So… on a day when gold’s taking a big ol’ “breather,” shall we look at a nice hyped-up gold pitch?
Why not, right? We can feel a little contrarian, at least for a moment.
This is the intro to Bill Shaw’s latest teaser pitch for Commodity Supercycles, which is the entry-level gold and silver newsletter from the Stansberry folks ($49 for the first year, renews at $199):
“With gold reaching $2,000 an ounce, passing all-time highs, you need to know about my latest recommendation.
“It fits all the criteria I look for when I envision the perfect gold stock…
“#1 No one knows about it
“#2 I’ve seen the project with my own eyes… (this has the potential to be one of the top five deposits in the world)
“#3 The metal’s in a bull market
“#4 The company’s preparing a huge announcement
“But most important of all… the stock is backed by some of the most successful names in the precious metals industry.”
So whatever could it be? It is, you’ll be unsurprised to hear, a junior mining exploration company… but where, and what? Why is it special?
More clues from the ad:
“It’s a virtually unknown miner located in ‘the Golden Triangle,’ a corner of northwest Canada that has some of the richest mineral deposits on the planet….
“Located near many other historically successful mines, it could soon be one of the top five largest deposits in the world.
“My back-of-the-napkin math suggests it likely has at least 20-30 million ounces of gold.”
That would certainly be up there on the list of largest mines in the world, if those 20-30 million ounces were “reserves” — though, of course, it’s a long way between drawing on a napkin and actually finding and defining a gold deposit.
“Last month, the stock climbed over 50%….
“This stock trades for less than $3, and the entire company is valued under $500 million. It’s got the most upside of any stock I see in the gold space right now.”
He does later go on to say that this stock was his recommendation in the July issue of his Commodity Supercycles newsletter, and was priced near $3 at the time — we’ll see if the stock has changed in price. Gold is well off the highs of early August, but since mid-July the price of gold has still risen about 3-4%, including today’s drop. The actual ad is dated “August,” though I think this week is the first time I’ve actually seen it circulating.
And on the order form, we learn that he titled his July piece, “Speculate Alongside a Billionaire Mining Expert on This ‘String of Pearls.'”
There’s also a fair amount of chatter about the expectation that gold will continue surging higher…
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“Bank of America recently raised its 18-month gold target to $3,000. That’s 66% higher than today’s prices.
“Billionaire investor, Paul Tudor Jones, shared a similar sentiment when he said:
‘I have never been a gold bug, it is just an asset that, like everything else in life, has its time and place. And that time is now.'”
Paul Tudor Jones did share that sentiment, and it was widely reported — but, to be clear, that was about 11 years ago, in a letter to his investors that went public back in October of in 2009. He does still favor gold as one way to prepare for the impacts of the Fed drowning the world in liquidity, he reiterated a bullish stance for gold last Summer and remains a fan, with a prediction earlier this year that it would rally to $2,400 (or $6,700 ‘if we went back to the 1980 extremes,” whatever that means), but he has also been a bitcoin booster this year, indicating that he sees bitcoin’s role as similar to gold in the 1970s.
But much of the rest of the pitch is about the big backers of this secret $3 stock.
It’s apparently got a connection to Eric Sprott, one of the more widely-followed investors (and asset managers) in the natural resources space…
“And in early 2019, the same gold stock I’ve been telling you about today came on his radar.
“Over the last year he’s poured more and more money into his position.
“Just last month, he invested $6.8 million in the stock.
“And the company’s taken the capital to ramp up drilling…
“An incredibly important signal that operations are heating up…
“Today, Eric Sprott owns 20% of my favorite $3 junior miner.”
OK, so that’s an awfully good clue… but we’re told there’s another shadowy bigwig on board as well…
“There’s another mega billionaire investing in this project with an even bigger stake than Sprott’s.
“Now, for reasons I won’t get in to, I can’t reveal his identity. So going forward, I’ll refer to him as Mr. X….
“He’s a billionaire with over 50 years of international business experience across various industries – like mining, forestry, and energy….
“Most impressively, he founded a startup mining operation in northern Canada in 2004. Mr. X’s leadership and expertise helped transform this project from a small promising mine into a world-class gold mine…
“Ten years later he sold the mine, valued at $4.5 billion.
“But what I’m most excited about is that, today, Mr. X owns about 35% of my favorite $3 junior miner.
“That means together, Sprott and Mr. X own more than 50% of the company…”
We also hear that there’s a catalyst coming — which is always important, since junior miners, like biotech stocks, are very news-driven:
“I’m expecting a big announcement from the company as early as this winter… and when it breaks, early investors could see gains of 1,000% or more….
“The team also informed me that resource estimates could be coming as early as this winter.
“That means they can finally and officially confirm the amount of gold they have in the ground.
“It also means that’s likely when this story goes mainstream.”
So what’s the story? Well, the mysterious “Mr. X” here is almost certainly Walter Storm, best known in mining circles for building Osisko, and the Thinkolator sez the “secret stock” teased here is the latest mining company he’s been building, including some financing from Eric Sprott: Tudor Gold (TUD on the Venture in Canada, TDRRF OTC in the US).
And the stock has been surging this year, though that mostly happened before July — the company was consolidating its projects and doing some financings this year, then got another $9.3 million from Eric Sprott in early July and reported some drilling results that got folks excited while gold was soaring.
So it’s not a brand new story, Walter Storm has been building up his portfolio of properties in the “golden triangle” in British Columbia for a few years now, but it certainly ramped up this year with the drilling results and the fundraisings that made investors pay attention… at a time when gold was rising dramatically in price.
Since then things have calmed down a little bit — when Shaw recommended the stock it was probably somewhere around C$2.50, then it soared briefly to $4+ and is now down to C$2.80. So if this is to be the next huge winner, I guess you haven’t missed anything (the little image of the headline from his newsletter indicates that it’s dated July 1… and that just so happens to be the date that the stock jumped 25% — so I guess you missed that, but otherwise the stock has been drifting down for three weeks now, since September 1 gold is down about 3% and Tudor Gold is down about 25%, a nice reminder of the accelerated leverage a widely-followed junior gold stock can have, both up and down).
Whether this is the next big mine is a big “if,” of course — we’re still talking about early stage discoveries and initial drilling intercepts, and while the area has gotten more built up and has more infrastructure (power, roads, etc.) than it did a decade ago, it’s still pretty remote. There may be news from the company before too long, as teased, their goal is to release their “maiden resource estimate” later in 2020, and they have done some metallurgical studies that they will use for making initial economic assessments at some point, but it is certainly still early days. Even if that initial resource statement comes out, as expected, it’s not going to “finally and officially confirm” the amount of gold, that’s more like the first draft of what they think they’ve found — it will probably be “resources”, not reserves (“resources” means its probably there, partially measured from initial drilling and partially inferred to assume what exists between the drill samples, “reserves” means we’re more sure it’s there, with more drilling to confirm, and we can produce it economically given reasonable expectations about costs and gold prices).
The narrative is impressive for this story — and as you can see from the share price so far this year, narrative matters a lot in these exploration projects. In addition to Sprott and Storm, they have Ken Konkin on board as their VP of project development (he’s also the geologist shown in photos with Bill Shaw in the ad), and they say he was “instrumental in the discovery of the Valley of the Kings deposit.” That’s Pretium’s (PVG) big mine, and both that mine and the huge and as-yet-undeveloped Seabridge Gold (SA, SEA.TO) deposit are next-door neighbors to Tudor’s Treaty Creek project. Having someone who knows the geology is important, of course, and it’s also a truism of exploration that “the best place to find gold is next to a gold mine.”
Thare are some junior partners involved here as well, should you wish to try to get a bit sneakier in search of a value — American Creek Resources (AMK.V, ACKRF) and Teuton Resources (TUO.V, TEUTF) each own 20% of Treaty Creek and are carried through to a production decision (meaning, as I understand the deal, that they don’t have to cough up any exploration money — they’re on the hook only for their share of mine building costs, should it get that far). Both of those stocks soared along with Tudor this year, so it’s not like they’re unknown or secret, but they are a lot smaller — they’re both in the C$100 million range in terms of market capitalization, while Tudor is around C$450 million. I like the idea of being carried to a production decision, since exploration and permitting can take forever and be very expensive, but I don’t know if American Creek or Teuton have full exposure to all of Tudor’s projects, so it could be that they end up missing out if Tudor’s exploration leads them to focus on a separate part of their properties (that’s an honest “I don’t know,” by the way, not a snarky comment — I haven’t researched the deals between those three companies).
Tudor’s Investor Presentation is available here if you’d like a little background. They may think there could be 20-30 million ounces in their project someday, but it is important to keep that in some context — Seabridge Gold, just next door, has not yet built a mine after a decade or more of drilling its KSM project, but they’ve reported proven and probable reserves of 38.8 million ounces of gold (among other stuff — lots of copper and silver, too), and Seabridge is valued at $1.7 billion right now. Reserves are a lot more valuable than resources, if you ignore the non-gold stuff and their other projects (there are a few, but they’re earlier stage), then Seabrige is valued at about $44/ounce of gold reserves. Ascribing that same per-ounce valuation to Tudor would give them a $1.1 billion valuation, but to get there they’d probably have to do a few years of drilling.
I’m not particularly expert at analyzing individual mining projects, I tend to keep most of my mining money in the royalty names that are much more diversified (and Bill Shaw likes those too, to be fair, his previous widely-circulated teaser pitch about the “#1 gold stock to buy” was about Sandstorm Gold (SAND), which has been my biggest gold position for a long time), but it’s a high profile story that is sparking some excitement. Not unlike Midas Gold (MAX.TO MDRPF) recently, or like Pretium (PVG) a decade ago, which was also attached to a high-profile mining name (Bob Quartermain, who had built Silver Standard Resources into a big winner).
So if you want some words of caution, probably the best place to look is Pretium — they discovered the Valley of the Kings zone in the area in 2009, and the stock charts go back to about 2011 for PVG — during that time they continued to build up their resource estimate and find more reserves, published economic assessments and feasibility studies, and finally actually built the mine at a pretty fast pace and poured their first gold at what they call the Brucejack mine in mid-2017. They’ve gone from a discovery to now generating more than $500 million in annual revenue in less than a decade, giving them now a $2.5 billion market cap (up from around $600 million in 2011), which is pretty remarkable and clearly a pretty solid mining success story, but they also had to raise a lot of money to get the project built, going from 800 million shares outstanding to 187 million shares today, so the growth for shareholders was far less substantial… this is what the stock price did during that time:
And here’s how that looks next to the price of gold (in orange), which was soaring at the time of the discovery but has had its ups and downs since…
So you’d have to call that disappointing, particularly if you hold out any notion that mining stocks can “build value” for you over time… but it has, at least, done far better than the average mining stock during the past decade — this is what that same chart looks like if you also toss in the GDX ETF of large gold mining companies, in red:
I was wondering, in fact, whether it might be better to just sit on your discovery and not do anything with it, waiting for the market to recognize the value and reward you with riches. That has apparently been the strategy with Tudor’s other big neighbor, Seabridge Gold, and while that certainly soared for a while in the early 2000s when the discovery was first made, the “sit and drill and wait” strategy hasn’t done anything for the stock price… this is that same chart with the addition of Seabridge Gold in green:
None of that is intended to tell you that gold stocks stink, or that they can’t make money… it’s just a reminder that even above-average companies that discover and develop huge gold mines with some success, like Pretium’s Brucejack, aren’t guaranteed to be big market beaters. Just to rub that in a little bit, here’s what gold and all those gold stocks look like compared to the S&P 500, in purple…
I like gold as a hedge against currency depreciation, and it seems more important now than ever, but remember that taking a flier on a possibly huge gold discovery is not for the weak of heart. Even if it’s backed by big-name folks, seems likely to have good exploration results and maybe an impressive resource statement coming out fairly soon.
In the short term, most gold mine explorers and developers are leveraged plays on gold and move dramatically based on news… in the long term, most gold mine developers use your money to