Frank Curzio is pretty close to my age, I think, but has been a newsletter guy for decades — his dad was a newsletter writer, well-known mostly because he accurately predicted the 1987 crash (presumably in his F.X.C. Newsletter) and got pretty consistent attention from the press for a while because of that, and Frank worked for several of the big publishers (TheStreet.com, Stansberry, Weiss) over the past decade but is now launching his own self-published newsletters and, perhaps, his own newsletter group. He has a pretty good following, driven largely by his free Wall Street Unplugged podcast, which is worth listening to and has outlasted every newsletter he has worked on (so far, at least).
And during his tenure at Stansberry he seems to have gotten close to Marin Katusa and the other folks in Doug Casey’s orbit who focus on junior mining stocks, and has started to focus on high-end newsletters (including the short-lived Adventure Capitalist Inner Circle at Weiss) through which he tries to provide more exclusive content at a higher price… including, particularly, access to mining industry private placements.
And that’s what’s being teased today…
“For the first time ever, I am letting you in on a unique deal that could literally change your life for the better…
“This opportunity gives you direct ownership in a small mining company that over the past few years has accumulated 18 million ounces of gold resources… for less than $5 an ounce…”
Curzio has talked up several such deals in his podcast in recent years as well, most of which, at least as I remember, were arranged by or brought to Curzio by Marin Katusa. Katusa used to be an analyst and writer for Doug Casey, but left when Casey sold out to Stansberry, reportedly partly because of Stansberry’s rules against owning the stocks you cover. He still manages a hedge fund that’s primarily funds from Doug Casey, Rick Rule and himself, and he also writes some free articles and has his own high-end newsletter, introduced fairly recently — he has a very strong focus on private placements, mostly because those give investors some significant advantages and provide enough leverage through warrants, one hopes, to overcome the high failure rate of exploration-stage mining stocks.
So what’s the story? It sounds like a can’t miss from the ad:
“… a powerful syndicate of gold investors is piling into this company right now… via ‘private placements.’
“Yes, the stock trades publicly on a major exchange.
“But they’re getting shares directly from the company – and often at below-market prices.
“That’s how members of this group – a circle of financiers I call the ‘Billionaire Gold Syndicate’ – have made their biggest gains over the years.
“I’m talking about single private-placement deals that have handed these men 5X… 10X… even 590X returns.
“Imagine turning $25,000 into $14.75 million. THAT’S how the rich truly get richer, my friend.”
And we’re told that this stock has the potential to generate 32X returns, that those who get in on the private placement will receive free warrants (one warrant for every two shares purchased), and that the company has an “extremely valuable asset that’s relatively unknown to most people.”
So… what’s the stock? Well, some of you already know… but don’t spoil the surprise for the rest of the class! We do get a few more clues from Curzio:
“The CEO happens to be a close personal friend of mine….
“Not too long ago, I received an invitation to a closed-door meeting at the Plaza Hotel on 5th Avenue in New York….
“On tap for discussion was the fate of several gold-mining projects in Brazil….
“But for our purposes, the most important exchanges came during a ‘lull’ in the official program….
“I found myself standing amid the most powerful men in Brazilian politics, including President Michael Temer (Temer was the Vice President of Brazil when I first met him).
“The topic of discussion?
“The future of one tiny gold stock in particular…Are you getting our free Daily Update
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“Scarcely two years old, this tiny company was completely off the radar of most investors.
“So why would some of the most powerful men in the world care?
“The answer comes down to the company’s founder and CEO.
“I’ll call him Adam. He’s a close personal friend of mine. And he was the one who invited me to this high-level meeting in the first place….
“He has been taking advantage of cheap gold prices in a brilliant and daring way.
“In short, he has managed to secure one of the biggest gold hoards on earth… for pennies on the dollar.
“And now he’s positioned to ‘cash in’… making his investors extremely rich….
“We’ll call his company GOLD INC.
“Its market cap now stands around $225 million.”
So that’s the same story Frank Curzio told, reworded a bit, about his meeting with Amir Adnani at a Brazil boosterism and investment meeting in the Spring of 2014 — which means “Adam” must be Amir, and the stock must still be Brazil Resources (BRI.V in Canada, BRIZF OTC in the US).
That’s a stock I had exposure to for a while as well, with fantastic returns largely because of the stock’s highly levered returns during the February-June bull run for almost all gold stocks this year. I do not currently own any shares or warrants on this one.
Brazil Resources is largely set up as a “gold bank” — not unlike First Mining Finance (in which I do still own some shares). Adnani has used the past several years to buy up partially explored gold mining prospects, using shares to make most of those acquisitions, and intends to ride the next gold bull wave by selling or partnering those projects (probably not developing them or building mines themselves) when gold prices are surging higher at some undefined point in the future. He started in Brazil and most of the properties are still in that country, thus the name, but the two most recent assets added to the portfolio, which are also the largest on a resource basis so far, are in Alaska and Colombia.
I like the stock because of that strategy — “buy low, sell high” is frightfully uncommon in the resources industry, where money chases success, and because they’ve been able to build up a pretty big portfolio of “gold in the ground” projects.
I don’t like the stock because the quality of the assets is not necessarily overwhelmingly exciting, at least to a non-expert… and because the level of promotion is somewhat distasteful, though this is a pretty two-faced complaint (the reason for their success can be partially traced back to that promotional strategy — they get their stock price up by spreading the word both through newsletter friends and investors and paid promoters, and therefore they’re using a richly-valued stock to buy companies and assets at discount prices… being promotional is an important skill for those who wish to build a mining company, or anyone who wishes to grow through acquisition and use their stock for the acquisitions). That level of promotion brings outsize volatility — which is lovely when the sector is rising, like when the miners all jumped earlier this year and BRI.V went from 50 cents to C$3 in five months… but doesn’t necessarily feel great when the bottom falls out.
And yes, there is a private placement going on now — that’s what Curzio is selling access to in this ad, and the details are described in a press release here (and updated here, to boost the size of the placement to $6 million because of strong demand). The participants in the private placement will buy a “unit” for C$2.50, and that will include one share of stock and one half of a $3.50 purchase warrant that expires in two years.
So with the price currently at C$2.50, that’s obviously a worthwhile transaction unless it comes with other terms that are unusually onerous (like a long required holding period, or anything restrictive like that) — at this price, you essentially buy the stock and get the warrant for free. Though you do have to pay $3,000 for Curzio’s newsletter first (and he won’t refund your payment if you don’t get into the private placement, or decide you don’t like the service), and you do have to be an accredited investor for this particular private placement (“accredited” just means that you have to have a net worth of $1 million, not counting your residence, or you have to earn at least $200,000 a year).
And what’s a warrant worth? Potentially a lot, but that depends on the movement of the stock — which will depend on gold prices and on sentiment about gold miners, and, to a smaller degree, on uranium (that’s the “extremely valuable asset that’s relatively unknown to most people” bit, in one of their gold transactions they also acquired part of an Athabasca uranium exploration project, partnered with Areva, which could be quite valuable if uranium interest picks up again… Adnani also built Uranium Energy (UEC), so he talks up that “hidden” uranium asset with some regularity). But it’s certainly worth something today, and if those warrants are eventually listed (there’s no guarantee that they will be, though some previous tranches of warrants have been listed for Brazil Resources, I owned a bunch of them before I sold this year), then they could be sold at some point to extract that value if you don’t wish to hold through to expiration or exercise the warrant rights.
Warrants work much like call options, so they give you the right to buy the stock at the strike price before the expiration date — but they’re not necessarily as standardized as call options, so the specific terms can be important and I don’t have any idea if there are any other terms or details on this one beyond what’s in the press release. You can see the popularity of the company and the appeal of their private placements in the terms — they are giving up a warrant, but it’s only a half warrant per share and it’s at a 40% premium to the current price and has only two years to run… if they were having trouble appealing to investors, there could be a full warrant per share, at a lower price much closer to the current price, and, if the investors had more leverage, a longer 3-5 year term instead of two years.
The excitement of warrants is that, depending on the price, they can provide either cheap or free leverage. In this case the leverage is free, since you get the warrant as part of the private placement and the placement is right at the current stock price (or, I suppose, you can say that the warrant cost is whatever you paid to get into the private placement — which in this case would be the $3,000 to Frank Curzio, though that also gives you access to other deals he brings in while you remain a subscriber).
That means, if Brazil Resources shares go to to, say, $5 within the next two years you’d have a gain of 130% ($2.50 from the stock doubling, so a 100% gain just from the equity, plus $0.75 from the value of half of a $3.50 warrant when the stock is at $5). If the shares go up 50% in two years, to $3.75, then the warrant doesn’t do as much (50% gain from the stock, plus 12.5 cents from the warrant, equals a total return of 55%)… and if the stock is below $3.50 for the entire time and you hold the warrant until expiration, the warrant does nothing for you.
If the stock soars 32X in value, of course, all bets are off — that number is based on a theory that Brazil Resources’ “ounces in the ground” will be worth dramatically more in the future than they are today:
“The Math Doesn’t Lie: Potential Gains Could Hit 3,233%
“GOLD INC has acquired some 18 million ounces of gold resources.
“It paid (on average) less than $5 an ounce.
“The stock price currently reflects a valuation of just $12 per ounce.
“Meanwhile, the industry is paying upwards of $60 to $100 an ounce.
“These factors alone should place the shares some 6-10X higher than current prices.
“But here’s the thing… and it’s another reason the Syndicate is getting behind GOLD INC right now.
“During gold bull markets, companies have paid more than $200 an ounce for gold resources.
“That could push shares of GOLD INC 1,500% higher.
“But as I’ll explain below, several Syndicate members believe gold is headed to $5,000 and beyond, starting this year.
“That would value those $12 ounces of gold resources in the ground… at $400 or more an ounce.
“And 18 million ounces, at $400 an ounce, equates to 3,233% gains… again, just in the shares.”
That would bring ludicrous returns, of course, and you’d probably be delighted with the 3,200% gains… but in the fantastical scenario where the stock climbs that much within two years the warrants would add another 1,500% gains on top of that.
What are the odds of such a crazy-pants return? I have no idea. I do keep some exposure to gold through the occasional leveraged junior and through ETFs and physical metals, but I sure hope it doesn’t go to $5,000 or $10,000 as several pundits are predicting… that would likely mean that the dollar is getting clobbered and losing a tremendous amount of value very quickly, or that the world is in a pre-dystopian panic. In ten years, sure, I’ll take $5,000… but if it happens fast that will be a sign of very bad things coming. Even the election of Donald Trump probably wouldn’t put gold much over $1,400 in the immediate future (that’s just my sentiment, based on my understanding of the markets — there’s obviously no rational way to accurately predict the future price of gold with any specificity).
But that per-ounce spiel from Curzio really gets at the heart of the argument for Brazil Resources — that they’re buying up relatively undesirable gold projects that include a large potential resource base, and those projects will become dramatically more desirable when gold prices are much higher and/or when someone is willing to put in the capital investment required (drilling, etc.) to turn resources into reserves. (“Resources” are what is believed to be in the ground, either measured, indicated or inferred depending on the level of certainty… “reserves” is what you’re pretty sure you can extract profitably given a set of reasonable assumptions about the potential mine).
That’s not to say that they own “junk” projects, necessarily — just that we should look at the portfolio with a little bit of skepticism. They’ve been able to roll up these assets over the past four or five years mostly because the projects require a lot of capital to move forward to becoming economically feasible, and would require still more financing for the mines to actually be built, and in some cases they benefitted from the fact that the mining sector tends to be starved of capital when prices are low.
I assume that if these were “no brainer” mines with gold at $1,000 an ounce, for example, Amir Adnani wouldn’t have been able to acquire them at relatively inexpensive prices — these are early stage assets, many of them relatively small, that have been explored to some degree, but from what I can tell none are obvious “can’t miss” mines. The same is true of the similarly-structured First Mining Finance and several other “gold bank” projects that are trying to roll up gold (or other resources) in anticipation of the next bull market, it’s not usually the best or most de-risked projects that are available for relatively cheap share-based deals, the best projects either can get financing to develop things on their own, even during relatively weak markets, or get bought out by larger miners, or, at last, are held onto by wise developers who are willing to wait for markets to turn. Maybe Adnani and the other hopefuls are able to find gems sometimes, particularly when financing markets are weak and junior miners are just about bankrupt or are thoroughly desperate, but we shouldn’t assume that other folks would currently consider these potential mines to be worth more than the $5 or $10 or $20 per in-the-ground ounce of gold resources that they represent in BRI’s portfolio.
I will not claim to be an expert at evaluating mining projects, not even close, but you can review Brazil Resources’ latest investor presentation here to get an idea of a few of their prime projects. I’ll just note that of their 18 million ounces of indicated and inferred resources, about 13 million ounces were acquired over the past 15 months in their Whistler and Titiribi acquisitions — Titiribi just a month or two ago, and Whistler in the Summer of last year, so we can look at those for some indication of what a BRI investor is buying here.
The Titiribi acquisition came at the cost of five million shares and one million warrants, and closed two months ago when Brazil Resources was at about the same price it is now, so even if you don’t give the warrants a lot of value (they’re the same as the private placement warrants, two years at $3.50 strike price), Brazil Resources effectively paid $12.5 million in stock for that acquisition from NovaCopper. That’s $12.5 million for a measured, indicated and inferred total of 7.9 million ounces of gold (plus some copper), so that’s $1.60 per ounce of gold. I don’t know what the status of NovaCopper’s finances was before that sale, but they certainly had enough cash to keep going as they had been for another year… and the deal was agreed to in mid-August when gold was close to its high for the year.
The project is potentially very large, and there is exploration potential as well as the comforting presence of several mines and under-construction or under-development mines fairly nearby, but NovaCopper judged that they would rather have $12.5 million worth of Brazil Resources shares than continue to develop the project.
Why? I have no idea. Perhaps because the project is large but also very low grade, half an ounce of gold per tonne, so it might well be that the millions that would have to be spent on further drilling could indicate that it’s not economically viable with gold at $1,000 an ounce, I have no idea. Maybe it’s worth more to a company that’s willing to spend minimally on the exploration but really hold out for $5,000 an ounce, which would presumably make the project much more appealing, than it is to a company that’s trying to drill and define resources and perhaps build a mine.
That’s wild guesswork, to be clear. I don’t know the rationale of either company, beyond what they’ve said in their press releases and presentations. But the same thing happened last year with Whistler, that’s a project that has been explored for many years at a cost of tens of millions of dollars, with about three million gold ounces in resources identified (also at low grade, about a half gram per tonne — the total is now up to about 6 million thanks to drilling and reports done after the deal), and Kiska Metals was willing to part with it last Summer, when gold was around $1,100 an ounce, for 3.5 million Brazil Resources shares — which, at the time, was worth a little less than C$2 million (they may have sold some by now, I haven’t checked recently, but if they held them that would be worth C$9 million or so now). So Kiska sold a project that had seen $50 million or so in spending, with some infrastructure and at least three million ounces of gold in measured and indicated resources (though the resource statement wasn’t terribly current) for $2 million… which means that they effectively were paid about 70 cents an ounce.
Were those sellers dummies? Did Brazil Resources get a fantastic deal? Are these projects only worthwhile at a much higher gold price? Did those buyers just realize that owning shares of a more diversified and promotional junior miner could be more valuable than owning their own shares or properties? I have no idea, but these are real transactions that management teams who are experienced and probably not incompetent agreed to — they were perhaps under some pressure to act, since the sellers apparently wanted something in exchange for a project that they didn’t want to sink exploration money into, but neither seller seemed to be at immediate risk of going bankrupt if they failed to make a deal. These are not likely to be deals that would have been worth five times as much money to another buyer, as far as I can tell, because if that were the case than probably another buyer would have been sought.
So that’s the risk with Brazil Resources, that they’re essentially accumulating a large portfolio of mining projects that sellers were willing to get rid of at very low prices. Maybe that means that Amir Adnani is a brilliant strategist, or maybe it means he overpaid, I don’t know — probably the answer to that relies more on whether gold is much higher in a couple years than it does on the specifics of these resources, but this is a company that’s buying cheap resources in the ground — and sometimes “cheap” is cheap for a reason. That’s why I wouldn’t just rush unquestionably into a long-term buy-and-hold position.
But if you want to trade it, or if you want to get in on that private placement by sending Frank Curzio $3,000 to join his Curzio Venture Opportunities service and see if you can get some nice gains because you believe gold will enjoy another run that drives these shares higher, that’s your call. Do keep in mind that this private placement does require that investors be accredited, and that there’s no guarantee from the newsletter that you would get an allocation in the private placement if you chose to apply, or that the warrants would be listed and tradeable — nor is there a guarantee on this Curzio newsletter deal, so you can’t sign up and then cancel if you fail to get in on the private placement (or dislike the service for any other reason). You certainly don’t need to pitch in $3,000 or $5,000 a year just to find out about occasional interesting junior miners or similar startup opportunities, but you would need to probably be in one of these “clubs” like Curzio’s or Marin Katusa’s if you wanted entree to the private placements that they arrange.
I originally speculated on some Brazil Resources warrants a year or two ago because I saw that the presence of Katusa and Doug Casey, along with the proven promotional skill of Amir Adnani, gave them a good chance to rise sharply, particularly if the gold price bounced back higher. I was lucky enough to have that timing work out pretty well for me (though I sold a lot of my warrants too early, I would have done far better holding them all through the Summer), but that was speculation and luck based on a hoped-for bounce in gold and a warrant that was well-priced for leverage at the time. There’s no shame in that, part of the fun in investing is the speculation you do with your play money, but it’s important to remember that these speculative bets can easily drop by 50% or more just because some air comes out of the balloon — you don’t need to have the company do something terrible, or even need gold to fall by 20%, you just need a lack of enthusiasm to bring the shares down sharply.
(The warrants I traded were the 2018 warrants, they expire Dec. 31, 2018 and have a 75 cent strike price — that’s still the only listed warrant for BRI, it trades at BRI.WT in Canada — it’s trading almost exactly at exercise value right now, so that offers some relatively minor leverage as well. Actually, since Curzio’s arranged PP has half of a $3.50 warrant and also expires in roughly two years the BRI.WT might be as reasonable a levered speculation on the upside — given the assumption that BRI.V doubles to $5 in two years, BRI.WT would go from $1.75 to $4.25 for a 140% gain, a little better than the gain from the stock combined with Curzio’s private placement warrant. You can play around with other scenarios to see what would make sense to you, but obviously the currently traded warrant has downside leverage that the private placement shares/warrants package does not have as long as the placement price matches the market price of the stock and the new warrant is “free”).
They’re not likely to spend a lot on developing reserves at their properties, and they’re almost certainly not going to spend a lot of money actually building a mine, so there won’t be any cash flow or earnings — this is all about what price investors are willing to pay for a portfolio of partially explored gold mines (and one uranium project). Part of my expectation when I first speculated on Brazil Resources was that they would create some value for shareholders by spinning out their uranium property… but that was with the expectation that uranium would rise in price and become an enticing asset for investors, which seemed logical to me (and still does, frankly), but it didn’t happen, and they’re not likely to spin out the Rea Uranium project with uranium setting new lows on both the spot and long-term markets again this Fall.
And that’s about all I’ve got to say about Brazil Resources — as usual, I hope I’ve given you a little bit of a skeptical look to balance the newsletter sales pitch, and maybe after hearing more than one perspective you’ll be able to look at the stock with a more nuanced eye. That doesn’t mean I’m right, or that BRI will go up or down, for that you’ll have to put your own melon to work on the matter — so go forth, researchify and thinkolate for yourself, check my math to make sure I didn’t slip a decimal point in the wrong place, and let us know what you think with a comment below. Thanks for reading!
P.S. If you happen to ever buy any warrants, whether for a junior miner or anything else, do keep an eye on them — they do not generally get a lot of attention from most brokers, and there is no automatic exercise like there often is for call options, so if you have a warrant and forget to sell or exercise it before the expiration date it can expire and become immediately worthless even if it is “in the money.”
Disclosure: I own shares of First Mining Finance. I am not currently invested in any of the other companies mentioned above, and will not trade in any covered stock for at least three days per Stock Gumshoe’s trading rules.