“This next commodities play may become just as profitable for us as the ‘Gold Streaming Bank'” (Peter Krauth)

by Travis Johnson, Stock Gumshoe | August 4, 2011 10:46 am

Many of you remember well or are still enjoying the terrific surge that my favorite gold[1] stock, Sandstorm Gold, enjoyed on the heels of a big push from both Stansberry’s Phase 1 and Peter Krauth[2]’s Global Resource Alert[3] — you can see my latest free article on that one here[4], and all of my past articles about Sandstorm over at the Irregulars site here[5] if you missed them — but Peter Krauth also teased a couple other interesting ideas in his latest ad that I thought you might like to learn about.

If you’re not familiar with this newsletter, it’s one of what they usually call the “premium” newsletters that the publishers are always trying to get you to upgrade to — unlike the “entry level” letters that are priced similar to a Stock Gumshoe Irregulars membership (between $39 and $99) which for some publishers don’t do much better than break even with their aggressive marketing costs, the publishers make real money with the “upgrade” letters that are usually well over $500 a year — and which promise a smaller readership, and more “exclusive” ideas that they wouldn’t be able to reasonably share with 10,000 people. This is one of those, Peter Krauth’s Global Resource Alert is on sale at a “discount”, as most of them usually are, for $695.

So … as inducement to get you to sign up they’ve been pushing that “gold streaming bank” that lets you put “one million ounces of pure gold ‘in your name,'” but we already know that’s Sandstorm Gold — Krauth is also telling us that he’s got a few more “Urgent Alert” picks, so let’s sniff those out now, shall we?

Here are the hints:

“This next commodities play may become just as profitable for us as the ‘Gold Streaming Bank,’ because it has a similar model…

“Similar, but it’s not gold, it’s iron ore[6].

“Similar, but it’s not the financier behind the miners, it’s the miner that’s being financed and when you see who’s doing the financing here, you start to love this story.

“The guys financing these miners are an amazing bunch. They are Forbes[7] & Manhattan, and they act like a merchant bank, taking shares in start-ups with great potential….

“They bought into….

“Consolidated Thompson at 22 cents, sold at $10 … 4,000% return in 4 years….

“And they bought into our favorite iron ore company for pennies, as well. Will they hit a 4,000% home run again? I don’t know, but I’m willing to ride this genius train for all it’s worth!

“Especially because of the worst-case scenario…

“Think about it. Prices of iron ore have quadrupled in the last two years alone. And demand for iron ore will double in the next 15 years according to Mining Weekly. So worst case, this stock just keeps performing nicely year after year…”

Really? This is an odd stretch — saying that the tiny miner he’s recommending has a similar model to Sandstorm Gold because it’s on the opposite side of a similar type of financing relationship? I’ll give you that a natural resources venture capital firm like Forbes and Manhattan has some similarities with Sandstorm Gold’s financing model, at least in the broad strokes, but that doesn’t mean Forbes’ portfolio companies do. That’s just counterintuitive. If you buy a diversified mine financier it’s generally because you like their diversification and loan/financing terms and don’t want to take so much mining/development/exploration risk, if you buy an actual miner you’re (broadly speaking) taking on more risk in hopes of higher returns.

I’ve chewed that bone enough — so who, then, is this iron ore company that’s getting financing from Forbes and Manhattan?

Well, there are actually two — Forbes and Manhattan has two iron ore explorers in its portfolio[8], Alderon (ADV in Toronto, ALDFF on the pink sheets) and Black Iron (BKI in Toronto, can’t find a pink sheets symbol).

The two companies are also quite similar — they have impressive looking exploration properties that are each smack dab in the middle of established mining regions, with infrastructure and potential employees available, and they’re at similar stages in development — both are now still drilling metallurgical holes and studying cores and starting to develop feasibility studies, which they expect to publish over the next year or so. Alderon seems to me to be a little bit further along in development, and as of now their claims of the potential final size of their resource are more impressive, and unlike Black Iron it’s easy to trade in the US, so I’ll guess that this is the one Krauth is pitching.

But it is just a guess, and I could easily be swayed by the fact that Alderon is a substantial part of my personal portfolio — not because I own the shares directly, but because one of my top holdings, Altius Minerals (ALS in Toronto, ATUSF on the pink sheets) was instrumental in forming Alderon and still owns close to 40% of the shares. The Kami Project for Alderon was basically given to them by Altius in exchange for Alderon’s commitment to develop the project and give Altius a huge equity stake and a 3% gross sales royalty on any future production.

Both of these miners are surrounded by big iron and steel companies, Alderon’s Kami property is situated near the hugely successful Consolidated Thompson Bloom Lake mine and Alderon considers the two sites to be pretty comparable in potential size and production, and major projects (and rail lines) for ArcelorMittal, Cliffs, and Rio Tinto are in the same neighborhood, all extracting from the known geological resource called the Labrador Trough. Alderon was a public company before this deal was announced, but effectively became a new company with the Altius partnership and funding from Forbes and Manhattan for their exploration of the Kami project, which began back at the end of 2009.

Black Iron’s property is also next to some big mines, including one owned by ArcelorMittal and another controlled by the state — and with a similar profile to the big Krivoy Rog complex and similar access to railways and power infrastructure, but they’re in the Ukraine[9]. They’re also a bit younger, they IPO[10]’d in Canada[11] back at the end of March of this year, and started drilling shortly thereafter — which means that despite the optimism on their website, I’d guess that they’re still a year or so behind Alderon in defining and confirming their resource, all else being equal. They’re also about half the size, with a market cap of about C$130 million vs. Alderon’s C$270 million.

I personally don’t have much interest in buying either of these, since my Altius ownership gives me a pretty huge exposure to Alderon and other nearby iron ore potential already (Altius’ shares of Alderon account for about a third of the Altius market cap, not counting the potential royalty), but both companies certainly have big potential assets and the backing of Forbes and Manhattan (which also backed Consolidated Thompson, to great effect), and both are at least three years away from producing iron ore.

Next!

“This next story – and it’s another extraordinary story, really – began on a recent day when I counted 8 private jets zip in and out of the London Ontario airport. Some with Chinese manifests, some Indian, South Korean, Japanese…

“I soon learned that they were all vying for a piece of a giant coal[12] discovery. But not just your typical Mary Poppins coal – this is anthracite. Very rare, with a high carbon content that’s highly valued in industry. Demand for this stuff is huge.

“Problem is, the coal miners haven’t known for sure how big their coal fields are. And this uncertainty has wreaked havoc with the company’s stock price. But I’ve just learned from the guys doing the probing at Mt. Klappan (the site of the find), that there could be upwards of 2.8 billion tons in ground. That’s what they’re going to report.”

Toss all that into the mighty, mighty Thinkolator (which may not even be necessary this time, but one hates to let one’s equipment get rusty from misuse), and we find that this is Fortune Minerals (FT in Toronto, FTMDF on the pink sheets).

And yes, Mt. Klappan, which is a high quality anthracite metallurgical coal deposit in northwest British Columbia, is their prime resource so far — they also have one other property that’s pretty advanced, the NICO Gold-Cobalt-Bismuth deposit in the Northwest Territories. They say that Mt. Klappan is one of the largest undeveloped deposits of metallurgical coal in the world, with potential to have that teased 2.8 billion tons of coal underground across several deposits, and management says it’s the only source of anthracite (highest quality, high carbon coal) in Canada.

The big news that’s been moving the shares around over the last month or two has been the anticipated joint venture deal — in this case, per Krauth’s hint it was a plane from South Korea that got first dibs, Posco (PKX)[13] has made a deal to come on as a 20% partner with Fortune for the Mt. Klappan project. That includes an upfront cash payment to “buy in” and then Posco pays 20% of costs and takes 20% of the coal produced. There’s a pretty good article about the deal and the state of development at Mt. Klappan here[14] from the Northern Miner.

An interesting little company, to be sure, and one I had never looked at before — they do have two projects which have already absorbed well over $100 million of investment from prior owners, though hundreds of millions more will be required to complete exploration, build infrastructure (including roads and power, both sites look like they’re fairly remote), and actually build mines. The company is quite small, with a market cap of just C$140 million or so, but it has come down off of the little spike they had earlier this Summer on the Posco news (and the anticipation thereof) — whether it’s worth the current C$1.30 per share, the $1.60 it was back in June, or something far more or less is your call to make. I do like the “validation” that the deal with Posco provides, since it’s always helpful to have a big partner put value on your project, but, as with most mining projects, there’s going to be plenty of volatility based both on met coal pricing (which is historically high and in huge demand lately) and on their progress in feasilibity studies and permitting.

Any interest in these little companies that Krauth thinks might be just as profitable as Sandstorm Gold? Let us know with a comment below.

Full disclosure: As noted above, both Altius Minerals and Sandstorm Gold are large holdings in my personal portfolio. I do not have any interest in any other companies mentioned above, and will not trade in any stock mentioned for at least three days.

Source URL: https://www.stockgumshoe.com/reviews/global-resource-alert/this-next-commodities-play-may-become-just-as-profitable-for-us-as-the-gold-streaming-bank-peter-krauth/