“‘Hard Luck’ Scheele’s Discovery Could Quadruple Your Money”

By Travis Johnson, Stock Gumshoe, August 31, 2009

Here’s how today’s ad opens:

“The biggest opportunity of the new world economy…

“‘Hard Luck’ Scheele’s Discovery Could Quadruple Your Money by July 14, 2010

“Every country in the developing world needs this 231-year-old discovery, but…

“Only 10 companies in the world have it…

“Only 3 of them are pure plays…

“Only ONE can actually deliver

“Turning every one of your dollars into four by this time next year!”

This is a fascinating story that I wasn’t aware of — the historical part, at least … apparently there was a German scientist named Carl (or Karl) Scheele who discovered at least one critical element for the modern industrial economy way back in the 18th Century.

He discovered a bunch of elements, apparently, but this one is a key for the modern economy, and the ad tells us that Chris Mayer, who edits a big newsletter called Capital and Crisis, can tell us all about the company that’s the best play on this particular element. Of course, he won’t reveal this spectacular idea for the subscribers to his “regular” newsletter, or to us poor souls who subscribe to nothing … for the answer you’ve got to pony up for Mayer’s Special Situations, his newsletter that focuses on, well, special situations, smaller cap stocks, and charging you more money …. to keep out the riffraff, one assumes.

Or, of course, you can just settle in for some more of your favorite Gumshoe’s windbagging … we’ll get at that answer somehow.

The part that’s interesting, in an ironic twist from our potential riches, is that this Carl Scheele fella didn’t profit at all from his ideas and discoveries — that’s why he got the “hard luck” title from Isaac Asimov, and there was quite a bit in the ad about him blowing up his lab, and discovering elements that were announced and trumpeted by other scientists before he could claim credit.

So … we know that this is about a particular element. What do they tell us about that element? We get a number of clues …

“So what exactly did Scheele discover in his humble lab some 231 years ago?

“One ingredient that is crucial — and required by law — to develop every one of today’s new and improving technologies, energies and infrastructures.

“With it, steel can be made to withstand extremely high temperatures.

“Without melting, expanding or breaking down.

“And not even titanium can match its strength against high pressure and corrosion.

“It’s no wonder the entire world is hungry for it — tons of it….

The ad goes on to tease that Scheele’s discovery is essential for the new refineries that we’ll need for more ultra low sulfur diesel; for making thinner, lighter metal for more efficient cars … in essence, we’re told that this metal, in steel aloys like High Strength Steel (HSS), can make cars and trucks lighter, more durable, and more profitable for manufacturers, and increase fuel efficiency.

And there are other clues — this is used in a steel alloy that’s now used by nuclear plants for their cooling systems, making them last 26 years instead of the eight years they got out of the old copper alloys. And apparently every new nuclear plant that comes online will require 400,000 to 500,000 pounds of “Scheele’s discovery.”

Well, first of all we need to identify the element — Scheele had a hand in many element discoveries, and has been credited with possibly advancing the discoveries of others including oxygen, manganese, barium and tungsten … but it sounds like today’s “discovery” probably has to be molybdenum. Molybdenum is widely used to strengthen steel alloys, and, as a small aside, molybdenum mines (which mine the mineral molybdenite, source of most molybdenum) are also the only source of the rare mineral rhenium, which is also used in more specialized alloys and in jet engines.

But we’ll assume that this is plain ‘ol molybdenum we’re talking about — and many readers have written in making the same assumption, so if I’m wrong I’m at least in good company. Molybdenum is part of two key catalysts in refining diesel fuel and removing sulfur, and a key alloy component for making high strength, light steel, which seems to be a perfect match for our tease.

And as Mayer also points out, molybdenum (he never used the name, of course) is a key corrosion resistant that’s used in alloys for anything that uses seawater — including the desalination plants that are expected to multiply rapidly as the global population demands more and more drinkable water.

Some more from the horse’s mouth:

“As global demand for Scheele’s discovery continues to increase, this tiny North American pure play could be raking in millions.

“Because they are the only pure play that can handle this kind of global demand.

“The capacity to deliver up to 34 million pounds in a single year without changing anything in their current operation.

“Plus, the ability to ramp up production by 50% in as little as four months.

“And that means incredible profits for you, if you get in right now.

“I reveal every last detail on this explosive company in my latest report, Scheele’s Discovery: Quadruple Your Money in the New World Economy.”

Well, I’m sure I won’t reveal every last detail here — but I can at least track down the company name for you, and get you started on your research … that is the Gumshoe Way, after all.

Here’s some more hoopla:

“So why is this opportunity so urgent?

“Because the credit crisis has slowed the world’s appetite for the stuff temporarily.

“And that’s not just good — that’s great.

“Because it gives you a shot at the deal of the century — one cheap, tiny company who has made Scheele’s discovery the focus of their entire business.

“They’re sitting on tons of it.

“Not just the product itself, but the means to get it, refine it, store it and distribute it to anywhere in the world.

“That means, as global demand drives the price of this important resource through the roof, this company stands to make a mint.

“Why?

“Because, unlike every other company in the industry, this is the only North American ‘pure play’ that runs the whole operation from start to finish.”

So there’s a small pure play molybdenum miner in North American, one that can increase production by 50% in as little as four months, and that Mayer believes could quadruple your money, or better, in less than a year (he uses the date of July 14, 2010).

And Mayer includes a chart of “Scheele’s discovery” prices for roughly the past five years, which does match up pretty closely with molybdenum pricing (the market is not as liquid or standardized as for commodities like copper, oil or gold, so there is always some variation depending on how you price it and what form its in). Here’s the chart, if you’re curious — it certainly did collapse when the economy went into its black pit of despair last Fall:

So who’s the company? One final group of specific clues for us:

“… our pure play has access to over one billion pounds in total resources.

“They can pull over 71,000 pounds out of the ground every day — that means as much as 26 million pounds annually.

“With the ability to ramp up production by 50% in as little as a few months.

“And they couldn’t be more financially sound.

“They finished last quarter with $260 million in cash and a debt load of only $16 million.

“So, even in these tough times, they’ve got their heads well above the water line.

“That means they have plenty of money to invest in additional reserves should the need arise.

“Either way, they are the closest thing to a guaranteed quadruple-bagger I’ve seen in a very long time.”

Finally enough? Indeed! We toss that all in the Thinkolator and we find out that this company must be …

Thompson Creek Metals (TC in NY, TCM in Toronto)

This is a near-perfect match for the balance sheet clues, as noted in this excerpt from their last quarterly report:

“Cash, cash equivalents and short-term investments were $262 million on June 30, 2009, compared with $260.6 million at March 31, 2009 and $258 million at December 31, 2008.

“The Company’s total debt (primarily equipment loans) on June 30, 2009 was $15.6 million, compared with $16.9 million on March 31, 3009 and $17.3 million on December 31, 2008.

“The Company’s mines produced 6.7 million pounds of molybdenum in the second quarter, up from 6.2 million pounds in the second quarter of 2008. The Thompson Creek Mine produced 4.7 million pounds, up from 4.0 million pounds a year earlier, while the Company’s 75% share of the Endako Mine’s production was 2.0 million, compared with 2.2 million pounds a year earlier.

“The weighted-average cash costs were $5.21 per pound produced in the second quarter of 2009, compared with $8.85 per pound produced a year earlier. The decline was primarily due to increased production as a result of higher ore grades and recoveries at the Thompson Creek Mine together with lower mining and milling costs from both of the Company’s mines in the latest quarter compared to the 2008 quarter, lower costs for grinding media and consumables, and a favorable change in the Canadian dollar exchange rate.”

Thompson Creek is one of the largest molybdenum miners in the world, and it is nearly a pure play on the metal — the stock’s chart has mirrored the move in molybdenum prices to a significant degree, but they are profitable with a trailing PE of about 17 and a projected PE of around 11, so this is not just a junior miner with hopes for a future — it is a real company that is currently profitable and highly levered to molybdenum prices. They also do the whole production cycle for molybdenum, from mining the mineral to crushing and concentrating, and they also own a metallurgical facility called Langeloth, near Pittsburgh (across the country from most of their mines, unfortunately) that further refines the concentrate.

Their mines are in British Columbia and Idaho, and they also have very promising deposits elsewhere in BC and in Colorado.

And they do say that their “total mineral resources exceed 1 billion pounds of molybdenum, including 5000 million lbs of proven and probably mineral reserves” (that excludes their potentially massive Mt. Emmons deposit in Colorado).

So … if you think moly prices will climb, you would probably agree with Mayer that Thompson Creek will be one of the bigger beneficiaries, at least if you exclude the little junior miners like Roca Mines that might skyrocket on the higher prices, or go bankrupt if moly drops to $5 for a couple years. On the other end of the spectrum are huge miners like Freeport McMoran, which owns the largest currently producing primary molybdenum mine in the U.S. (the Henderson Mine, in Colorado), but which is also clearly more levered to copper and gold prices thanks to its other properties.

I hadn’t ever heard of Thompson Creek before today, and I don’t know their history, but I must admit that they have a nice balance sheet, great earnings even during some quarters of weak moly prices, and probably some really significant potential if prices climb, especially if they’re able to develop effective mining operations for their unproduced deposits in the years to come. And the shares are a bit cheaper than they were a week ago, thanks to the fact that they priced an offering of $200 million worth of shares at about C$14 — that’s still above where the shares are today, but it’s well below the C$16 level that the shares have been bouncing their heads against for a month.

Of course, though they have a nice mine-to-refine operation, they are also pretty much wholly dependent on molybdenum prices, and their cash cost is not far below where moly troughed last Fall, so it’s certainly possible that they could do very poorly if moly prices fall too far.

I don’t expect that to happen, but it’s also worth noting that if commodity prices spike we’ll also see more molybdenum produced around the world, since it’s often produced as a secondary bonus from copper and other mines … but if that’s the case, we would also expect that the increasing industrial demand for copper and nickel and such would probably be reflected as well in increasing molybdenum demand.

That’s my take — what do you think? Interested in moly … and do you think Thompson Creek is the best play, or would you prefer someone smaller and riskier or larger and less exciting? Feel free to share your thoughts with a comment below. You can also visit the reviews site to see other subscriber thoughts about Mayer’s Special Situations or Capital and Crisis (or, of course, to add your own thoughts if you’ve ever subscribed).


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17 Comments on "“‘Hard Luck’ Scheele’s Discovery Could Quadruple Your Money”"

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WB
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WB
August 31, 2009 1:40 pm

Did you look at a smaller company called General Moly? Aside from the available cash being lower then suggested, their production numbers appear similar to the numbers discussed in the article. Also the purchase price seems more inline with Chris’ other suggested stocks.

sheeple123jump
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sheeple123jump
August 31, 2009 3:11 pm
Ah,finally I can make a real contribution to the gumshoes great web blog. I ama subscriber to Chris Mayer’s newsletter. so this will also suffice as my ‘review’ of his (fairly expensive/$800-1000 a year) “Special situations”….. You’re right on target with the thinkolator…it is Thompson Creek. and I own some shares, as I do many other Mayer picks from his newsletter. I have bee watching TC drop hard the last week or so , from where I just bought it at 13.30 (u.s.) it dropped to under 12 last week ….11 something. so if you want to get in on… Read more »
Rod
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Rod
August 31, 2009 3:46 pm

Another interesting play on Molybdenum and copper is Amerigo Resources (TSE:ARG) but once again more levered to copper, but an interesting company, and had a great dividend history prior to the collapse in copper prices last year.

AndrewH
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August 31, 2009 4:14 pm
You may be right about molybdenum and Thompson Creek but another metal that could at least fit the picture would be tungsten and a pure play and largest North American producer would be North American Tungsten [NTC on CVE]. They are also doing a joint venture with Tundra Composites to sell commercial tungsten products from tungsten concentrate which gives them vertical integration and potentially huge market for replacing lead. China, the largest producer, is cutting back on exports and increasing imports of this strategic metal. Another positive is NTC’s Mactung property, under going feasibility, is considered to become the largest… Read more »
John
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John
August 31, 2009 4:34 pm

Most moly production is a byproduct from porphyry copper mines, so moly production is more related to the price of copper than the price of moly – copper miners produce moly no matter the price. This can result in excess moly production when copper prices are proportionally higher than moly, putting producers like TC in trouble. Since moly prices are more closely tied to the iron & steel industry than copper, price divergences are quite possible. Of course, one trick ponies like TC are inherently more risky than a diversified miner.

MikeM
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MikeM
August 31, 2009 5:02 pm

Speaking of metals, there was an article on Yahoo about the growing demand for rare earth metals and significant usage by hybrids, i.e. Prius. mention was made of a California mine re-opening in the near future with other ‘deposits’ in Canada and Vietnam. I did not see any mention of companies managing/mining these deposits. Sounds like an opportunity. Any info?

SageNot
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SageNot
August 31, 2009 5:16 pm
http://finance.yahoo.com/q/ta?s=TC&t=1y&l=on&z=m&q=l&p=m50,m200&a=m26-12-9,r14,ss,w14&c= This stock was heading down $2.00 ago, now it may stabilize a bit, but it looks t/b rolling over for more decline, especially if the market breaks down. Mayer’s more reasonably priced Capital & Crisis was one of the very worst performing portfolios in 2007/2008, so I find it very surprising that a $1k letter has only one loser, I’ll bet you’re dead wrong there, Chris is a LT investor, but takes losses over 50% to 90%, if not more, regularly. I know this personally, I was a faithful subscriber for nearly 3yrs, but he has no SELL discipline… Read more »
Win
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Win
August 31, 2009 5:56 pm

I’ve been a long-time subscriber to both of Mayer’s letters. I like his work and it has been on target most of the time. Been in and out of TC every since he suggested it. The current position is up well over 200%, even with the recent setback. Noticed that at least three directors sold significant shares just before the dilution. Wish my shares had been sold then too….

Myron Martin
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Myron Martin
August 31, 2009 10:04 pm
I have made money and lost money on Mayers picks, agree that perhaps he is a little slow on the sell side, probably because he is a long term value investor! I own General Moly, up nicely, probably should take some profits and buy Thompson Creek which in the past has been higher priced than i wanted to invest, but, just today i received a recommendation to buy the Dec. 12:50 CALL from a well known options expert. As a Canadian I will research the C$ options for perhaps a better buy before making up my mind. There are a… Read more »
IsawElvis
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IsawElvis
September 1, 2009 12:34 am
As it happened most of the time, the Almighty Gumshoe got it on the nail… I have to admit shamefully that I jumped on Mayer’s $1 offer for a month and dumped him like an old rag on day 29th when I remembered that his letter was $995 a year and that my girlfriend would probably kill me with a sledgehammer in my sleep the day she would find that $995 expense on my credit card statement. It was pure survival instinct, it has nothing to do with Mayer, which I do respect. The good thing about Mayer is that… Read more »
Dave
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Dave
September 1, 2009 7:53 am

Jim Jubak of CNBC pitched this stock back in Febuary I believe. I bought it at $5. and sold it at $8 wish I would have held it longer!

AtlantaExplorer
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AtlantaExplorer
September 1, 2009 8:38 am

I actually figured this one out myself before Gumshoe published! 🙂 It is absolutely Thompson Creek and molybdenum, not General Moly, nor tungsten. The teased details exactly match data at Thompson’s website. However, it is true that tungsten is also used for many necessary things, so a quality tungsten producer would be a good investment at some point, re world’s future needs.

Frederick Mintz
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September 1, 2009 12:35 pm
Ozzie
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Ozzie
September 3, 2009 1:07 pm
This story was also run about an Australian company sitting on the biggest moly field in the world. Of course there were the same teasers about how this metal will be in high demand. But as it happens I live in Western Australia. You may have heard recently about us going through a resources boom and defying the world economic crisis. Our government just approved a new natural gas development called the Gorgon Project. But anyhow back to Moly. I also do a lot of analysis when I read these stories and I can tell you the company alluded to… Read more »
Gravity Switch
Admin
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August 31, 2009 2:25 pm
I took a quick look at them, but, as you noted, they’re not actually producing yet on their main property (permits finalized perhaps in a year or so?), and they don’t have the same cash and debt levels as the teased pick. May well do great in a good moly market, and perhaps it will end up being a stronger stock, but on a quick glance at the numbers TC looks more appealing to me — good balance sheet and actual earnings may provide some ballast for the shares. There may be skeletons I haven’t seen yet, of course.
sheeple123jump
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sheeple123jump
September 2, 2009 12:51 am

thanks for your comment on Mayer and his newsletters…I will take heed as you suggest. so far so good, but these are times to be cautious.
T

AWRice
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AWRice
March 5, 2010 12:48 pm
Bravo, Dave; hard to fault taking a gain that great. I wonder about the timing of these nwsltr recommendations. The chart of Moly prices in C. Mayer’s nwsltr ends at Feb 2009. The price of TC then was about $3.00-$4.33 . Did he distribute the nwsltr then? To select subscribers, perhaps? The price tripled (or quadrupled) to a peak of $13.75 in early August 2009. Apparently the nwsltr was circulated again at that time, prompting this discussion. The price of TC then retreated to about $10 in early Nov 2009, and has worked its way back up to about $13.70… Read more »
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