This teaser comes in from the folks at Stansberry’s Phase 1 Investor service, which is their uber-expensive $5,000 subscription newsletter that purports to find the best opportunities in the smallest stocks.
They have developed what they call the L-2 Indicator that tells them when to buy stocks, in this case gold stocks: “the ‘L-2 Indicator’ is the most accurate strategy we’ve developed to predict the moves of tiny natural resource stocks. And using it, you could’ve made up to 8,800% gains – in a matter of weeks…”
And, for the headline attention-grabber part of the teaser, “S&A’s secret “L-2 Indicator” predicts which tiny gold stocks will jump 80% or more in the next 30 days.”
We’ve run across part of this “L-2 Indicator” before, because Andrew Mickey at Breakaway Investor also apparently uses a piece of it: One of the reasons he picked Bayou Bend Petroleum a few months back was that it had a relationship with a “pair of legendary wildcatters.”
Those “legendary wildcatters” turned out to be the Lundin brothers, scions of the Lundin family and at the top of the Lundin Group, the massive interconnected family of natural resource companies started by Adolf Lundin, the Swedish mega-investor who passed away about a year and a half ago. The group includes several public companies, several private subsidiaries, various holding companies, etc. etc.
But anyway, the letter from S&A for Phase 1 tells us that these same Lundins are, in fact, one part of the L-2 indicator — you’ll probably hear, if you’re interested in natural resources and mining stocks, that “following the Lundins” is a fairly popular activity, sort of like the many value investors who follow Warren Buffett’s picks for Berkshire Hathaway and buy shares of everything he invests in (though on a much smaller scale, of course).
So this is slightly more complex: We know that we want to buy (according to this teaser) after the Lundins buy into a microcap mining or resource company. The teaser notes that these companies typically go up by at least 5-10% in the ensuing month or so.
But they say the real gain, over the long term, comes from buying after the second part of the L-2 Indicator is triggered. And they have a particular gold stock in mind which “recently” triggered this second part of the indicator.
Now, given the large number of companies that the Lundins invest in, it might be somewhat difficult to pin down the exact gold miner being teased here … or to tell you precisely what that second part of the L-2 Indicator might be. But the Gumshoe is game to try!
Here’s what we know:
They give a few examples of stocks that you could have picked with the “L-2 Indicator.” Some, like Tenke Mining, triggered the indicator simply by merging with Lundin companies (Lundin Mining, in this case). There doesn’t seem to have been a second part of the indicator for these guys.
A couple others, like Pearl Exploration, saw the Lundins buying big pieces, then the shares fairly rapidly shooting up (Pearl then spun off Bayou Bend, for whatever that’s worth). Or Valkyries Petroleum, now a wholly owned part of Lundin Petroleum. Not necessarily a second “trigger” there, either, at least not one that I can see in the news or the charts.
So what is this second part? From Matt Badiali, the S&A Analyst for this sector:
“There’s one more thing you need to know before buying potentially explosive resource stocks… It involves a certain event in the business cycle of these companies.”
The way I see it, this is most likely to be one of two things:
- Actual mining or drilling results.
- Change in corporate structure.
Now, given the examples provided, a real answer might require cornering Matt at an investing conference somewhere … but here’s what I see — I’m blocking out this segment of text in case you want to ignore it, it’s long and complicated, and I’ll talk about what my guess is for the “next” L-2 company at the bottom:
They mention Lara Exploration, which had a 7.2% gain “within a month” after a press release, which I assume is the announcement that the Lundins are buying in to their private placement. That announcement was on September 17, so you bought the next day at $1.10. One month later it was at $1.18, which is indeed a 7.2% gain. So far so good.
But they also indicate that you could have gotten a return “almost 7-times as much” in 20 days if you had waited for the second part of the indicator to kick in. So what the heck is that?
I assume it must be after the first indicator, so we’re not dealing with much time. We need something like a 50% gain in 20 days, sometime last fall.
So what happened? Lundin put someone on the board of Lara — but that was October 16, and the stock actually went down for the subsequent 20 day period (though it did spike briefly on the news, it was only a few percent).
And actually, looking at the chart, it appears to me that to get a 50% gain in Lara at any point in 2007, you would have had to buy it at the recent low of 87 cents in early September (pre-Lundin announcement), and sell it 20 days later on October 1 for $1.30 (this is all Canadian, I’m not going to figure out how you could have improved it if you timed Canada/US exchange rate moves, but there weren’t any other stock swings of that magnitude in 2007).
So, in fact, the second part of the indicator must have predated the first if the numerical clues are accurate — what happened on or about September 10 to make you buy at that low, before the Lundins had announced their interest?
There was no press release. They didn’t change the board or announce any operational results of note. The only thing they did during that time, as far as I can tell, is change auditors and change the name of the company. I don’t know why changing auditors would be significant, since it was a change between two big firms.
And unfortunately, the other company they mention as an example, didn’t have anything as exciting as a name change or a change of auditors on or about the date that they began a month-long 50% gain (or so).
Cornerstone Capital Resources, another Lundin company, is the other example worth examining. They are teased as having a 30 day return of 12.4% after “part one” of the L-2 indicator, which might have been buying the day after the private placement to Lundin was announced, September 18, and selling a month later on October 18 for almost exactly a 12% gain. I’ll accept that.
But they say you could have had a gain of almost four times as much by buying at the second indicator instead. The implication again is that the second indicator is after the first, but again it doesn’t work that way as far as I can tell. Cornerstone did have one period where you could have gotten roughly a 50% gain, a little less, but you would, again, have had to buy before the private placement to the Lundins, probably sometime in late August. Cornerstone did release some news around then, including some drilling results and an exploration deal with Phelps Dodge, but nothing that I can imagine you could have sorted out from the chaff to identify as an “indicator.”
So, I’m at a bit of a loss as to what the “second part” of the indicator might be. I also looked for any high volume days or similar technical indicators — there might be something to buying at the 52 week low, but of course buying at the 52 week low without the Lundins having bought shares yet simply narrows the search down to every unsuccessful mining company in the world.
It appears to me that to get gains like that from the common stock of these companies, you would have had to buy before it was announced that a Lundin-affiliated company was buying into them (in most cases, through a private placement). If any of the readers out there in Gumshoe Land, especially those with some expertise in mining stocks or in the Lundins, would like to respond with some more ideas … I’m all ears. And to the copywriter who put this one together, kudos — tough nut!
But, to throw in at least one guess as to the spoiler, let’s look at what they think is the next great “L-2” play for Phase 1 Investors, which they’ll be announcing on Thursday night.
I assume that it has to be a company that the Lundins have invested in, and the clues are:
It has mining operations in the caribbean and is a gold miner.
The Lundin family trust recently “subscribed for 1,500,000 units.”
Trades for less than $2 a share and has a market cap of about $30 million, so it’s definitely tiny.
The second part of the L-2 indicator was triggered “just recently.”
So what are we dealing with here?
Let me be perfectly clear, I don’t know this one for sure, it’s a guess. And this is a $30 million company, so that means that even the small cadre of Gumshoe faithful could conceivably run up the shares if many of you decided to buy it. Please beware, I am certainly not recommending anyone buy this.
But I think it’s Eurasian Minerals (EMX on the Toronto Venture Exchange, or ESMNF on the pink sheets)
Why? Well, the Lundin family did subscribe to a private placement of 1.5 million shares a couple months ago. The company is primarily Eurasian, but has expanded to mine in Haiti. Trades for something around $1.80 a share and, though the market cap is actually close to $45-50 million, there are 5 million shares in escrow, apparently, that put the “float quoted market cap” at under $40 million according to the Toronto Exchange. So, that part’s perhaps a bit of a stretch.
Anyone else want to take a gander at this one? Again, I don’t see what the “second indicator” is likely to have been, it was announced that the Lundin family bought in back in early September (and the shares did spike a bit on the news, though they remained well off their Summer highs). Since then, the news has been pretty much entirely composed of drilling results from their gold mines in Haiti, Turkey, and the Kyrgyz Republic. I don’t know enough to tell you whether those results have any particular significance.
On the plus side, though, EMX is still higher than it was when the Lundins bought in, if only by a bit. The other two examples have fallen way down since the brief highs following the Lundin buys, though, to be fair, this is supposed to be a “next 12 months” indicator.
So … anyone else have anything to add on this “L-2 Indicator?” Sorry I can’t provide a definitive result, but at least I’ve probably overwhelmed you with a voluminous amount of text, signifying nothing. I promise, I’ll send you a simpler one with a simple answer next time!