I had another note in mind to share with you today, but the overwhelming demand for answers about the new Phase 1 promo that started mailing last night has jumped it to the top of my inbox. Frank Curzio’s Phase 1 Investor newsletter, which is the pricey letter published by Stansberry ($5,000, but usually “on sale” for $3,000 or so), is teasing that they have the “most shocking 20-second video on the Internet” … and the stock to benefit from the amazing advances you can see in that video.
So what is it? Well, the video first:
“In a few moments I’m going to show you an obscure 20-second video clip that will likely stick in your mind for days, maybe weeks.
“The footage comes from a foreign news network and was shot in one of the most dangerous countries on earth. There are no disturbing images. But you will probably have a hard time believing that what you are seeing is real.”
What he’s mentioning there is is a video from a Middle Eastern news channel that appears to show a soldier wearing some sort of “invisible suit” — the video is actually from more than two years ago, you can see one of the many YouTube versions of it here:
That’s the four minute version, I’m afraid, you have to fast forward to somewhere around 3:15 or so to see the “invisible man” run across the screen and jump in the tank. I have no idea whether or not the video shows anything high tech or real or it’s just a really bad camera, but there are certainly plenty of researchers trying to develop something like the “cloaking device” the Klingons used in Star Trek or the “invisibility cloak” made famous by Harry Potter. They work in lots of different ways, essentially trying to bend the light (or whatever other wavelength) to make it appear that an object isn’t there.
And they all rely on some sort of nanomaterials to develop flexible, thin, conductive “material” or whatever — which is what this teaser is really about. It’s not about some gee-whiz technology, it’s about … wait for it … graphene.
Which means, I’ll bet that he’s teasing one of the several graphite stocks that we’ve looked at before — after all, there aren’t all that many junior graphite companies with legitimate potential mines, and we’ve written about three or four of them. So what is it?
Here are his clues:
“Over the next several months a tiny Canadian company could indirectly benefit from this video’s growing popularity. But time is of the essence, so let me get right to the point…”
[And yes, if you gave me a nickel for every “tiny Canadian company” that’s teased as the next source of a miracle material or a life-changing mine I’d be able to … well, I’d be able to subscribe to Phase 1, I guess]
“… a new kind of substance is being developed.
“Valued at up to $6,000 a ton, this material is said to be the thinnest substance ever discovered.
“In fact, this material is so thin that one layer is invisible to the naked eye. Researchers at Dartmouth University indicate that three million sheets of this material stacked on top of one another would only make a pile one millimeter high. That’s about as thick as a credit card.
“But what’s truly shocking is that this transparent material also happens to be the strongest substance ever measured – 300 times stronger than structural steel and harder than diamond.
“Columbia University Engineering Professor James Hone puts it this way: ‘It would take an elephant, balanced on a pencil to break through a single sheet of this substance the width of cling film.'”
Right, so that “new kind of substance” is graphene, a single layer of carbon atoms that’s been formed — in the famous case of the researchers who won the Nobel Prize a few years back — by using scotch tape to peel off a single-layer film. And it really is that crazy strong. But it’s worth a hell of a lot more than $6,000 a ton — the stuff that’s worth up to $6,000 a ton is one of the potential raw materials that can be used to produce graphene, large flake high-purity graphite. Yes, the same basic stuff that’s still in your pencil lead (though that’s not the large flake variety, most likely). Graphite is mined out of the earth just like coal is, and it’s sometimes even referred to as the most purified version of coal, it’s almost all used in steelmaking and in batteries (there’s more graphite than lithium in a lithium-ion battery) and most of it is lower quality stuff used to make high-temperature anodes for steel plants, but the large flake stuff is apparently likely to be useful for making graphene.
But graphene is a nanomaterial, produced in scale by using advanced equipment, and at least for many years to come the cost of graphene is likely to come primarily not from the raw material — which might be graphite or could be some other synthesized form of carbon — but from the processing required to create the single-atom-thick sheet.
So that’s my standard spiel about graphene and graphite — graphite is in high demand and prices have risen, but that’s not because of invisibility cloaks and the use in creating graphene stuff, it’s because there’s high demand from steelmakers and electronics makers for the other, current high volume graphite products like batteries, heat sinks, etc.
It’s also, just to make the whole idea irresistible to newsletter writers, another material (like rare earths) where China dominates the market and may create artificially spiking prices if they cut exports to support their own domestic high-tech manufacturing (again, as they did with rare earths — they undercut everyone on price to make rare earth exploration and mining unprofitable outside of China, then used their cheap rare earths to force high-tech manufacturers to do more advanced manufacturing in China by restricting the export of those minerals). It’s not as dramatic as rare earths — China has probably 70-80% of production of graphite instead of 95% plus — but it’s still substantial.
So that’s the back story — Curzio, like several before him, is teasing that the huge potential of graphene means that graphite miners will make a mint if they have the right high-quality assets. So which one in particular is he teasing? Here’s some more from the ad:
“… the good news is, in a remote area of the world, near the Arctic Circle, a large deposit of this mineral has been discovered.
“And even better news, for investors, is that this mine is controlled by a tiny Canadian mining firm that is set to begin producing in just a few months.
“This is one of the few sources for this miracle material outside of communist China. That makes it not only politically stable, but extremely valuable to the western world.
“As news leaks about the incredible uses of this material, I expect the stock to climb. Based on my conservative estimation it could easily triple in value over the next few years, if not quadruple.
“So how big is this deposit and how much is it worth? Well, here’s where things get particularly interesting…
“The Western World’s $40 Billion Secret
“The mine was initially constructed in 1995 by an entirely different company. But despite being one of the only deposits of this mineral outside China, production was shut down in 2001 due to low demand.”
More clues? You betcha:
“Interest in the mine resurged and after changing hands a couple of times, a small Canadian company purchased the mine in mid-2011 and has been hard at work restarting its production.
“Based on old resource estimates this project has 30-years of steady production. And these estimates were based on drilling that was just 50 meters below the surface. Today, this Canadian company is in the process of a 2,500 meter (over 8,000 foot) drilling program.
“In other words, the actual supply of this mineral could be much, much higher than previously thought.
“With an updated official resource report to be released over the next few months, this stock is ripe for incredible gains.
“In fact, with the recent selloff in the junior mining sector, now is an ideal time to buy a stake in what could soon be one of the largest producing mines of its kind, outside China.
“Again, this mine is not a new discovery. That means unlike most other mining projects in the world, the infrastructure – basic things like roads, water, electricity, processing plants and permits – are already in place. The company does not have to bear those huge costs as a result….
“… this company owns one of the few mines producing this rare mineral, outside China, and will start producing this mineral within the next 18 months … the company believes that this mine could produce up to 13,000 tonnes of this mineral each year. (To put this in perspective, some of the largest mines in the world produce less than 17,000 tonnes of this mineral annually.)”
And he tells us that the company’s assets could be worth $2.3 billion at current high graphite prices … or a minimum of $200 million in a more conservative scenario (prices much lower or lower quality product, produce half as much as expected), which he compares favorably to the fact that the stock currently has a market capitalization of just $60 million.
So that’s a halfway decent slate of clues — which “tiny Canadian company” is he pitching this time around?
Toss it all into the Thinkolator, and we learn that this is … Flinders Resources (FDR in Canada, FLNXF on the pink sheets)
Which has been teased before — by Michael Robinson back before the current iteration of the company was created over the winter, so he can get some bragging rights on that one. The stock spiked up to over $3 on all the attention earlier this year, but has come back down to about $.160, right around where the stock was when it did its last big fundraising in April (of $15 million) to fund the initial development of their graphite mine.
Their mine is actually in Sweden, called the Kringel mine, and it was a historic graphite producer that shut down in 2001 due to low prices. They don’t produce the super-expensive ultra-high-purity graphite that’s used for lithium batteries and perhaps someday for graphene (that’s the 99.5%+ pure stuff, apparently), but they say they’ve tested and they can upgrade their graphite to those levels for manufacturers … and they do have a lot of the large flake graphite, apparently, which is priced at more like $2,000/tonne.
And yes, they are “near the arctic circle,” and they’re in a relatively mining friendly area of Sweden, and they have started processing old stockpiles of graphite just this week and say they can restart operations within the next 12-18 months on a more significant scale, so that matches the tease nicely. They also are aiming to produce 13,000 tonnes/year and do say that they have reserves for a 30+ year mine life, and they are close to all the necessary infrastructure and are exploring below the well-established resources that they’ve found at shallow depths, so I’m quite confident the Thinkolator is right this time around.
Does that mean this will be a profitable pick, or a trading opportunity? Well, I have no idea — the market cap is right around $60 million, and the junior graphite stocks with near-term potential production are all extremely story-driven, so there’s no reasonable way of placing a solid value on the stock — if you’re interested, one way to get familiar with the project and what they expect is by starting with their most recent investor presentation here.
The Phase 1 folks will apparently have a conference call with someone from the company management team and industry experts to discuss this stock on August 30, as they tend to do with many of their big new recommendations to add value to what is a very pricey newsletter, but they’re releasing the name of this stock and the special report in it now to current (and new) subscribers, so I don’t know if there stock will pop again on August 30 or not — sometimes it does for a conference call like this, sometimes it doesn’t, I suspect it probably depends on what kind of price recommendations or hyperbole come out in the call, and how far the stock has already popped up by that point.
Because yes, these Phase 1 stocks very often get bumped up by Curzio’s recommendations — particularly when yours truly writes about them and shares the heavily-hyped ideas with a broader audience, the combination can lead to some spikey movements in the share price. That doesn’t mean it will end well if you happen to decide you want to buy this stock today, because often when the attention dies down the stock slips back to the prior “natural” levels, that particular kind of action is pretty much impossible to predict — will another newsletter come out touting graphite stocks? Will one of these companies go bankrupt or massively increase their reserves? Will China increase graphite export tariffs or cut production? Those things can all move these picks, and very quickly, so be careful.
The other graphite picks that have been teased — and will, quite likely, be teased again — are Northern Graphite (NGC in Canada, NGPHF on the pink sheets)with their potential mine in Ontario, and Focus Graphite (FMS in Canada, FCSMF on the pink sheets) used to be called Focus Metals) with their project in Quebec. Both are very similar in size (market cap-wise), in the neighborhood of $60 million, Northern Graphite just released their feasibility study last month for producing for 23 years at about 18,000 tons/year and their optimistic case for the “net present value” is around $180 million and Focus Graphite seems to have the highest-grade deposit and connects their company story more aggressively to the graphene story, they say in their presentation that they can produce 20,000 tons a year for 40 years at higher purity and start producing on roughly that same timeframe, in late 2013 or early 2014. So all three of the potential widely-touted picks are quite similar in terms of resources, production, timeline and valuation, but there are certainly differences in the graphite concentration — if graphite prices spike and the story gets widespread (again), I’m sure all three will move together to some extent, but I haven’t dug into the individual details of each potential mine, nor do I own shares in any of these.
And we’ve been on the graphite track for quite a while with all the teasing that’s been done, so I’m sure that there are many of you who know this story in far more detail than your friendly neighborhood Gumshoe — so whaddya think? Is Flinders your fave for their Swedish graphite, or do you think the Canadian mines are better values? Or perhaps you have some other junior favorite that’s still flying further under the radar that you’d like to stake your claim to? That’s why we have that friendly little comment box below, so feel free to use it to your heart’s content.
And I’ll be vacationing for a week or so with Mrs. Gumshoe and all the little Gumshoes, so this is probably the last new article you’ll see until Labor Day … unless something jumps out at me and pulls me off the beach. Enjoy!
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