“70 Cent MIning Company Exposes Chinese Monopoly”

by Travis Johnson, Stock Gumshoe | June 15, 2007 2:30 pm

[I’ve left this one here for full disclosure so that you can see I made a mistake when I wrote up this post earlier today — the company teased is not the one I reveal at the bottom. If it’s any consolation, I think this is the first time I’ve posted one of these that turned out to be wrong. Sorry to the reader who submitted this solution, but some folks over at the forum came up with a stronger match in Playfair[1] — you can see their comments and solutions here[2]]

What follows is the original post, which is now kind of embarrassing, with my additional notes in red to correct and excoriate:

So the new rule is: If you’re going to tout a small commodity stock, the argument has to be focused on China[3]. Every single one I’ve seen focuses either on Chinese demand, or on the Chinese attempt to corner the market (a few examples that we’ve seen on this so far are Geovic, Lynas, and Rusina[4]).

And now, Andrew Mickey[5] is sending around another one — this time, it’s a 70-cent Canadian company that’s about to break the Chinese stranglehold on the market for a particular metal.

The metal is not mentioned, but a reader sent in the solution and I’ve verified it:

“The metal at stake is renowned for being the heaviest and most durable metal on earth. It’s used in everything from light bulbs to bullets and even jewelry for those who want the platinum[6] look without the platinum price.”

That makes this clearly Tungsten — which, by the way, has distant Swedish roots, just like me (tung sten means something along the lines of “heavy stone” in Swedish). The other part of Mickey’s argument is that this “unnamed metal” is key to oil[7] production, since it’s a good material for drill bits and the like.

That’s confirmed by the other clue he gives about the metal, “the price of a pound of this metal has skyrocketed from $2.80 to over $17 per pound. And get this: China holds 85% of the world’s supply.” That matches Tungsten, too.

So … we go that far. Now we need the Canadian company, priced at 70 cents, that’s got a big pile of Tungsten to take out of the ground. Any more clues?

“In October 2004, it purchased a mining site for only $230,000. Today, that same site is potentially worth $180 million. That’s a 78,161% return on its investment! “

There are four mining sites in the company’s portfolio (the one above is just one of them).

And … Mickey said that he took a flight to a “small Canadian island” to investigate one of their mines.

He also says that “I can practically guarantee you that once this story hits the major newswires, this company’s share price is going to soar … [and] could reach $5 in the next four months.”

So … 70 cents to five bucks sounds pretty nice for a summer project. what company are we talking about? Well, as I said, the solution was sent in by a reader, and I think he’s right. This company is …

Geodex Minerals (GXM on the Canadian Venture exchange, GXMLF.PK on the pink sheets)

[So … more on my mistake … this actually looks to be Playfair instead (PLYFF.PK). Thanks again to the folks at the forum for jumping on this one and noting my mistake, and apologies for making a leap in the first place, should have known better than to do that with a junior miner. I thought the share price match and the date of purchase were compelling, but they were not unique … and Playfair does have an island mine, their biggest mine is in Newfoundland. newshidden over at the forum[8] has a very complete explanation of why he’s right and I was wrong]

The stock is right around 70 cents US right now — just a hair under at last check.

They did acquire their main property, Sisson Brook, in October of 2004 … I didn’t read the filings to see if it’s possible to find out how much they paid for it, but do note that the clue is a little misleading, they didn’t buy the property — they took out an option on 70% of it, so the small price is certainly feasible. To exercise their rights to the property they need to spend a certain amount of money in the near future developing it, so they have issued some more equity — some in a sale, some in a deal with Teck Cominco that gives them some rights in exchange for a cash infusion. As with almost all of these junior mining companies, the financial picture is very confusing.

The one concern I have is Mickey’s odd reference to “flying to a small Canadian island” to investigate — all of the sites in focus for this company are in New Brunswick, which as far as I know does not have an island airport anywhere. My best guess is that he’s just being clever and flew into Charlottetown on Prince Edward Island, which is just a looong bridge away from New Brunswick, and for all I know may provide cheaper flights (though the biggest airport around there must be Halifax International in Nova Scotia … not the island part). I didn’t care enough to check the details on that, since the rest of the clues were pretty compelling matches.

[Idiot! A few more minutes would have revealed that there is indeed a Tungsten miner on an island]

If you like the metal in general, then there is at least one other non-Chinese company I’ve heard of: North American Tungsten controls the biggest supply currently outside of China, I think (up in the Yukon) — but they certainly aren’t new or dealing with new discoveries. They’ve been around since the ’70s at least, though they may have changed hands or gone bankrupt between then and now a few times (China has flooded the world market with Tunsten before, completely crushing the price, but now appears not to want to export the raw metal, or at least not in the same quantity as in the past — there’s a good Marketwatch artile on this from last fall[9] if you’re interested).

So … if you want to invest in Tungsten, I suppose this is another idea to snoop into. I’d be careful about reading their filings to understand how much they’re going to have to spend to develop these mines, what rights their new partner Teck Cominco has, and how long it might take to get the ore out of the ground and some profits into your pocket. If you have more info on this one, or an opinion to share, let ‘er rip. [The careful stuff still stands — I don’t know that Playfair looks all that much more compelling than Geodex, though Playfair is almost certainly Mickey’s real pick. The lesson of the day? Don’t assume that I’m always right, though I hope never to be wrong again]

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