Nick Hodge is pitching his Early Advantage newsletter (about $800) with a story about a “golden loophole” that he says provides your best path to profits in the precious metals business — and lots of readers have asked me about that “loophole” this morning, so we’re going to put the Thinkolator to work identifying the truth behind the tease.
The basic idea is that gold mining is a terrible, expensive and difficult business… but that discovering gold and holding onto gold-rich lands and waiting for someone to want to buy your potential mine when prices are soaring again someday is a great business, with low costs and huge potential returns.
Which makes some sense, though it skims over the cost and time commitment, and high failure rate, of the discovery process.
But the ad also isn’t really hinting at finding a grizzled old prospector and staking him to a burro and some beans so he can make discoveries for you, and it’s also not really about buying the early stage “prospect developers” who are out scouting and claiming potential discoveries. It’s really more about buying the counter-cyclical land bank investors who are acquirers, not discoverers. The companies who buy up those discoveries before they’re fully defined and well before the mines are funded or developed, and just sit on those assets until the market turns in their favor to make those assets much more valuable again so some other
sucker miner can get involved and actually build a mine.
So that’s the basic theory, at least — interested in finding out the name of the stock? Me, too, let’s get to the clues — this bit is from the order form and sums things up:
“The land banking strategy has routinely delivered percent gains ranging from the thousands… to the hundreds of thousands.
“Luckily, I’ve found a small company — backed by some of the best people in the industry — that sports a large, high-grade gold ‘land bank.’
“And hardly anyone else knows about it. Its value isn’t even close to being fully realized.
“But in the coming gold bull market, it will be.
“Just one of the NINE gold assets it has in its land bank was recently valued by an independent engineering report at $233 million — 17 TIMES more than what they paid for it.
“This firm is trading right now for less than $1 per share. But I don’t expect it to stay there for long.”
That’s probably enough to ID the stock, actually, since I happen to know this one, but let’s check a few more clues so we can be certain… here’s some more of the basic argument, which hinges on the “Peak Gold” assertion that there are many, many fewer big gold discoveries than there used to be, and that the big miners will be desperate to add reserves at some point:
“The risks of investing in ‘land banking’ companies is far, far, far less than your typical mining stock (which spends millions of dollars developing one or two mines that may or may not be winners).
“And now that ‘Peak Gold’ has arrived, big miners will be more desperate than ever for gold-rich land… and willing to pay substantial premiums for it.
“But you don’t need to go out and buy any land. Or buy “stakes” in any claims.
“Thanks to this ‘loophole’, you can safely double, triple, or even quadruple your money… even if you don’t know a gold mine from a rabbit hole.
“All you have to do is simply piggyback off others who have done it before… and have made a ton of money doing it.”
And then some more specific clues:
“The Single Best Gold ‘Land Banking’ Play You Should Buy…
“This CEO is a huge name in the business.
“He has been recognized by Fortune magazine on its “40 Under 40: Ones to Watch” list of North American executives.
“In his first public resource company he produced gains of 3,673% for his shareholders….Are you getting our free Daily Update
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“This is a tiny company that holds valuable resources in one of the greatest gold belts in the world… and it could easily become a 10-bagger down the road.
“It has a ‘land bank’ of NINE gold assets in Brazil, a mining-friendly nation that has attracted over $