“Tiny Gold Stocks About to Soar?” Matt Badiali

by Travis Johnson, Stock Gumshoe | November 10, 2009 11:03 am

A large number of readers have sent in copies of the latest tease for Matt Badiali[1]’s gold[2] stock picks — Matt is the editor of the S&A Resource Report, a pretty popular but inexpensive (and therefore large) oil[3] and commodities newsletter, but this time he’s sharing his picks only with the subscribers of Phase 1 Investor, Stansberry’s far more exclusive/expensive letter, with the argument that he can’t pick such tiny stocks for his larger readership without clobbering the shares.

Makes sense, we’ve all seen these kinds of tiny mining stocks go crazy from time to time — but I imagine this might be frustrating both for Badiali’s regular subscribers (who don’t want to pony up an extra couple thousand bucks to get more of his picks), and perhaps even for the regular subscribers of Phase 1 Investor, who signed up for a letter that bills itself as primarily an advisory on small biotech stocks. This isn’t necessarily out of character, however — I have been covering Phase 1 teasers for a few years, and several of them have focused on non-biotech stocks … this is their big upgrade newsletter that they go to whenever they have an idea that’s too speculative (or, one might argue, too “good”) to be shared with the hoi polloi who subscribe to their less expensive letters, and many of the major publishers follow this same strategy, impressing you with their cheaper letters and asking you often (depending on the publisher, this might be every, oh, ten minutes or so) to upgrade and get the good stuff.

And of course, when they tease these little stocks for the fancy pants newsletters, they get a bit chary with the clues — so I probably can’t identify all three of the gold stocks Badiali is teasing today (if only you knew how much it pains your friendly neighborhood Gumshoe to say that!), but so many folks have been asking about this one that I thought I should at least give it a look.

So what do we learn?

The bulk of the ad is an argument that there’s a second (and sometimes third or fourth) stage to profits for gold miners — their shares get a big jump when they make their first discovery, and then jump higher and higher still after that discovery is confirmed with technical reports. That’s not so different from arguments made by others in the past, including John Doody[4] for his Gold Stock Analyst[5], who looks at stocks after they’ve filed their NI 43-101 technical reports (that’s the regulatory filing in Canada[6] for third-party analysis of mining resources and feasibility studies, and a great many of the small miners do trade in Canada). So, not shocking, perhaps — look at the stocks that have announced discoveries, track them for a while, and buy them before they release “confirming” data for the site that either leads to more reliable reserves numbers, or a larger potential resource, or some other good news.

Easier said than done, of course, and you’d have to pay a lot of attention to notice which of the thousands of teensy tiny gold stocks make potentially interesting discoveries — which is part of Badiali’s argument regarding why you should sign on to get his research.

So here’s the tease we get for these three tiny gold stocks:

“3 tiny gold stocks about to soar

Whenever Rob hears about a great opportunity outside of his expertise, he brings in the best experts on the subject… and shares their ideas with his readers.

Which is exactly the case this month with the tiny gold companies.

As I said earlier, Rob heard about these companies – and how to get in on huge discoveries AFTER they’ve made a big discovery – from S&A colleague Matt Badiali.

Here are the details…

“Company #1 – This tiny gold stock recently made a huge discovery in Nevada. The discovery holds more than 450,000 inferred ounces of gold so far, with lots of work to do. So far, that’s a project value of more than $463 MILLION – MORE THAN 4-TIMES the value of the tiny company. Matt expects a confirmation in the next 1 to 2 months.

“Company #2 – This tiny company recently made a significant gold strike in Canada. It already has more than 2 million ounces of gold resources identified, with more than 1.4 million ounces classified as “inferred” resource. At today’s gold prices this deposit could be worth more than $4.1 BILLION – that’s more than 35-times the value of the company. Matt expects a confirmation of this deposit in the next 30-60 days.

“Company #3 – This company is the smallest of the three, and therefore the one with the most upside potential. It has a huge gold discovery in Canada, an estimated 250,000-ounce deposit, which is about 4-times the value of the company. But here’s the thing. According to Matt, who’s talked extensively with the CEO, the company expects to eventually find more than a million ounces of gold. We’ll know more when a confirmation report is released which Matt says should happen in the next few weeks.”

Oooof … as I expected, the copywriters aren’t giving me a lot to work with here.

But I can make at least one guess to get us going — for the first one, Company #1. I think this might be …

AuEx Ventures (XAU in Toronto, AUXVF on the pink sheets)

AuEx is actually a very interesting little company, whether or not it’s the one Badiali is actually recommending here. It does match the clues, their market cap is right around C$120 million (depending on how you calculate the outstanding shares — that doesn’t include the options[7] and warrants[8]), which is roughly one fourth of US$463 million, and their big discovery, which had it’s first NI 43-101 release back in March, is in Nevada and does have “more than 450,000 inferred ounces” of gold. They’re also drilling now to extend and define the resource, so they may well have more news in the next couple months (the drilling “season” apparently ends around the end of the year, according to my reading of their announcements).

If this is the stock Badiali’s pushing as “Company #1” it’s not the $1 stock that he teases could go up 500% — I’ll assume that’s the third one, since he notes that the third one is the smallest and has the most upside potential. But I haven’t been able to figure that one out at all just yet, nor Company #2, so I’m happy to take suggestions from the great Gumshoe universe.

AuEx’s property in Nevada that’s at the top of their list for exploration right now is Long Canyon, which is partnered with Fronteer (a company we’ve come across before, too — they’re also partnered with Altius for uranium[9] projects in Canada, and I suppose they could also be a feasible solution for this teaser other than the fact that they’re four times larger than AuEx). Fronteer bought 51% of the project in exchange for funding a big chunk of the first drilling programs, and they are managing the project together right now, with both investing in additional drilling.

The reason that AuEx jumped out at me as interesting, aside from the fact that they seem to match the scarce clues reasonably well and might perhaps have good news on future drill results, as Badiali appears to tease, is that they’re a pretty diversified junior exploration company that looks like it has an interesting portfolio of exploration properties (most of the others are also in Nevada, though they have a couple other sites and projects as well), and a focus on joint ventures to manage risk and minimize their need to be super-dilutive with share offerings to fund ongoing drilling, sort of like the prospect[10] generators who drill, get some initial good results, then bring in partners to pay for the next wave of exploration. They also claim to have advanced technical capabilities beyond other miners in analyzing core samples and other data to improve their results, but I can honestly say that I have absolutely no idea whether or not that claim is reasonable.

So that’s all I’ve got for you today — a tough-to-crack teaser without many clues, but at least one little explorer/prospect generator that looks like it’s a match, and that has a story that’s probably worth looking into if you’re excited about gold’s future. If you have better ideas, or any opinion on AuEx, or want to throw out possible solutions for the other two, feel free to share with a comment below. Thanks!

P.S. I promise I’ll try to focus on a teaser that I can clearly and definitively solve for you next time!

Full disclosure: I own shares of Altius Minerals as of this writing, but do not own shares of any other company mentioned. I will not trade in any investment noted above for at least three days.

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