Just returning from vacation, and I don’t have anything new for you just yet… but I see that the questions have been piling up about Frank Curzio’s new newsletter and the $1 gold stock he’s been touting as they drum up new subscribers.
And, thankfully, that’s one I already took a quick look at — back in a piece for the Irregulars about three weeks ago. So for those of you who missed that article or haven’t yet joined our merry band of paid members, I’ve copied that part of the piece below. I have not looked at the stock in the last three weeks, or updated or revised what follows since it ran on January 30. But, well, enjoy…
— originally published 1/30/15 —
I like Frank Curzio’s podcast (now called Wall Street Unplugged), and I generally find his way of thinking interesting, so after he was laid off by Porter Stansberry I was half hoping he’d go off on his own and build his own newsletter business from scratch (he edited Phase 1 Investor and Small Cap Specialist for Stansberry & Associates for the last few years, making him one of the more heavily promoted pundits out there)… but no, he went to a new publisher (I’m sure he had lots of offers — he’s got a large podcast following and a bit of a “brand name” in the business), so he’s now editing Disruptors & Dominators for Uncommon Wisdom (one of the Weiss publishing brands… he’s taking this title over from Tony Sagami, who moved over to work for Mauldin Economics — newsletter publishers have revolving doors). Apparently Curzio is also going to be putting out newsletters called Adventure Capitalist and Adventure Capitalist Confidential, but I haven’t seen any sign of those yet….
Which means we’re likely to see plenty of new teasers for Curzio’s new letters in the year to come, so that’s good news for me (plenty to write about!) even though I kind of wish he’d gone independent… and apparently the first one of those teaser campaigns started up just this week, I haven’t yet been in that test marketing group but an alert reader forwarded it along because it seemed he was teasing a stock Curzio had suggested back in his Stansberry days, Brazil Resources (BRI.V, BRIZF).
So what’s the spiel, and is it Brazil Resources he’s teasing and touting these days as the “The Greatest Gold Opportunity in the Last Decade?” I thought we’d take a quick look, here’s the intro of the ad (you can play along at home if you like, the ad is here), which comes from publisher Brad Hoppmann…
“This is the Greatest Gold Company I’ve Ever Seen!”
“This $1 gold miner could be sitting on $4.8 billion in FREE Gold …”
With gold staging a little recovery this month, that sounds kind of interesting… what else do they say?
“You see, just the other day Frank sent a remarkable report across my desk.
“It details an under-the-radar gold miner that’s been using what he calls the “Midas Code” to buy up huge gold deposits around the world at an unbelievable discount.
“In fact, starting from scratch in 2011 … they’ve been able to build a portfolio that contains an estimated 3.9 million ounces of gold.
“At today’s gold prices that’s an impressive $4.8 billion worth of gold … and they’re just getting started!”
And then we get to the exciting, “secret” part…
“… just a little over 6 months ago they pulled off their most impressive deal to date.
“Not only did this company acquire over $1 billion worth of premium gold deposits for a measly $10.4 million …
“But unbeknownst to most of Wall Street … this deal also included a little kicker.
“It’s a metal deposit that’s looking like it could be a huge winner for the company.
“In fact, the metal alone could be worth more than everything they’ve paid for all their gold acquisitions so far!”
And some more detail on that “kicker”…
“Not only did they pick up a potential $1 billion-plus in minable gold … in a great location in South America … for a measly $10.4 million …
“This deal had a little kicker on the balance sheet.
“And the best part is … almost nobody on Wall Street knows about it yet.
“It’s a 200,000 acre plot in one of Canada’s hottest drilling regions. Companies like Cameco, Areva and Denison Mines have already spent over $10 million in the last few years to develop the region.
“And our tiny little $1 miner is sitting on one of the biggest land plots in the whole area.
“Even better, this plot sits right next to another mining site that geologists are calling one of the largest metal deposits in the world!”
So what’s this “Midas Code” they use in the teaser ads? Here’s a bit from the pitch on that:
“… our $1 dynamo is using a highly successful strategy I call the “Midas Code” to cash-in on this destruction.
“And outside of some major technology breakthrough … it one of the quickest ways to take a small company and turn it into a billion-dollar player.
“It’s basically a growth-by-acquisition strategy … where you buy up smaller competitors in an industry to stimulate the internal growth of your company.
“And it’s been used by companies like Whole Foods to go from one store with 19 employees in Austin Texas … to an 18-billion-dollar near-monopoly in the health food specialty space…..
“… our tiny gold miner has been able to get premium advanced stage mines … at rock-bottom prices … with a 20-to-30% cheaper cost of production than the average mine in production today.”
So, yes, this is indeed still Brazil Resources — and Curzio was enthusiastic about it back in June when he teased it for Phase 1 at Stansberry. We covered it then, though since then I notice that the “conference call” he held with Brazil Resources management is actually freely available online now (don’t know if that’s intentional or accidental), and you can check our coverage of that teaser pitch here if you’re curious.
You probably know what has happened to most of the junior miners since June (indeed, to most of the natural resources sector), but gold is actually up slightly (very slightly, like two or three percent), and Brazil Resources is down about 40%. A little worse than the average small gold miners (as represented by the GDXJ, down about 26%) or the Venture exchange composite, which is dominated by small natural resources stocks (down about 31%), but in the same general neighborhood. Brazil Resources is very small, with a market cap of about $35 million, it was up close to 20% for a while today (undoubtedly because of Curzio’s attention, for the most part), and they just had a successful private placement for about $4.5 million and have been a favorite among many hard asset-focused newsletters for a while… partly because Doug Casey’s group has invested in the company and they have strong connections, and because of Chairman Amir Adnani’s success in building Uranium Energy Corp. (UEC).
As I mentioned back in June, I do own some Brazil Resources warrants — they expire in 2018 with a 75 cent strike price, so they appealed to me as a long-term upside speculation in a project-rich company that is very shareholder-savvy and well connected, and which now might be able to ride a possible uranium wave as well if interest builds up in uranium projects again (as it is seeming to, with lots of speculation — again — that uranium has finally bottomed… for real this time, not like last year… maybe). That uranium project came in as a bonus when Brazil Resources bought Brazilian Gold Corp, and that deal did close in November, as teased… but it was November, 2013, so that’s been discussed quite a bit as well and isn’t hidden. Or at least, isn’t any more hidden than a $35 million company is in general terms.
The positive thing for Brazil Resources in this kind of environment, in my mind, is that they don’t spend a lot of money. They do buy up assets and deposits and potential mines, but it would be surprising if they did anything more than the minimum drilling and exploration required to hold leases or prove up some basic level of reserves, they seem inclined to hold projects until commodity prices get people excited again, then either raise money to develop them or partner them with deep-pocketed miners. It sounds, from the latest Chairman’s letter that came out this week, like they’ll probably either spin out or sell the uranium project — though I would guess that they’ll wait for a little more uranium mania before they do that. There is certainly lots of downside potential here, but their institutional shareholders and insiders appear patient, so I consider the warrants a cheap speculation that they’ll end up being right in the next few years — most likely because gold prices rise substantially again and people start to love junior miners again, which is a big “if” in any particular timeframe but, if recent past is prologue, it does tend to happen every few years. It’s a tiny position for me, to be clear, and it could easily be worth five cents or a dollar in the next year — if you tell me whether gold’s going to be at $800, $1,200 or $2,000 a year from now I’ll tell you what my guess is for Brazil Resources’ share price.
The idea that buying during washout periods of selling and malaise in the commodities space will work out well is a popular one — there were fortunes made by folks like Eric Sprott and Rick Rule because they bought mining stocks during times of maximum pessimism and held on for the next bull market, and Curzio’s old colleague at Stansberry, Dan Ferris, has been banging this drum as well with his “I’ve waited a lifetime for this opportunity” pitch for Altius Minerals and Sprott Resource Corp. (he was also touting MFC Industrial in those ads a month or two ago, but not anymore — leading me to wonder if I was right about him selling it and causing that abrupt drop in the stock last week).
Of course, for a lot of these beaten down opportunities you’re really just counting on metals prices coming back before management runs through the piggy bank — iron, copper, gold, whatever, they’ve all been clobbered, and if there’s a broad-based bounceback in the junior miners that depend on those metals it will have to be caused by recovering prices for those commodities. They’ve generally come back from drops before, at least in recent history (like, last-20-years history) but that doesn’t mean the next decade is predictable — most of the industrial commodities were far more boring before the rise of China as an infrastructure-building power a decade or so ago, and they could go back to boring if the world slows down a lot. That’s not the most likely guess from me, but it’s a possibility… there’s no rule that says they have to come back in your timeframe. And gold, of course, is a completely different animal that depends on, well, animal spirits and the global desire for the shiny stuff as a “store of value,” and it’s had a nice showing this year because Europeans are getting their dose of currency panic this month.
I still think it’s important to have a small allocation to gold and silver as part of a long-term savings plan to protect against currency depreciation (all modern currencies depreciate, they lose value over time… though not always against each other), and I like to speculate on the occasional gold-related or mining equity, but it’s probably important, every time you look at a mining stock, to remind yourself about just how lousy a business mining is… it seems delightful to just find something valuable in a plot of otherwise worthless earth, dig it up, and sell it, which is why the mining industry is full of
liars optimists… but you usually have to waste millions searching to determine where to dig, you have no control over pricing or production, there are huge sunken costs, no producer has branding power or unique products, there are almost always political or environmental risks or labor unrest, etc. etc..
About the only thing that’s going well for miners these days is that energy costs are coming down, since that’s one of their major inputs (all those giant trucks and cranes and drills and generators burn a lot of diesel fuel). That won’t be enough, but the sentiment of resource and mining investors can sometimes turn on a dime so I don’t like to be entirely out of the sector — or to risk too much on it. So I’ll hold on to my Brazil Resources warrants and wait to see if we get a uranium spinoff, or some “animal spirits” return to the mining sector over the next few years to make the speculation work out.