“This Tiny Gold Stock Is Such a Bargain… the Company Is Spending $20 Million to Buy Its Own Stock!”

"Rare opportunity" teased by Lombardi's Explosive Mine Stocks letter

By Travis Johnson, Stock Gumshoe, October 13, 2011

The latest pitch from Mitchell Clark comes in for the Explosive Mine Stocks newsletter from Lombardi — and I don’t know where the dude finds the time.

Clark is apparently now responsible for four or five newsletters at Lombardi, when I’ve written about him in the past he’s tended to focus on small cap stocks — though now he also says he’s a gold stock expert. And who knows, maybe he is — it wouldn’t be too tough to be a more accomplished gold stock expert than I am, I’ve never even taken a geology class (though I confess to having done the happy prospector dance from time to time).

Clark insists on referring to himself as Mitchell Clark, B. Comm., which doesn’t necessarily lead one to think he’s ever trained in ore assaying — but that’s certainly no requirement for penning a mining newsletter, and I don’t really know what his experience is in the diggin’ business (FYI, B. Comm. is a European designation — or Canadian, in this case, he went to the U. of Guelph — for an undergraduate business degree, sort of like me referring to myself as Travis Johnson, B.A. before I went to graduate school. Now I prefer to be referred to simply as “Master.”)

This same letter has been pitched in the past as edited by Inya Ivkovic, who no longer seems to toil in this particular field, and those teasers have pegged a few mining stocks that at least led to interesting stories over the years — so let’s dig in and see which one Clark is teasing today, shall we?

“This Tiny Gold Stock Is Such a Bargain… the Company Is Spending $20 Million to Buy Its Own Stock!”

“Plus… 3 more Triggers just pulled while Wall Street traders get ready to celebrate Thanksgiving in the Hamptons…”

And that’s actually enough to identify the pick for you (“tiny” gold stocks don’t generally do buybacks), but we’ll check a few other clues just to make sure — we’ve got a 99%+ accuracy rate to defend, after all.

The pitch tells us that there are four “gold stock explosion triggers” set to drive the share price of this pick higher — trigger one:

“On March 14, 2011, this tiny company announced the commencement of gold processing at one of its major underground ore mines…a big deal considering the fact that many gold stocks never get out of the “exploration” phase.

“What’s more, they are pulling gold out of the ground at a cost of about $156 an ounce…less than 1/10th the price of gold!

“That’s a profit of about $1,444 per ounce. And, based on extensive testing, they are expected to pull out 70,000 ounces in the next 12 months…$101 Million worth of profits!”

And two is that buyback one:

“On September 27, 2011, the company announced a $20-million stock buyback program. Under the program, the company will buy back its common stock on the open market.

“The company’s press release said:

“‘Management believes that at current price levels the company’s stock is undervalued and represents an attractive investment opportunity.'”

Trigger three is cash on the books, no debt:

“On August 16, 2011, the company announced its results for the second quarter of 2011 … and what a quarter it was!

Here are just some of the highlights:

“Cash in the bank as of June 30, 2011 of $42.1 million”

And number four? Dividends:

“On August 25, 2011, the company announced it was instituting a regular monthly dividend policy to replace its special dividend policy. Yes, this company pays investors every month!

“That’s a rarity among junior gold mining companies and should eventually attract quite a bit of attention on Wall Street.

“At today’s current stock price, the shares provide investors with a dividend yield of almost 4%!”

So yes, we’ll toss it into the Thinkolator to confirm our initial guess, but even that takes a scant moment … this is a stock they’ve touted before, Gold Resource Corp (GORO — click here for a free trend analysis from MarketClub, one of our advertising partners)

And in the 15 months or so since I wrote about GORO for an earlier teaser, the price has jumped around a bit and they have paid out those monthly dividends, but they’ve also become a lightning rod for controversy and short-selling — thanks in part to their atypical history and operating practices, and in part to the fact that they’ve been profiled, very negatively, by the folks at the StreetSweeper website which tries to uncover stock scams and frauds.

The basic story for GORO is that they are a small gold and silver miner in Mexico, with one mine that came online last year and is aiming for roughly 70,000 ounces of gold equivalent production in 2011, and a few other exploration projects that are not very well defined yet (in terms of potential resources, etc.).

They say they’ve got roughly 8-9 years of production at their projected levels at their main mine (El Aguila, in Oaxaca), but one drag on the stock has certainly been that they are not listed in Canada and thus have not been forced to issue the kind of standardized independent feasibility studies or reserves reports that most mining stocks produce — so they don’t really have “reserves”, what they have is the current production, what they say their future production might be, and a pretty high dividend that they pay monthly.

And that has been enough to drive the stock up to a $1 billion market cap — it’s also indeed true that they don’t report any debt, they do have $42.1 million in cash on their books, and they do pay a monthly dividend. The dividend is five cents a month, currently, so that’s almost exactly 3% (it approached 4% a few weeks ago, when the company was at the lows for the year down closer to $15) … and the dividend also far exceeds their reported earnings, which can sometimes be a red flag (though mining companies have some non-cash costs, too, like depletion, that depress earnings but not cash flow).

Most mining companies have taken a hit over the last month, with gold and silver coming off their spiky highs, and GORO is no different. They have managed to acquire a pretty loyal base of shareholders, if my correspondence is any indication, largely because they pay that monthly dividend and keep raising the dividend.

Is this a “bargain?” It’s really hard for me to say — when I look at GORO’s basic financials compared to other gold and silver miners, I don’t see a reason to buy the shares unless you think they will (as they say they plan to do) be filing a compliant reserves report and feasibility report and applying for a listing in Canada later this year, and that this report is going to include a dramatic number for their reserves in the ground, and that they’re going to shortly start producing a lot more gold and silver than they have so far this year.

That doesn’t necessarily mean that GORO is really a near-fraud that exists largely to line the pockets of management, as the StreetSweeper folks say, but it does mean that I can’t see the logic of buying a stock like GORO when you can buy a fairly similar-sized company like Minefinders (MFN) at a much lower multiple to earnings, book value, or even sales, and know with much more confidence that MFN has compliant reserves in the ground and a massive mine to deplete over the coming decade(s). Even if GORO is not in any way a fraud, it might still be awfully expensive compared to its peers.

I like the StreetSweeper reports even when I disagree with them, and they’ve helped to expose some really smelly operations … but it’s worth noting that they are conflicted publishers. They say that the editorial folks are not allowed to trade in stocks that they cover, but the StreetSweeper itself often shorts stocks before they publish articles about them and quickly covers those shorts within a few days after publication … which means that the company and/or its “members” are profiting in large part from the share movement that their reports cause, even if the actual analyst/journalist may not be. That’s not illegal, and they disclose it very admirably and I happen to think their editorial stuff is often very good and their critical opinions are often spot-on, but I think it’s a little shady — in part because since they seem to me to pose as a .org group of concerned public citizens. Stock Gumshoe, for what it’s worth, is not a .org or a nonprofit, but I don’t personally trade around the stocks that I write about (ie, buy them before an article is published, sell them right after), and nor does Stock Gumshoe, Inc.

Which doesn’t mean that the StreetSweeper’s red flags should be ignored — I think they are pretty thorough researchers, and Gold Resource stands out as being so different from a typical mining company that it seems to me that the risk in these shares is substantially higher than for stocks like Minefinders. If you want to judge for yourself (always a good idea), the original StreetSweeper article is here, it was published on August 23 but dated September 22 here, perhaps with updates, and Gold Resource Corp’s response is here. The StreetSweeper articles were also submitted to SeekingAlpha and resulted in a bit of a pissing match in the comments section, which is typical for any kind of heavily shorted or heavily promoted stock — you can see that in this SA version of the original StreetSweeper piece if you like.

If you look at comparable sized (by market cap) miners who are producing and profitable, many of them are also “emerging” (fairly recently profitable and producing) and tend (with great variation) to trade around a price/book valuation between 4-6 and at something between 10-20X forward earnings, and 5-7X trailing sales. (GORO trades at 24X sales, 22X book value, there isn’t really a PE ratio since they have just a couple quarters of profit and analysts don’t cover the stock … and you can’t really value as a multiple of proven reserves, because GORO doesn’t report any).

I don’t know any of these stocks well, but in addition to Minefinders (MFN) you might look at the numbers for stocks like Northgate (NXG), Aurico (AUQ), or Nevsun (NSU) … not necessarily to buy any of those stocks (they’re all in different places, with different kinds of resources, and I don’t know their stories), but just to see how different GORO looks than similar-sized “producing junior” gold/silver miners.

All of those other companies are producing a LOT more gold than GORO at this point, in some cases several times more … but then again, none of them come close to GORO’s dividend or focus on distributing cash to shareholders, either, and they don’t seem to focus as much on self-promotion — which, though distasteful to many, can certainly impact the share price of a gold miner.

(Just FYI, I pulled those names out of the GDXJ ETF holdings as producing miners with market caps near a billion bucks — but it turns out that Aurico and Northgate are in the process of merging, which is probably skewing their numbers a bit.)

I know there are a few GORO fans out there in the great Gumshoe readership, and probably some detractors too — if you’ve got an opinion on these shares, feel free to let us know. And of course, if you’ve tried out Explosive Mine Stocks, we want to hear about it — you can click here to submit a brief review and share your opinion with the world.

Related Gumshoe Articles

“This Tiny Gold Stock Is Such a Bargain…” (Mitchell Clark)

Sleuthyfiying the latest teaser from Lombardi's Explosive Mine Stocks

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26 Comments on "“This Tiny Gold Stock Is Such a Bargain… the Company Is Spending $20 Million to Buy Its Own Stock!”"

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John A. Quatrini
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John A. Quatrini
October 13, 2011 2:06 pm

Re: GORO, I bought the stock 6 mos. ago after taking out a Trial Subscription to John Doody’s Report. GORO was one of his top 10 gold stocks, with a target of 36 near term and 57 long term.
I sold half my position at a loss after a negative analysis in Barrons. Would be interested to know if Doody still has GORO as a Top 10 gold stock.
Thanks for your sleuthing, it’s great!

Cool Soupy
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Cool Soupy
October 13, 2011 3:02 pm

I don’t know about GORO but I wish you wouldn’t bring up NXG.
With the worst mgm’t in the industry they still make money – but once burned _ _ _ _

Frank
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Frank
October 13, 2011 11:08 pm

I bought a few shares also 6 months ago and bought some calls also at 30. They were around 36 at that time and came tumbling down. Loss a few dollars there. At 15 it might make some sense. But I would wait until there is more information about them.

MaryLou
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MaryLou
October 14, 2011 1:21 am

GORO is still on John Doody’s Top Ten List.

blackjack
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blackjack
October 15, 2011 7:13 am

ASX MML is producing gold for less than 200 bucks and ounce and pays dividends
go figure

Ron Stevens
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October 17, 2011 5:48 pm

I think a lost my shares that i bought like 2 years a go after a bank bought another bank, but i would like to know if a bank buys another banks will my stock be still there or change.

Marc
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Marc
January 31, 2012 3:54 pm
GORO is priced to high I agree but the stock could go much higher if gold continues to rise. High risk there in that this looks like a pump and dump merely for more property which could be a good also. Good call on the lack of standardized independent feasibility studies or reserves reports hense the poor rating with streetsweeper. The one stock mentioned here that is the winner is MFN because they have an offer to acquire all of the issued and outstanding common shares of Minefinders confirmed – to buy at 15.60 currently trading at 14.17 a quick… Read more »
CWL
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CWL
April 28, 2012 12:00 pm

What is your opinion on PAAS?

Neil Melanson
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Neil Melanson
April 28, 2012 3:47 pm

good stuff

Alan
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Alan
July 31, 2012 3:49 pm

Stansberry Resource Report had this as a pick but it got stopped out a couple of weeks ago and is no longer on their stock list. I don’t know if John Doody still has it on his list.

hullevad
Irregular
8
July 31, 2012 5:40 pm

As GORO is not disclosing (do not know) how much gold is left in the ground at present I find it to be a very risky investment. Kings-Rose ASX:KRM stocks are AUD 1,12 at the moment and they pay dividend! 0,04/share. They produce at around AUD 250,-/QZ (including silver credits). The only thing that nags a bit is the location (Indonesia). Intrepid is a warning, they have gotten kicked out of their mine by their inonesian partners!

blackjack
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blackjack
July 31, 2012 10:42 pm

make sure there is a JORC report
make sure its in a friendly country – I think Indonesia is hitting up mines with a tax of 30% iff they operate after 5 years (not sure check it)
MML in the Philippines is still the go with green light from greenies
lots of cash
dividend
rosy proven resources

also KCN in Thailand at rock bottom prices due to buying 200 million oz silver mine elsewhere
should do IPO in Thailand this year

Michael Horswell
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Michael Horswell
August 5, 2012 7:54 pm

Thanks to everyone posting comments and to Travis for his sleuthing.

I am relatively new to The Shoe and my question relates to stock newsletters in general and it’s this:
How do these shills get away with posting the same or similar teasers without having to reference the original post? I have just received Mitch Clark’s “time sensitive”,exhortation to get into his “explosive”recommendation,originally teased over a year ago.
Does anyone regulate or oversee this industry?

Thanks again for your dogged efforts to keep these guys honest(if that’s possible)Travis.

camporem
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camporem
August 7, 2012 6:12 pm

What do people think of Avion gold I was thinking of picking up some shares?

Jim D Leonard
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Jim D Leonard
August 10, 2012 3:14 pm

This sounds like the Endeavour EDV.T take over of Avion AVR.T

apl16
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August 10, 2012 7:28 pm

LOL……..interesting you mention Avion Gold as I wished Travis 10,000 shares as a speculative stock for his birthday on another thread………and a few days later Endeavour goes for them……….hahaha………….at least my 10,000 shares will give me a little profit!
I hope your birthday was a hoot, Travis!

camporem
Member
0
camporem
August 10, 2012 7:49 pm

Lol unfortunatly I did not buy any shares what do you think of the company moving foward do you think its worth a position?

apl16
Irregular
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August 10, 2012 8:40 pm
At this point, it is difficult to tell how things will play out. The Avion shares are said to be traded for 1/3 of an Endeavour share which would have a value of $0.88 canadian as the endeavour shares were approximately 3 times the value of the Avion shares. Unfortunately, the Endeavour shareholders didn’t like the move and sold off their shares and Endeavour dropped sharply. The value of Endeavour shares dropped down and have floated around $2 since the announcement while Avion shares jumped to around $0.70and have stayed there since the announcement. I’ve been trying to do my… Read more »
camporem
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camporem
August 10, 2012 9:24 pm

I defintly will thanks for the insightful analysis.

otradovec
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otradovec
August 11, 2012 5:17 pm

Shoeman has anyone done anything on currency x which is a secret account that is set aside for all us to draw from? Its touted by The League of Power connected to Smart Investing Daily. John

Tom
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0
February 24, 2013 9:35 am

This video touts a “Currency-X” account that supposedly everyone has.
It says you need to know someone who already has access to THEIR account before you can access YOUR Currency-X account. The website field above shows the link:
http://www.leagueofpower.com/cx9
which tells you how for $77 you can get an encrypted DVD that shows how you can find someone who has access to THEIR account so you can get access to YOURS. The DVD explains how your account can be given away without your knowledge. Supposedly, Currency-X is used to pay more than 50% of world payrolls.

Garnet Blanchette
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Garnet Blanchette
February 15, 2013 3:13 pm

I puchased some stocks back in the 80’s “Gold Point Exploration” Any ideas on how I can find out how they’re doing or information on contacting the company. Thanks.

derProf
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derProf
May 16, 2013 9:34 pm

The Lombardi Gang is trotting this pick out again, with the same comments used in the past. The story never changes, and the stock price continues to gyrate in the same range.

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