“This Tiny Stock Is Such a Bargain the Company Spent $20 Million to Buy Its Own Stock!”

What's being pitched by Explosive Mine Stocks?

By Travis Johnson, Stock Gumshoe, September 21, 2017

That’s the headline of a recent ad from Moe Zulfiqar for his Explosive Mine Stocks, a newsletter that has been published by Lombardi for at least several years (with several different editors).

He’s fishing for subscribers for his service, naturally, and using this “tiny stock” and a special offer as bait — so let’s see if we can ID that stock for you, get you a little perspective, and then you can choose whether or not you want to subscribe. Do be careful if you’re someone who likes these “special offers,” the offer I saw was for $1 for a month, which automatically converts to $88 for six months if you don’t cancel, then $295 a year after that if you don’t cancel… so be mindful of the rampup if you might be one of those folks who orders what seems like a “trial subscription” and then forgets about it.

So… right to the clues, then, what is this “Explosive Mine Stock?” Here are some hints from the ad…

“Gold Stock Explosion Trigger #1: Pulling Real Gold Out of the Ground

“This company has been pulling gold out of the ground since 2010. In 2016, they produced 30,000 ounces of gold and 2.5 million ounces of silver.

“What’s more, their 2016 numbers show they are producing gold at a total cash cost of $667 an ounce—almost half the current price of gold!”

One thing jumps out if you’re paying attention to that math: they’re at least as much a “silver stock” as a “gold stock”… at today’s spot price that’s roughly $39 million worth of gold and $42 million worth of silver for 2016.

What else?

“Gold Stock Explosion Trigger #2: Making Money in Each of the Past 6 Years

“Since production started in 2010, this company has been profitable every year.

“… this company has a 100% interest in six high-grade gold and silver mines.

“… this company has been paying its profits back to shareholders to the tune of $108 million in dividends since 2010.”

OK, this is getting a little easier … not a lot of gold stocks pay meaningful dividends, particularly not “tiny” ones.

More clues?

“Gold Stock Explosion Trigger #3: Lots of Cash, No Debt!….

“$10 million in cash in the bank

“No warrants outstanding”

Prett self-explanatory there. What else?

“Gold Stock Explosion Trigger #4: 78 Months of Dividends!

“The company has paid $108 million in cash dividends to its shareholders….

The company has stated on several occasions that its goal is to return approximately one-third of the cash flow generated from operations back to shareholders.”

OK, so that all sounds just lovely. They say that they think gold can go to $2,500 or $3,000 an ounce, which would obviously be a huge boon to pretty much every gold company… and they also say that they see $80 million in annual profits for this stock — that’s based on production doubling to 60,000 ounces of gold per year and a $2,000 gold price (and a $667 per-ounce cost, generating $1,333 in profit per ounce… though “cash flow” is a better word than profit in this case, since resource stocks have to account for their depleting reserves before the accountants will let you call it a “profit”).

So with all that said, what stock is this? Here we’re being teased to buy Gold Resource Corp (GORO)…

And we’re also reminded that newsletter publishers are often wont to re-use the same ad over and over and over again. I thought this one sounded a little familiar by the time I got halfway through, and it turns out that this “hot idea” from Moe Zulfiqar was also teased using essentially the same words back in 2011 over Mitchell Clark’s signature — though back then, at least, the $20 million stock buyback was accurate (they did authorize that buyback in 2011, a year after doing some major stock offerings, and did do some minor buybacks in 2011 and 2012, though they didn’t come close to buying back that many shares).

That was also roughly the time that the company initiated its monthly dividend, replacing what had been a series of special dividends… so it’s true that they have been focused on returning cash to shareholders. They even raised the dividend a couple times over those next few years, when gold was doing quite well, and the stock soared in 2011 and 2012 thanks to lots of promotion and investor love for what was then a high dividend combined with a lofty gold price. That “$108 million in dividends” number is accurate, but about $87 million of that was paid in their best years of 2011-2013, the total dividends paid over the past year total about $1.7 million.

Mitchell Clark’s predecessor at Lombardi, Inya Ivkovic, also pushed this stock before that, in the Summer of 2010 when gold and GORO were both about to go on a nice run and GORO had just started paying special dividends… and John Doody, who writes a pretty well-respected gold newsletter, also touted the stock back in May of 2012, much closer to the peak in the mid-$20s, around when they began the gimmicky policy of paying their dividends in actual gold coins (sort of).

If you bought the stock in 2010 and sold in 2011 or 2012 you’re probably quite happy… but over the past five years it’s been very weak, even compared to other smallish gold stocks. Here’s what the stock chart looks like since we wrote about Lombardi’s first version of this “$20 Million Buyback” ad back in October 2011:

(The orange line is gold, the SPDR Gold Trust, which is down 24% in six years in line with the price of physical gold… red is the GDXJ junior miners ETF, down 72%, and the blue line, down 82%, is GORO).

Lots of mining stocks have been similarly terrible over the past five or six years, of course. I include that not to pick on this particular newsletter, though the fact that they’re still using the “$20 million buyback” line five years after their most recent buyback was authorized (and not fully implemented) is at least a little sneaky… but to point out that the fact that this stock has paid dividends and has some relatively low-cost mines, particularly because of the large silver production that offsets the mining costs… and yet that hasn’t done anything to make this stock above average over the past six years. It had a couple great years, partly because of promotion and big dividends in 2011 and 2012, but when those dividends shrunk and the gold price dropped they became a bit worse than average. Over just the past three years, in case you’re curious, GORO is down about 32% while the GDXJ is down 7% and the price of gold is up 5%. Sometimes those things that sound appealing, like dividends and buybacks and low-cost operations, are not the full story.

The current dividend, as I noted, has shrunk a lot from past years — to the point of being inconsequential… it’s down to a yield of about 0.5%, with the monthly payout at 0.17 cents (multiply that by 12 and you get about two cents a year in dividends for a $3.70 stock, which is about a third of the six cents in earnings they had over the past four quarters). I don’t know if they will be able to grow that dividend or not, their “cost of goods” has been pretty much flat for the past couple years while revenue has fluctuated, so presumably that means that, as you would expect, they have some sensitivity to gold and silver prices (which increase revenues but don’t increase costs), but production has been pretty steady and from just their one operating mine in Mexico… though they have had a nice boon recently thanks to the rising zinc price, so Zinc as a byproduct from their mine in Oaxaca generated more than 25% of their earnings in 2016 (gold was 32%, silver 29%).

The promise of changing that relatively steady production profile and getting real growth comes in some small measure from their other potential mines in Mexico, but mostly from their Nevada project, the Isabella Pearl mine, which they say in their latest presentation could be producing as soon as late 2018 — that’s where the possibility of roughly doubling production from 30,000 ounces to 60,000 ounces comes from.

And that, of course, will also require capital, in addition to permitting and everything else that goes into planning and building a mine (which means that 2018 date is probably extremely optimistic — nothing new there, mining stock CEOs are pathologically optimistic). GORO does have $16 million in cash, which is helpful even if it isn’t much when it comes to mine-building, and I haven’t seen anything about a feasibility study or cost estimates regarding Isabella Pearl (though they do talk about trying to minimize capex and mine higher-grade areas first to support further development). It is relatively high-grade and it is in a jurisdiction that’s generally friendly to miners, so I assume, without any real detail being offered that I’ve seen, that they can build the mine if they want to. They might have to be willing to borrow money or sell royalties or otherwise raise cash, but presumably they could build the mine and make it profitable within a few years, as long as gold prices don’t fall precipitously. It’s not a big mine, at least as it stands now, at 30,000 ounces of gold production the reserves would be gone in six years, but perhaps there’s more to the mine than is in the reserves, I dunno.

I do know that we’ve always had a few GORO fans here at Stock Gumshoe, though I’ve never owned the shares or been all that comfortable with the stock — so if you’ve got thoughts to share about Gold Resources, please shout ’em out with a comment below. Thanks!


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19 Comments on "“This Tiny Stock Is Such a Bargain the Company Spent $20 Million to Buy Its Own Stock!”"

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Dave Cregar
Guest
0
Dave Cregar

They purchased some acreage and then pulled the Lions share of gold they’d found these past 18 months or so.
I don’t know how exploration has fared on that purchase or wether it has even began. Explosive?? More toward been there done that or its little too late. I’m surprised if share price doesn’t drop below $2 by summer.

hendrixnuzzles
Irregular
6832

If $20 million in stock buy backs is and important criteria you might as well buy Sandstorm Gold, who has filed and gotten approval to repurchase 7 million of their own shares currently worth about $25 million. And Sandstorm is in the business of cashing checks from gold miners.

Donald Adams The Piginasack
Guest
0
Donald Adams The Piginasack

My proprietary indicators [100% correct when there is no pilot error lol] have GORO in a confirmed down trend with no sign of impending direction change, and it has been down since around $4.40. Typical pump by shyster newsletter writers. Criminal…

Donald Adams The Piginasack
Guest
0
Donald Adams The Piginasack

Evidently sharing one’s legit thoughts are not totally welcome here, unfortunate…

Donald Adams The Piginasack
Guest
0
Donald Adams The Piginasack

I take it back, my critical post finally showed up, thanks

Carl Davis
Guest
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Carl Davis

Travis, I recently invested in a small Canadian Gold Miner after much Research and landed on Klondike Gold (KDKGF). What Triggered my decision was when Eric Sprott ,of Sprott Metal Funds, executed a [$5 Million] Dollar Private Placement
Investment into Klondike. Do you “think” Mr. Thinkolater that this one could have been a wise decision over the Next Several Years with all the Negative peripheral News and Economic Chaos that currently exists?

Coherence02
Irregular
2
Coherence02

Goro – when it was trading at 20/sh – minted its own bullion coins – and you could get your dividend payment in the coin – if you owned enough shares, paid the premium, and went through the hassle. I’ve wondered since if those will become collectable…

bluechipstamps
Irregular
1
bluechipstamps

Yes, Doody did recommend the stock, but got out when the Old Man retired and put his son in charge (whom D. considered less than qualified).
Main issue appears to be Management – I would (and will) stay away from this one,
Bluechipstamps

roger reynolds
Guest
0
Have followed GORO for years but never bought any until price went under 5. Personally communicate with PR person of company. Company will start mining from second source in early 2018, ie second tunnel. Third small tunnel will start producing also in early 2018 but is only gold/silver and can be processed separately. All this will allow company to go from about 1200 tons per day to max capacity of about 1650 ton per day. Nevada open pit was bought for about 12 mil when owners wanted 25 mil plus. Has all but two permits to start construction. Actually have… Read more »
Andrew
Guest
0

thanks Travis, i am always on the lookout for up and coming miners, totally of track and boring but some solid yield for the income investor – http://eqibeat.com/top-10-coal-mining-stocks-by-dividend-yield/

motion
Irregular
0

dolly for silver , thm for gold.

dots_thots
Guest
0

Saying they’ll make $80M at $2k/oz gold, with cash costs of $667/oz is totally misleading. Their press release from 28 Feb 2017 says their all-in sustaining costs are $970/oz with a cash cost of $548/oz. With cash costs at $667 that implies an AISC of $1089/oz which is probably more like it.

ABC
Guest
0

Bah humbug..

nasica
Irregular
1
nasica

If you want a bit of a gamble on a gold miner, take a look at Novo Res. (NVO.V). They have just teamed up wth Aussie coy Artemis Res. (ARV.ASX)who claim to be onto something special at Karratha, Western Australia (near Dampier). Presentation at Denver Gold Forum, MON 25/09/17 11.15am MT available on web link
http://www.denvergoldforum.org/dgf17/dgf17-webcasts/2017-ondemand-webcast/

jimb21
Irregular
0
jimb21

can anyone tell me the website that checks these stock to see if they are a scam I think it has the name street in it

roger reynolds
Guest
0
roger reynolds

At it’s low in 2016- 2017 the price of zinc was less than $1.00 per pound. It is now about $1.50 and GORO produces a lot of it. In first 3/4 of year produced 11,447 tons of zinc. Almost 23 million pounds. Price increase means lots of bigger cash flow.

jimb21
Irregular
0
jimb21

does anyone know the website that checks these stock to see if there scams

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