“China’s Secret ‘Blue Gold’ Addiction”

by Travis Johnson, Stock Gumshoe | February 23, 2010 3:45 pm

This one came through my floodgates largely as a promo run to the subscribers of the free Bourbon and Bayonets newsletter from Oakshire Financial[1] (second only to Whiskey and Gunpowder for the title that best brings up flannel shirts, gold[2], freeze-dried food and assault weapon survivalist imagery — personally, I’d rather subscribe to Whiskey and Bourbon, and would probably prefer to stockpile same). The ad, however, is for Oakshire’s Wall Street Elite[3], which apparently is some kind of a $50/month trading service. Not sure how long they’ve been around, but I’m fairly certain that I’ve never written about them.

That changes today, however: Stanley Barnes of Wall Street Elite is teasing us that he’s got a winning commodity stock that can make us rich from “Blue Gold” — and no, it’s not the same blue gold that we see teased most often, that being water[4], it’s a metal. They don’t reveal the top-secret name of this metal, which is critical for rechargeable batteries, but it’s quite clear that they’re referring to cobalt[5]. So … what’s the tease?

“Up until now you had to be wealthy, connected, and swimming in cash to corner a new market. But our Wall Street Analysts have uncovered a shocking secret that the Energy elite would rather you ignore.

“China[6] and America are hopelessly addicted to a new energy drug. And much to the Saudi Royal Families horror, it ain’t oil[7].

“It’s a mineral buried deep in the forest in Camaroon [sic]…

“The Jungles of Cameroon are hiding a treasure worth billions, China is already on top of it and we’ve found three companies that are cornering the market quickly….

“The Pentagon considers the mineral to be vital resource vital to America’s national security. Our team has nicknamed it Blue Gold and the rush is on to stockpile and control every scrap of it worldwide.

“And only a few companies have cornered a $10 Billion vein of this stuff – and we have done the extensive research to bring you in before it blows up!!!

“The millionaire formula is simple – own stock in these companies.

“This investment could put your kids through college, buy the vacation home, sailboat, and provide a ridiculously comfortable retirement[8] on your terms.”

Hard to resist that excitement, eh? They go on to say that if you missed buying into Berkshire Hathaway in the 1970s, then this is the “Berkshire pick of this decade.” Which is hard to even read with a straight face, but that’s what they tell us. And they tell us that it’s a small-cap with a thin float, and it’s safe, unknown, and cheap. I hope they ran that “safe” part past their lawyers first.

The tease goes on to emphasize how important this “blue gold” is to new high-tech machinery like the Boeing Dreamliner, and how critical it is to rechargeable batteries of all kinds — I think I’ve actually read that in the current popular formulations there’s actually more cobalt in a lithium[9] battery[10] than in nickel[11] or lead-acid batteries, but I’m not sure if that’s accurate now. Either way, most rechargeable batteries use cobalt, and that appears to be the biggest demand driver for this metal. Oops, I called it cobalt again … I meant, “blue gold,” sorry.

So they draw a picture of the almost exponentially increasing demand for “blue gold” … which of course means someone’s going to get rich, right?

And they apparently have one favorite stock:

“The One Company That is Poised to Become the Saudi Arabia of the Next Energy Revolution

“If you’ve ever met this company’s founder, you would instantly know that he was born for wildcatting.

“Wildcatters go where the devil fears to tread to find oil.

“Our guy is a bit different –

“He’s sworn off Black gold and he prefers to find rich veins of precious metals. Not – Gold though – he prefers what he calls ‘Blue Gold.’

“We already know why – Blue Gold is much, much, more valuable.

I don’t want to go out on a limb too far here, but I think I can say that if cobalt ever becomes more valuable than gold I’ll be prepared to eat my hat. I’ve had to eat a few of them in the past, but I’m pretty sure this one is safe. Cobalt futures are currently priced at a little under $20 a pound (it just started trading on the London Metals Exchange last week, though it’s not likely to be all that heavily traded); and we know that gold is about $1,100 an ounce — it doesn’t matter if we’re talking standard ounces or Troy ounces, that’s a massive, massive difference. So you can say “more valuable,” if you like, but that tells me that you use a very nonstandard interpretation of value — as in, perhaps you prefer the color, or you think it’s critical that your most highly valued items be magnetized.

Then we get a few more clues that should narrow down this specific stock:

“His latest expedition took him to the malaria-infested jungles of Camaroon. Following his world famous “nose for gold” he followed a guide deep into the jungles – when he got to the location of the “supposed find” he realized that he couldn’t quickly get his industrial digging equipment to the spot.

“So he dug out his pick and shovel and started digging and digging .and digging. 42 feet deep he struck Blue Gold – the world’s largest!

“He quickly packed up his tools. Traveled to Yaoundé, Cameroons capital city and successfully negotiated a sweetheart deal secure rights to the Blue Gold find for 25 years….

“Today, his company sits on top of 7% of the world’s supply of Blue Gold worth at least $10 Billion!”

OK, so that’s a few clues — 7% of the supply, 42 feet deep, 25 years. Now we’re getting somewhere.

And we’re also teased that the insiders are big owners, as follows:

“At less than $2.00 a share, you could easily take a stake in the company (a pretty big one if you choose).

“Then wait and watch as this stock explodes.

“You would be in great company because the company’s management are betting big too

• “250,000 shares purchased by the Chief Operating Offer
• “40,00 shares acquired by a solidly placed Vice President
• “400,000 shares quietly moved into the Chief Financial Officers trading account
• “150,000 shares nabbed by a company director

“840,000 shares in the hands of the company management – a strong endorsement of this company’s future …”

So who is it?

Well, believe it or not, this looks to be the same cobalt company that I wrote about three years ago for an entirely different teaser[12] — and yes, that publisher (it was Taipan[13]’s Breakaway Investor[14] in that previous ad) was making much the same promises about the future of cobalt and the riches that would soon flow.

The clue that fits least well is the “less than $2 a share” – it is trading for less than two dollars, but it’s also trading for less than one dollar. The company is named Geovic Mining, and it trades in Canada[15] at GMC and over the counter in the US at GVCM. Volume is quite light on both exchanges, but today it’s actually trading a bit heavier in the US, at about 70 cents per share. Around the time it was first being teased by Taipan back in 2007 the stock actually got close to $4, but it went pretty quickly down from that level and for much of the past year it’s been in the 50-60 cent range, making an occasional run to 75 cents or so (probably on the strength of a news release or a newsletter’s attention).

Geovic Mining is a company founded by William Buckovic, with interests in a number of mineral and commodity exploration opportunities around the world (Geovic Energy, for example, is working on some Uranium exploration and has some minor gold and oil interests), but their primary focus is on the cobalt belt in Cameroon. They do indeed have a 25 year agreement with the government of Cameroon, and a partnership with them — the exploration started in 1995 and the agreement started in 2003, and the joint venture company is called Geovic Cameroon, sometimes abbreviated GeoCam, and Geovic Mining owns 60% of the joint venture (the government owns 39.5%, Buckovic personally owns the other .5%). Their mining concessions cover what they describe as the “entire cobalt mineral province in southeastern Cameroon, perhaps the largest primary cobalt resource in the world.”

And I did not check the individual share holdings of each of those officers mentioned in the teaser — but I’m sure many insiders own shares, particularly Buckovic … and I hate to overuse the phrase, but if they bought those shares on the open market with their own money I’ll, well, eat my other hat. This is probably unfair to say, since I haven’t checked, but I would wager that most of the insider ownership is from options[16] and share grants (and they have many millions more options authorized), which is not unusual for a early stage exploration company (or for many other firms), but insider ownership does not always carry the same positive implication for the share price as insider purchases.

Other matches for the clues? The cobalt was discovered in hand-dug open pits, I have no idea whether Buckovic was personally involved in swinging a pickax, but the pits were reportedly an average of 13 meters deep … which, yes, comes out to about 42 feet. Switching measurements is often a way newsletter copywriters obscure the facts in their attempt to make things harder to find — I’ve had to translate a teased mile measurement into kilometers to confirm the facts many times.

And yes, Geovic’s 43-101 resource assessment for their first potential mine, the Nkamouna property, did say something about this property supplying seven percent of global production — here’s how they put it in the filing:

“The operating plan for Nkamouna includes a shallow open pit mine followed by processing with conventional equipment and proven technology to recover 175 million pounds of cobalt and 133 million pounds of nickel over an initial 19-year project life. This production is equivalent to annual average rates of 4,200 tonnes of cobalt and 3,200 tonnes of nickel. Based on total annual worldwide cobalt production of 57,500 tonnes in 2006, annual production of 7 percent of the world’s total production would make the Nkamouna project a “world-class” producer.”

They did, just last Fall, upgrade those resource estimates [pdf file] [17]— and imply that the upgrades might mean a doubling of that potential mine life. And they were also careful to point out that the resources they’re actively drilling and analyzing for their first mine, Nkamouna and Mada, are less than one fifth of the total land area of their exploration area, so they believe there’s lots of room to continue growing the potential reserves.

Geovic has roughly 139 million shares outstanding, fully diluted (ie, including all the options and the several different warrants[18]), which means that their market cap is roughly $100 million. They have the authorization to go up to 200 million shares, which one would expect will be part of their financing plans in the future — they have engaged an investment bank to help with the fundraising they’ll need to do late this year, after they release a “Feasibility Study Update” that they expect to come out in “mid-2010” and lead to starting mine construction later this year. I have no idea whether or not that plan is really workable, but from my limited experience with these types of companies I wouldn’t be surprised if the timeline they’re suggesting is, let’s say, optimistic.

Cobalt is an interesting investment metal because it is rarely the primary metal for any mine and it’s in fairly high demand, but, unfortunately for investors, the supply seems to be keeping up just fine for now — much of the world’s cobalt comes from the Democratic Republic of the Congo (DRC), where cobalt is in pretty high concentration in their prodigious copper[19] mines, and most cobalt comes to market as a by-product from either copper or nickel mines. So it’s true to say that there are almost no primary cobalt mines in the world (maybe truly none, I’m not sure), and that demand is generally rising, but it’s also true to say that cobalt production is going up because of the increased investments in nickel and copper mines.

I certainly don’t know where the price of cobalt is going — but the experts I’ve seen quoted are not terribly optimistic. It has gotten some additional attention with the recent advent of futures trading in the metal (along with molybdenum[20], another oft-teased commodity), but most of the attention I’ve seen has been of the “glad it’s trading, don’t think it’s going straight up anytime soon” type, like this article from Reuters[21]. That could easily be wrong, of course, and cobalt has been pretty volatile over the years, thanks in large part to the politics of the DRC. And while it’s not a primary metal for most miners there were a lot of copper and nickel miners that got in some trouble back in 2008 in part because the falling cobalt price changed the economics of their business. Cobalt has had some huge moves from lows to highs in the past decade, including a run from under $10 to about $50 before falling back starting two years ago … but from what I can glean of past cobalt prices the average for the past 20 years or so has tended to come in at a bit under $20 a pound, right where it is now.

Geovic has a complicated structure, with the GeoCam subsidiary/joint venture, and it has been around for a long time building up operating losses and occasionally complex relationships with related parties — if you do decide to get into these shares, I’d urge you to read up on the filings and get comfortable with the risks and the probably elongated timeline before the company comes close to doing anything that makes anyone any money. That goes for pretty much all junior miners, of course, but it’s always worth a mention.

There are other cobalt explorers and miners that are sometimes mentioned — and that often get attention from traders as potential penny stock plays on cobalt, including Caledonia Mining, which has a project in Zambia (just south of the DRC) and Katanga Mining (in the DRC), and I even wrote about a US cobalt mine last year that’s in the planning stages in Idaho (that was Formation Capital[22], now Formation Metals[23]) — there are lots more names out there, with cobalt exploration and/or production on most continents, so if you’ve got a favorite in this space, feel free to let us know. And of course, if you have an opinion on Geovic we want to hear it, just use the friendly little comment box below.

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