and better liquidity also

John E Ohlson, Jr
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John E Ohlson, Jr
November 8, 2011 3:43 pm

As usual, a useful and interesting read. I, too, would like to hear your take on the other companies discussed in Cowie’s letter.

jman

jazzman777
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jazzman777
November 8, 2011 4:09 pm

Sounds like this could be one of those pump and dump deals short term..As always thanks for your due diligence and insight..

Anthony Ross
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Anthony Ross
November 8, 2011 4:43 pm

Had a good run a while ago. Got pummeled down three weeks ago but still trending up long term. MAVOL is > 3,000,000 at AUD 1+ per share on the asx. Could be a play. If you’re willing to risk the currency trade it on the ASX not the pink sheets.

goatpointer
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goatpointer
November 8, 2011 7:22 pm

Thanx for the review. Much appreciated and look forward to more Aussie stocks being featured.

Doug
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Doug
November 8, 2011 8:46 pm

An interesting article. Would be keen to hear your take on the other companies and also WHL Energy

Andy
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Andy
November 8, 2011 10:47 pm

Minor correction: the Australian Dollar is at USD 1.03 right now, not .6 to 1. As always, good stuff. Thanks!

Mark
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Mark
November 9, 2011 4:20 am
One interesting Potash play is Verde Potash in Brazil (NPK on Canadian exch and AMHPF US). Here’s the promo info from their website: Verde Potash is a fertilizer exploration and development company; it was founded and is led by Brazilians. Verde is developing the Cerrado Verde project in Brazil, a source of potash-rich rock from which the company plans to produce a slow-release, non-chloride, multi-nutrient, fertilizer product called ThermoPotash. As demand for fertilizers grows around the world, Brazil lacks security of potash supply to support its agriculture industry. Due to the nature of Brazilian soils and the primary crops in… Read more »
Andrew Hackworthy
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Andrew Hackworthy
November 9, 2011 5:41 am
I’ll help you out with my research on what Alex Cowie (Diggers and Drillers) gold teaser stock is. I do not know for certain however here’s my research which suggests his ASX listed gold explorer teaser stock is Promesa (ASX code PRA):- From Promesa’s web-site http://www.promesa.com.au/index.htm “About the Peru project: Strategic Land Holding: Project positioned between world class gold mines of Barrick (Lagunas Norte) and Newmont (Yanacocha and Pierina) – a region of known epithermal gold and gold-copper porphyry style deposits. Favourable Geology: Tertiary age diorite-monzonite granite intrusions (into Mesozoic marine sediments) – classic gold-copper porphyry system geology. Hydrothermal Alteration:… Read more »
Matt D
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Matt D
November 9, 2011 5:56 pm

Yeh Transit holdings according to the scientists over there claim “A $5 (up from .94c) SP in the matter of 6 months”….Not sure how exactly true this is given that geologists are not exactly finance Guru’s, but if a positive drill result comes about from the second test, expect this one to skyrocket….Travis some info on how the MOU’s work would be greatly appreciated…Do you think TRH will be granted its permit on American soil?
Yeh this gold company that Cowie talks about seems to be sitting on a VERY LARGE deposit…I wonder what it is….Im definitely interested!
PRH

Ajax
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Ajax
November 14, 2011 8:36 pm
From another stock forum on TRH:- “Hi all Below is the email which I received from Ben. Next 6 months will be very interesting. I am happy with the confirmation of potash layers for the moment until we drill in federal area. GLA Dear Birmingham “You have it correct we can only drill on the state land and therefore we can only drill around the best area but not in it yet. We expect to drill in the federal area within six months as we noted in the recent MOU announcement. Also, you are spot on– the key is that… Read more »
Atho
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Atho
December 13, 2011 12:33 am

I’m pretty sure the little silver miner the Doctor is talking about is AYN, or Alcyone Resources. I dont know much about the company though, so I’ll let people do their own investigations. From memory I think they arose from the ashes of another mob called Macmin Silver.

Glen
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Glen
December 14, 2011 12:42 am

His copper play in Africa that Sorros has invested in is Discovery Metals Limited DML – that was half an hour of listening that I’ll never get back!!

miltonmoney
Irregular
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December 21, 2011 11:09 am

i am a member of the diggers and drillers and absoulutley love reading this modern day whip cracking temple of the doom stuff …There are some stocks on a downer and others excelling.So i can only blame the MEDIA for there doom and gloom that hasn’t helped AUSSIE whip crackers here.BUT i just eat my vegiemite sandwich and pour over his recommends and its fun reading .USE your gut feel and due dilligence on any newsletter.I have put my saftey belt on the last 3 months and i can see the market taking a new positive corner now,,PHEW>>>

Don Jamieson
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Don Jamieson
February 8, 2012 1:41 am
The endless harangues on the Diggers and Drillers messages is about the most tedious bumf I listen to or read. So much work by those guys to flog a few subscriptions. Most of their tips will wither away, but they did call correctly some of the Australian Cooper Basin stocks correctly, if not for many of the right reasons, back in mid 2011. see Senex SXY and Drillsearch DLS on the ASX. In the case of potash, however, deep solution mining targets are pretty common. He missed reference to South Boulder STB which is far advanced on a massive open… Read more »
miltonmoney
Irregular
1
May 20, 2012 10:37 pm

Still a member, but stocks over aussieland and recommends from the temple of doom have been very a bit on the negative side. .however i love reading the docs great adventures through out the world,the man does some very thorough research in his recommends but the investment in minnining stocks have caught a cold the last year down under.But i havennt given up on this very good newsletter and the whip cracking DOC..Keep the good work down under and i must buy more recommends as they are cheap..

wesely
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wesely
October 11, 2012 9:07 am

Sorry, not convinced about Cowie’s picks at all………………..they are often often real crap.
He’ll spruke a loser project in West Africa with a tiny uneconomic resource but just ignore a project 4 or 5 times its size with grades 10 times as rich with exploration upside massively greater excellent jurisdiction in an.
Nope, sorry Alex, keep working on it.

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