Skousen’s “Under a Buck” Potential 10-bagger in Gold

What's the penny stock hinted at in Forecasts & Strategies teasers?

A quickie for you to start out this week, since gold is on the lips of many investors and I got a question about this Mark Skousen teaser.

The little excerpts of the clues I got indicated that this wasn’t a heavily distributed teaser ad, it was an “upgrade” pitch to get the subscribers of his basic service, Forecasts & Strategies, to sign up for his special FreedomFest events this Summer.

Here are the hints about the “secret stock” he promises to reveal upon ordering…

“I have come across a potential ‘ten bagger’ in the mining business, and it’s selling for under a buck!

“It is literally a penny stock that trades on the over-the-counter market, but with gold in a major upward trend, it could be selling for dollars very quickly.”

So I can see why that got reader questions flowing quickly — that pretty perfectly describes most folks’ thinking about little mining stocks… wouldn’t it be fun to buy something for a few cents that turns into a fortune?

What hints does he drop to entice us?

“It is selling for pennies because the mining company will be producing gold starting in 2021. Fortunately, they already know how much gold there is (6.6 million ounces, which could make it the sixth-largest gold mine in the United States). This is not an exploratory mine, but a mine in the development stage.”

OK, that narrows it down quite a bit — though maybe don’t hold your breath about that “producing gold in 2021” bit, mining company forecasts tend to be almost criminally optimistic on that front. Any other clues to drop into the Thinkolator?

“It owns a world-class, multi-million ounce, low cost, open-pit mine in a historic district that has been held back from development because of environmental issues. That is all about to change. The feasibility studies have been made, the permitting is moving forward and production is expected to start late next year.”

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OK, so if they’re still in permitting then maybe construction could start next year… that’s different from starting production. It often takes well over a year to build a mine, often longer than that before it can produce its first gold.

What else? It’s in the western US, Franco-Nevada and Barrick Gold are somewhow involved, and we get one more clue about a backer:

“… recently a billionaire hedge fund investor was invited to check out the property and bought an entire new funding valued at over $30 million.”

So this, sez the Thinkolator, is Midas Gold (MAX.TO in Canada, MDRPF OTC in the US), which we’ve certainly seen teased before… though not by Skousen. I first saw it teased about five years ago by Chuck de Castro, when it was a smaller discovery, and more recently it has been actively touted by Nick Hodge a bunch of times since early 2018.

Here’s part of what I wrote following that first Nick Hodge tease in January of 2018 (the price was about the same then as it is now, though there have been more financings so the market cap has grown)…

“They do have a prefeasibility study (PFS), so that’s the easiest data on which to base your assessments of the value of the project — the 2014 PFS included a NPV at a 5% discount rate of US$832 million, or about $2.60/share… which sounds pretty good compared to the $0.70 share price. So why is the stock trading at such a steep discount to that “net present value?”

“I don’t really know… this is a prospective mine developer, so the possible issues are legion. The regulatory prospects are presented as very optimistic by the company, but perhaps investors are more skeptical on that front…. the net present value figure is calculated on a pretty low discount rate for a relatively risky enterprise (though that’s not unusual)… the estimates were made at a time when silver prices were much higher, so lower silver is likely to drive that down a little bit (though gold is by far the most important driver)… the economics of the mine got less attractive in the years between the preliminary economic analysis in 2012 and the prefeasibility study in 2014, and investors hate to see things moving in reverse… the site is relatively complicated and expensive to build, mostly because it’s three separate open pit mines. You name it, none of those things are obviously insurmountable problems, but you don’t have to dig very deep to find possible problems and risks in a mining company.”

John Paulson, whose hedge fund has been a major backer of Midas since 2016, did indeed back a substantial new financing over C$30 million just a couple months ago, though that doesn’t show up in the market cap yet — most of that financing is in convertible notes that will kick in from 2023-2027. Those notes pay less than 1% a year so this isn’t really a typical debt financing, to me it looks more like a way for Midas to hide this equity investment on the balance sheet instead of having it show up in the share count and look dilutive (and Paulson and other major backers to get control if the company goes bankrupt). Paulson also has a couple board members on Midas now, including the Chair, and has contributed much of the capital the company has historically raised (more than C$60 million over the past five years), so Paulson & Co effectively controls about 43% of the shares once all that debt is fully converted. Franco-Nevada (FNV) has a small shareholding and a 1.7% NSR royalty on the project, and Barrick Gold (GOLD) is a substantial shareholder as well, they bought 20% of the project at C$1.06 per share back in 2018 and did a follow-on investment in 2019 to maintain their share (though it will drop to about 11% once Paulson converts his debt, assuming the company doesn’t raise any more money before then).

And strangely enough, it doesn’t look like Midas ever released that final feasibility study we were all expecting in 2018 — they now say it’s being held out so they can incorporate the decisions/alternatives provided in the draft version of the Environmental Impact Statement, which was supposed to come out early this year but is now delayed until the third quarter (partly because of COVID-19, though this kind of thing seems to always be delayed). So permitting is underway, though the first stage of US Forest Service approval now won’t come until well into 2021 (at best) and there is additional permitting that can’t begin until that is finalized (back in December they were expecting the final word from USFS in Q1 2021, now they just say “in 2021”).

So Midas will definitely will not be under construction in 2021 at this point, though if permitting and financing goes swimmingly they might start soon after that, and according to their most recent presentations (from about two weeks ago), they should have their feasibility study not long after the draft EIS is released, so probably right around the end of the year, then final permitting to be done by the end of 2021, and — assuming they can quickly get financing based on the specifics of the feasibility study — they could begin restoring the environmentally damaged area of past mining and begin to build their modern mining operation, which they anticipate taking about three years. So maybe first gold pour could be 2025 if everything goes really, really well during the next two years and they get a fast jump on building the project.

The 2014 estimates we’re still stuck with do continue to indicate that it’s an impressive-sounding project, and the updated 2018 resource statement increased teh estimates for the contained gold in their three potential mines on the site (plus the historic tailings), so there is a lot of gold likely in them thar hills, though the 6.6 million ounces isn’t “reserves” — the “probable reserves” number comes in at 4.6 million ounces, the rest are the measured, indicated and inferred resources that they’ll probably continue to firm up with additional drilling (and there is very likely more gold to be found as well, they do keep hitting exploration targets surrounding those established deposits). So it could be big, and if we go by the 2014 PFS estimates they think that at $1,650/ounce gold the project has a $1.4 billion net present value at a 5% discount rate.

So this all sounds quite good, but a lot of mines sound good in a PowerPoint presentation. I expect the shares are weak this year largely because there have been delays all along the way that tend to shake investor confidence, and because we still don’t have a feasibility study to give any hard numbers for the cost of building and operating this mine given all the changes that have come in the past six years (gold prices, changes to the environmental plan, different deposits extended, cost of mining, etc.) … I don’t know if there are serious issues that would prevent the mine from being built, or change the appeal since the 2014 estimates were published, but it certainly hasn’t been a fast planning or permitting process and sometimes the words “patience” and “junior mining investor” don’t go very well together (perhaps because these companies burn so much money in drilling and exploring and permitting that they have to consistently raise money at the worst times just to keep the machine rolling).

So there should be news coming at some point, but meaningful news will not come until the third quarter… and since this is a mining company, I’d assume that “third quarter” means “late October” rather than “July 1.” They should have enough cash to get through to at least early 2021 without raising more money, thanks to the latest Paulson raising… and gold interest is high so if they get good news or some more rabid promotion one never knows what might happen to the shares (the lsat time they really soared was during the last rapid gold spike, in the first half of 2016), but that doesn’t mean it will automatically ride the gold price for the next few months — here’s what Midas shares have done over the past three years, including the last 18 months or so of gradually rising gold prices, compared to the gold price (in orange) and the average large gold miner (using the GDX ETF, in red):

MDRPF Chart

And that’s about all I’ve got for you today… a gold miner with a big potential project spread across a few deposits in Idaho, and that’s currently in the doldrums when it comes to information flow. If you’ve been following Midas in recent years or have anything to add, or, indeed, if you’ve got a different play on rising gold interest that you’d like to share with the class, by all means, use our happy little comment box below. Thanks for reading!

Disclosure: Among the companies mentioned above, I own shares of and/or call options on Barrick Gold (GOLD). I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.


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hedy1234
Member
👍1618
hedy1234

Travis, other than Barrick are there any gold miners you like?

charang007
Member
👍5
charang007

I personally like and invested in B2G, WPM, SAND

ebe
Guest
ebe

Me and Cramer like Barrick….solid company

Rog
Guest
Rog

They are going to lose their mine in Papua New Guinea, probably. Careful!

Sam Wiebaux
Guest
Sam Wiebaux

Gummy ,

I need a NEW broker – the one I use is WORTHLESS much of the time!

Suggestions?

Sam Wiebaux
Guest
Sam Wiebaux

A bit off target, I suspect, but what is THIS…..Google just poured $4 billion into THIS…
Urgent investment message (read below)

Fellow Investor,

The world’s most successful tech industry giants are all clamoring to get their hands on a new piece of technology.

Ravenwood
Guest
Ravenwood

I heard John Doody, gold investor extraordinaire, speak a few months ago about his favourite gold stock. It is Belo Sun (TSE: BSX). Still around a dollar, so very easy to take a sizeable position. It has been a double for me already and I expect excellent returns as the gold bull gathers steam. Doody expects $3000 gold ahead.

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Michael Meek
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Michael Meek

Doody does NOT have Belo on any recommended list. I’m a subscriber.

hedy1234
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hedy1234

You are incorrect Michael. Belo Sun is a reco in Doodys gold portfolio. Make sure you check the full portfolio. I just did and its in there. I believe he recommended it in January.

DPI
Guest
DPI

100% correct. I am up 88% on Belo Sun position thanks to Doody.

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texasranger
Member
👍157
texasranger

Skousen has been a Gold guy forever. A few weeks ago he highly recommended B2Gold Corp – BTG in Forcast & Strategies. Across his other pubs include GOLD, NEM, KL.

22over7
Member
👍8
22over7

I did well with Detour Gold. They were taken over by KL, and so far I’ve profited from them, too. I’ve got an outsize position in them. I held Barrick and Zijin, for some profit, but sold them recently when they got kicked out of Papua New Guinea. (Go locals !). Also, there’s an ETF which gives + weight to the royalty companies… GOAU. Good luck, all.

putlovr
Member
👍6
putlovr

I was never a goldt 40 and bug but beginning around 2014 I felt that the market had gone up too much and with the effects of QE2, printing money, budget defecits, increased national debt, we should see inflation (so far I was wrong). I thought the dollar had to go down but against what? The euro–no, the yen–no. Then what? Real goods. I bought a co-op (real estate) and looked at gold. I really can’t analyze miners but I took a large position in Newmont Mines and then a flyer (35,000 shares) of KNTNF at a little over $1.… Read More »

Buck
Guest
Buck

Travis, nice work here. This little baby isn’t one we’d go with, but these development miners are always fun to dream about. Hey, you could always take a flier for a few hundred $$$ in hopes of a giant payday. However, what I tend to see in these exploration and development companies isn’t much. Insider executives tend to live off of investor capital and very large shareholders tend to figure out how to escape. Most others get scalped as time lines extend and capital raises dilute beyond reason. An additional concern, for me anyway, is any miner in the US… Read More »

Carl M Welch
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Carl M Welch

Midas might work out, but don’t get carried away with resources/reserves. Grade and tonnage are what counts. Newmont paid a lot for Long Canyon, but as I recall the grade was about 0.1 opt in heap leachable rock. Deposits like Long Canyon are getting very hard to find. Explorers now are bragging about 0.01 to 0.02 ounces per ton in supposedly heap leachable rock. Other explorers are bragging about drill intercepts of over 1 ounce per ton but over true widths of a few inches . The richer intercepts require underground mining, which is a lot more expensive and require… Read More »

Buck
Guest
Buck

Well Said. The devil is always in the details. I read a piece last year that suggested that of the world’s estimated gold reserves, we may may already mined more than 75% over the last few thousand years (most of it in the last 200 years). If that is true, the 25% still in the ground should be more and more expensive to retrieve and the above ground metal should, with global currency printing at record highs, be viewed as an increasingly fixed asset. Anyway, thanks for your insight on yields Carl. They are very important as they are a… Read More »

ggswift
Member
👍171

Another GOLD stock that actually pays a dividend and looks great is DRD Check it out

22over7
Member
👍8
22over7

ggswift,
Like a bat out of hell over the last year. What a dividend for those who got in early. Where/ how did you find this gem?

ggswift
Guest
ggswift

Well I am retired , so after I exercise in the AM , I spend time searching the web

ggswift
Guest
ggswift

I also utilize the Market Trend Signals program , and sometimes find excellent stocks there!

22over7
Member
👍8
22over7

ggswift, Thanks. I’ll check that out. Well done.

Buck
Guest
Buck

Now there’s a strong chart! Hope you got some of that move.

jpdupouy
Member
👍0
jpdupouy

Why is not available in Robin Hood app?

ronwill
Member
👍270
ronwill

K92(KNTNF) has been plugging along for me.

And for the speculators out there:
NAK is a possibility if it can the permitting accomplished. Looks to be moving, somewhat slowly, in that direction.

And for a Cesium play that is not Chinese controlled look at Power Metals(MWM.V) Still in the exploration phase though.

zoeyzen
Member
👍0
zoeyzen

I saved (and lost) an article about an options precious metals newsletter.
Hoping someone knows what it is, and can give a recommendation