“Tiny co. strikes gold in abandoned mine” Chuck de Castro

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Is it even possible to slip back in time a year or two, to our delightful bull market past, and remember how differently we looked at things?

At this time of year in 2007 we would have been sifting through teasers about how the latest LCD maker or electronics store was going to benefit from sales of big screen TVs for the Super Bowl … or about how much money Chinese travel companies would make during the Lunar New Year celebrations.

Today, alas, we’re looking at gold. That pretty much says everything you need to know about investor sentiment.

Chuck de Castro edits the Penny Mining Speculator newsletter, which, as you can guess from the name, looks for microcap mining stocks that might have the potential for massive returns. It should probably go without saying, that almost has to mean that the record of his newsletter is going to be based on a lot of duds that didn’t pan out, and a few hugely successful breakout companies. He claims credit for a few big winners, notably Nido Petroleum, which he says got his subscribers 2,844% gains.

I can’t verify that, of course, but I’d urge you to note that in his advertising he doesn’t brag about his overall returns, or his average returns — though the dozen or so closed trades that he claims credit for in the ad do sound impressive (most with 100%+ short term gains, a few with losses of 20% or so, and his “open” portfolio apparently has some good recent performers, perhaps thanks in large part to the big run in gold and silver prices recently).

That’s neither here nor there, of course — the question is, for the gamblers out there, what is the tiny company that he thinks is the most exciting glold play right now, and is it really all that he says it is?

For that, you can turn to your friendly neighborhood Stock Gumshoe — assuming, of course, that you’re not interested in ponying up $3,250 for a subscription … and I think we’ve got some interesting info about this one, but let me preface all of this by saying that I’m no expert in gold miners, nor am I a geologist. I plain don’t understand much of the stuff about “assays” and “veins” and such … but certainly folks love gold these days, so let’s see what we can uncover for you.

Here’s the marketing language from de Castro:

“This gold mine was once one of the richest gold mines in the world, and it looks like it’s going to have a second day in the sun.

“It set many world records, several of which still stand after a hundred years — including the most gold ever extracted from a ton of ore, and the largest single nugget of gold ever found (containing 3,100 ounces of gold).

But as the old miners followed the rich veins of gold deeper into the earth, they ran into a water table. They were sure there was a lot more gold deeper down, but every time they tried to get at it, the mine flooded.

“Since they didn’t have sophisticated pumping systems or diesel generators back then, they had to shut the mine down. And the mine lay dormant for more than 80 years.”

There are a couple clues in there, but we get some more further down in the letter:

“small company bought out all the old mining claims around the old mine and secured 591 square miles of highly promising gold properties…”

“Near-term, I expect them to produce 50,000 ounces of gold a year. In two years, I expect that to grow to 100,000 ounces a year….”

“you’re looking at a company which almost certainly has at least $2 billion of gold in the ground — and probably a lot more.

“The managing director told me he thinks there’s $5 billion in gold, and has gone on the record saying so.”

We learn that the company was originally working with one old mining site, but that they’ve bought up some neighboring companies and mines and continued drilling, including one drill sample that “showed an amazing 355 grams per ton.” (He noted earlier that many mines are very profitable at 5 grams/ton, and this companies drilling had shown an average of 31 grams/ton).

These shares are currently trading for 11 cents, we’re told … and of course, we’re told that the potential is stupendous …

“I see the shares doubling or tripling over the next 12 months. Longer-term, if you’re prepared to sit on your stock while they explore their property and bring one vein after another into production, I think these shares will go to $2 or even $3. If you get in now, this is a company that could multiply your money about 18 times.”

These are always fun little companies to trade or invest in, for those with stomachs of steel or a love of gambling … so what is it?

Thinkolator sez …

Hill End Gold (HEGLF on the pink sheets, HEG in Australia)

For US investors who don’t trade in Australia, note that this one, according to Yahoo Finance, trades only an average of 50,000 shares — that’s only a bit over $5,000, so almost any investor could make those prices sway dramatically. Volume is not particularly large in Australia, either, just FYI. That means, just to spell this out, that it’s quite possible that even the Stock Gumshoe readership could easily move this stock dramatically if just a few folks get excited about the stock, so buyer beware and watch your limit price if you’re thinking of buying this one.

Hill End is an old gold mine, it is indeed the mine where the largest nugget ever mined was found, Holtermann’s Nugget, a whopping 3,100 ounces of gold. And it was an active mine for many years that then lay dormant, like many of the gold mines in nearby areas — the mine(s) are in New South Wales, not all that far from Sydney in southwestern Australia. The water table can be fairly high in this area, and that was indeed one of the impediments to deeper mining.

Another impediment and challenge, apparently, has been the nature of these gold veins — as befits an area where such a large nugget was found, the gold in this mine is very “nuggetized”, which sounds good but actually makes it very tough to do modern resource estimation and, to some degree, hard to mine with industrial processes. That’s because resource estimates look for tiny bits of gold in small drill samples, and extrapolate those samples. When the gold isn’t distributed fairly evenly in a vein and is in much larger nuggets, it is quite easy for a sample to include either no gold or a huge amount of gold, making estimates very difficult.

That’s about the extent of my understanding of this company — there was a nice long article on them in Gold Mining Journal last Fall [PDF file] that explains a lot of this, and provides much more detail … worth a read even if you don’t like buying these kinds of stocks. Since this is an Australian company there won’t be a huge amount of info on many finance websites, but the company itself makes some press coverage and, more importantly, it’s annual reports and filings available on their website here if you’d like to start digging.

The clues are a match beyond that one big Holtermann’s Nugget — de Castro claims that they have 591 square miles of territory to explore, and the company actually claims 1,531 square kilometers, which is an exact match if you do the math. The managing director, Philip Bruce, has said that 50,000 ounces of gold is a good estimate of their initial production capacity, and he has also stated the he thinks they will be able to produce 4-5 million ounces, which, depending on the price of gold, could be $5 billion worth of gold. And in the most recent quarterly report they reported this:

“Total gold produced was 1202 ounces from 1772 tonnes at 24g/t gold with 675 tonnes at a feed grade of 31g/t gold processed in December.”

So they’re actually producing gold now, and the 31 grams/ton claimed as an average by de Castro has at least some merit for current production. The company also announced that they’ll be selling their own gold bars, so maybe shareholders will get a chance to buy those, too (that’s just a guess).

Hill End also has a project in Laos, which some of the notes I’ve seen indicates might potentially be big someday, but they’re currently only in the permit application process, and of course political risks may well be significant there.

So … does that mean this is a great stock for you to buy? I can’t tell you that, and I know very little about any companies of similar size, or the comparative potential of various microcap gold companies, but I can tell you that this appears almost certainly to be de Castro’s pick. And I did listen to several interviews with Philip Bruce, and read several articles about the company and their projets, and I came out of it intrigued. Of course, the company has been working this area for about a decade and has a lot of losses built up, so one hopes they do end up with a big pile of gold.

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20 Responses to “Tiny co. strikes gold in abandoned mine” Chuck de Castro


  1. If you really believe GOLD will rise, why bother with this CRAP ( HLGF) It would be better to simply buy Pro Funds ETF UGL ! Look at the chart for UGL http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=ugl&sid=0&o_symb=ugl&freq=1&time=7&x=42&y=18

    Now check out HEGLF http://finance.yahoo.com/echarts?s=HEGLF.PK#chart1:symbol=heglf.pk;range=6m;indicator=sma(7,30,200)+volume+macd;charttype=line;crosshair=on;ohlcvalues=0;logscale=off;source=undefined
    HEGLF appears to be breaking out …..and I will follow it . The only reason I don’t like pink sheet stocks ….is that I cant use a trailing stop …..and this could be a disaster!

    Like(0)

  2. i don’t have a clue about this one.
    i have had great luck the last few weeks buying the explorers that got hammered. nova gold has been nice. i bought at .42 sold a third at 2.94 and a third at 3.20. i guess i’ll just sit on the rest for a while. i’ve got a couple of others that are up about %150. this seems a safer gamble so far.

    Like(0)

  3. Hill End gold-an interesting article. I am an exploration geologist with + 30 years experience. Estimating gold reserves in a vein is very dificult. Sooner or later one must start an exploration tunnel to get a better look at the gold and estimate the grade. It is normally very nuggety in a vein. A drill hole may find gold, but 10 feet away another hole might find nothing.

    Like(0)

  4. Gumster: Someone is touting and teasing a royalty gold co which because it doesn’t have to worry about digging, hiring, permitting, politics, etc is less risky and more stable. I sniffed it out as Royal Gold. Any comments?

    Like(0)

  5. Just stumbled on your site trying
    to identify the Hill End property.
    I had identified the Holtermann
    nugget but wasn’t sure about the
    mine because I thought it was in
    Nevada.
    Been following exploration golds
    for years and I believe you have
    this one nailed. Great Job!!!
    I just subscribed. Paul

    Like(0)

  6. Very exciting. At first I thought this article was about Goldstake Explorations. Here is an excerpt of a posting I put on Stockhouse.ca today:

    Hill End Project

    At Hill End, N.S.W., Australia, Goldstake has a 14% interest in the Golden Gully project, which
    has a mining history of recovery of two ounces of gold per ton at depths down to 250 ft. The
    leaseholder, Silver Orchid Pty. Ltd., is attempting to raise the capital to start production on the
    alluvial resource and also to sink a shaft to 600 ft. to access the lower quartz reefs, which contain
    gold.

    For full details of the Hill End Project, please see the qualifying report by Dr. Derek E. McBride,
    P.Eng. January 27, 2003. Dr. McBride’s summary states that “Golden Gully lies in the historic
    Hill End gold camp that produced the largest gold specimen ever found. The property has seen
    intermittent exploration and exploitation since the 1850’s. Mining efforts were curtailed in 1872
    due to unmanageable water inflows at the 250 foot depth. Underground exploration recovered
    over 400 ounces of gold from 207 tons of ore in 1997. Limited drilling suggests that the
    mineralization continues below the 250 foot level. A two phase program is recommended to
    outline the mineralization with drilling and follow up on these results with a ramp to the 500 foot
    (150m) level at a cost of three million dollars.”

    During the year of 2006, an environmental plan was tendered to the NSW Mines Department and
    has been accepted.

    During the year under review a start was made on the refurbishment of the Cosmopolitan Shaft
    on Golden Gully. This shaft was sunk to 250 feet in 1872 but was abandoned at that depth
    because water was flowing into the mine, with the water table at 150 feet, too fast for dewatering
    equipment to clear the shaft. The Cosmopolitan Mine Manager quoted in his report at the time “ 7. 9. 1872. Sinking on Mrs Beards’s reef on West abandoned in underlay shaft going

    20 ozs per ton (gold)

    on account of water”.

    Modern pumping equipment would keep this shaft dry at all times.
    At this time, 90% of the surface infrastructure has been installed at the shaft head, and over 20
    feet of underground excavation has been completed. An estimation of time to get to the 250 foot
    level is not possible as everything is dependent on the Chairman’s ability to raise the funds to
    complete this objective.

    http://www.stockhouse.com/Bullboards/MessageDetail.aspx?s=GXP&t=LIST&m=26005992&l=0&pd=0&r=0

    I have been following HEG and I am a biased share holder of Goldstake, but I believe that the Hill End portion that Goldstake holds a 14% interest in via Silver Orchid, is the original Hill End discovery and may be fabulously rich, but still needs money spent on it to prove the case.

    HEG should be a great success and is well on the way. I hope the Silver Orchid/Cosmopolitan Shaft will be even more exciting as soon as it also gets moving. All that gold, so close to the surface, protected for all these years only by water!

    Goldstake trades on the TSX as GXP for about 5 cents/share as of Friday.

    disclaimer: the above is my opinion only. Do your own due diligence or contact a qualified adviser prior to investing.

    Logical2

    Like(0)

  7. If you are bullish on gold or silver, I suggest that you buy the metal for delivery. If this is not feasable, buy mning shares, GG, SLW, or buy the metal held by Everbank or GLD or SLV. I prefer Everbank. Theleveraged play is the double ETF. Gold,DGL, silver,DBS. My play is the call options on DGL. Minimum risk, Huge potential, repeat, potential return. Herach.

    Like(0)

  8. Est extrator cooparatiteve repsentative
    We are MEDIA GOLD METAL GROUP Of COMPANIES (L.T.D) and governmental representative on Gold dust/gold bar bas in BENIN West Africa,
    Indeed, we are searching for a good buy or representatives to selle our products: gold dust and bar,-who can help to establish a very long time business relationship-you can get us by mail: mabdulaziz24@yahoo.com ,or by +22998977090
    Best greetings.
    Abdulaziz

    Like(0)

  9. Hello,

    We are a company of IMPORTATION AND EXPORT in Africa area. We sale the following products.

    – GOLD

    -The ALLUMINIUM

    – BRONZE

    -THE RAILS USES HSM1 AND HSM2

    -THE RAILS USED R50- R65

    If you are really interested by one of our products, try to specify us so that we can send the procedure to you on our conditions of sale.

    EMAIL/ idealsarl@ymail.com

    CORDIALLY

    Like(0)

  10. “the mine(s) are in New South Wales, not all that far from Sydney in southwestern Australia.”
    Last time I was there Sydney was still on the east coast?
    HEG has 3 times more sellers than buyers so there maybe a better time to buy coming up.

    Like(0)

  11. I live about 1.5 hours drive from Hill end in Australia [sorry to correct but it is south eastern australia not south western] I have heard news about this company on the radio a bit ,the area where it is located is and was very rich in gold one of the first finds in australia was in this area,ive done a bit of panning in this area,didnt retire on it though, HEG is currently trading right on 20 cents in Aus

    Like(0)

  12. Food for thought.

    Here is a Gold Mining Company in Australia which has interesting future prospects.

    Focus Minerals :FML (ASX)

    210km sq mining tenements in Coolgardie, Western Australia.

    Trading currently around 6 cents per share. Gold Resources 1.9 Moz (just announced a 68% incr in reserves.

    41% increase in Revenue from previous 1/4. Hedge free / DebtFree.
    Produced 70 000 oz in 2009, estimated 80 000 oz in 2010 and over 100 000 oz in 2011. They have just aquired and refurbished their own gold mill which will lower the cost of their operation.

    Also this company has a strong trading volume on the asx virtually every day.

    Have a look at the chart and you will get the picture. Im new to trading, so perhaps you view may be different. Best Regards

    Like(0)

  13. DEAR SIR,

    WE ARE GOLD MINING COMPANY IN GHANA WEST AFRICA AND HAVE GOLD DUST FOR SALE LOOKING FOR RELIABLE BUYER WHO WILL DO LONG TIME BUSINESS RELATIONSHIP WITH US.
    OUR PRODUCT FOR SALE:
    GOLD DUST

    BEST REGARD’S.
    MR. JOE:qjoe71@yahoo.com

    Like(0)

  14. I just stumbled upon this post about the $59 Computer. It’s from way back in February 14, 2010 by Stansberry & Associates, Agora Financial.
    So whatever happened with the $59 Computer? Does anyone have any info at all?

    Like(0)

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