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.