Fashions come and go in a flash in the investment world, but even when gold is a little beaten up, as it arguably has been in recent months as the gold price has come down by 15% or so from the highs of last August, there’s always at least a little simmering level of interest in junior gold miners. After all, the romantic notion that you can turn a barren patch of dirt into nice, shiny gold is endlessly appealing.
I know, I know, it’s a little less appealing now that the “get rich quick” dreams of the tech and crypto worlds have eclipsed the now-quaint notion of the dancing prospector. The idea of discovering a potential precious metals deposit and spending ten years building a mine to turn dirt and rock into gold is not as sexy right now as magically turning a digital work of art or sports video highlight reel into a million-dollar NFT, or turning a joke cryptocurrency experiment like Dogecoin into a $75 billion tulip bulb mania. But still, there’s something primal about turning a few acres of wilderness into a gold mine and reaping the rewards.
So in response to some reader questions, we’re taking a quick break from the hotsy-totsy tech teasers to look at a junior mining tease… it’s one that has circulated for a couple months, but is really going “hot and heavy” and generating more reader questions recently. Ready?
The pitch comes in from Luke Burgess for his Junior Mining Trader, which is a newish service from the Outsider Club folks, though it sort of slots in to the spot that was held by Nick Hodge and Gerardo Del Real with their Junior Mining Monthly, before they left and started up a new publisher and launched a new mining newsletter. Burgess has certainly been around for a while, he was penning teaser pitches for “#1 Gold Stock” ideas a decade ago, too, and was pitching stocks for other newsletters going back at least to 2007 (which is, I should note, the year the world began as far as Stock Gumshoe is concerned).
The service is apparently trading-focused, with stock ideas Burgess apparently plans to hold for a few days or a few months… and, as is typical, the more active trading newsletters want somewhat smaller audiences — you can’t tell 10,000 people to buy a junior gold stock all at once and expect them to get in anywhere near your recommended price, and one way they get that (and some huge profit margins for themselves) is by charging a premium price — so Junior Mining Trader is being sold for $1,999/yr — though to their credit, they do say they’ll give you a refund in the first 90 days, most higher-end newsletters don’t offer that.
OK, with that out of the way… what’s the stock? Let’s go through the clues…
First, the headline teaser info:
“We’re about to make a fortune off this gold discovery of the decade.
“This is one of the RICHEST gold discoveries of the last 50 years!
“The little firm that owns it is backed by TWO of mining’s most legendary billionaire investors.
“They could be sitting on the richest undeveloped gold mine in the whole world… worth BILLIONS of dollars.
“This gold stock could potentially shoot up 3,725% or higher.”
OK, so that’s actually probably enough in the way of clues… but we’ll just make sure with a few checks of some other tidbits in the pitch…
“Drilling samples indicate that this could be among the richest, highest-grade gold finds in all of the world, one that could be worth billions of dollars.
“It’s completely untapped.
“It’s 100% owned by a company that just recently went public.
“It’s armed with management that would be a ‘dream team’ for any mining company.
“And shares are trading for around $4 right now.”
And who are those “legends” who have backed this stock to date?
“One of them is a self-made MULTIBILLIONAIRE who made his fortune in gold. He runs an $11 billion global asset management firm focused on precious metals….
“The other investing legend is hailed as ‘the most esteemed gold executive in Vancouver…
“In fact, he’s damn near a billionaire himself.Are you getting our free Daily Update
"reveal" emails? If not,
just click here...
“He turned a tiny $50 million mining startup into one of the largest gold-producing companies on the planet, worth over $10 BILLION.”
That’s almost certainly Eric Sprott and Rob McEwen, which further narrows things down. Any clues about the discovery that’s leading to this “#1 Gold Stock?” We do get this…
“Consider one of the most significant gold discoveries of the past 10 years…
“It was made deep down underneath the fields of southern Australia.
“This discovery is dubbed the “Swan Zone.” And it’s the mother lode in every sense of the word.
“We’re talking a multimillion-ounce cache of the richest gold the world has ever laid eyes on.
“It’s currently the highest-grade gold mine in the world, operated by a mining firm called Kirkland Lake Gold.
“It’s already produced over 2 million ounces of ultra-rich gold… worth over $4 BILLION and growing…..
“The same geologist that was involved in the discovery of the “Swan Zone” that led to Kirkland Lake’s multibillion-dollar fortune also reviewed THIS company’s drilling results…
“And after seeing them, he swiftly declared that this newly listed company has discovered, ‘a potential second Swan Zone, the only one in the northern hemisphere.'”
And yes, this discovery is nearby and in a generally mining friendly jurisdiction in Newfoundland, Canada…
“The Central Newfoundland gold belt has many similarities to the Bendigo goldfield in Australia, which has produced over 22 million ounces of gold…
“And is also home to Kirkland Lake’s $4 billion gold mine.
“This small company is the largest mineral claimholder in the entire province of Newfoundland… with over 373,000 acres.”
So is that finally enough for our confirmation? Indeed, this has been one of the hot stories of the junior mining space for the past six months or so, as they keep drilling up super-high-grade samples from their discovery zones… and, yes, as mining luminaries Eric Sprott and Rob McEwen have added to their holdings in private placements in recent months. Burgess is teasing New Found Gold (NFG.V in Toronto, NFGFF OTC in the US).
And this is pretty much an all-star operation in the junior mining world, though that and their high-grade discoveries also mean that it’s already got a billion-dollar valuation, so “junior” does not mean it’s tiny. Not only are Eric Sprott and Rob McEwen on board, but the largest position in New Found Gold, about 30%, is held by the startup “merchant bank of gold” that is being launched by a lot of other big-name investors, Palisades Gold (they also intended to go public last year, which didn’t happen, but I assume it won’t be long — that bank includes well-known investors and entrepreneurs from the mining space like Keith Neumeyer, as well as newsletter guys like Doug Casey and Marin Katusa, all of whom are also magnets for attention).
So there’s already a lot of attention on this name, and we should always be cautious when there’s this much high-powered mining world attention pointed at one company, particularly when it’s still just a discovery-stage company and they’re still a long way from having even a resource estimate for their properties, let along reserves or any kind or preliminary economic assessment of the potential mine they might want to build… but still, those early discoveries do sound pretty amazing. They make clear comparisons to Kirkland Lake in a video on the website, which sounds compelling, and this is how they sum up the current situation for investors:
“New Found is advancing its 100% owned high-grade 1,500km2 Queensway gold project, located on the Trans-Canada highway 15km west of Gander, Newfoundland. A 200,000m drill campaign is underway utilizing eight drills, focused on a 7.8km corridor along the Appleton fault and a 12.4km corridor along the JBP fault. On the Appleton fault, following up on the initial discovery hole that returned 19m of 92.9 g/t Au at the Keats Zone, a wide zone of high-grade gold mineralization has now been drill-defined starting at bedrock surface and extending 350m down plunge and open, with step-out drilling continuing. At the Lotto Zone 2km north of Keats, from the initial discovery hole of 41.2 g/t Au over 4.75m and 25.4 g/t Au over 5.15m, follow up drilling is indicating continuity to depth with recent deeper results including 225g/t Au over 2.5m.
“Multiple other high-grade targets are now being pursued over 7.8km along the Appleton Fault Zone and 12.4km along the JBP Fault Zone. Work is also underway to define additional drill targets on +100km of prospective strike along the Appleton and JBP fault structures on the southern portion of the Queensway property. With approximately $75 million in working capital New Found is well funded to pursue its exploration programs.”
The latest New Found Gold investor presentation is available here if you want some more detail about the deposit and the capital structure of the company… but it’s really those g/t numbers that boggle the mind a little bit — 19 meters of 92.9 g/t means that a drill sample 60 feet long measured out at an average of 92.9 grams per tonne of rock. And just yesterday they announced another 17.7 meters at 124 g/t. We don’t know how far those high-grade intercepts go just yet, and I’m no geologist, but those are blockbuster numbers — when you talk about operating mines and mine-wide numbers (not just one highlight drill intercept), the highest-grade gold mines top out somewhere near 40 grams/tonne, and that’s effectively like finding one high-grade seam that you chase with an underground mine… even the mines that have 10-20 g/t numbers are considered exceptionally high-grade. The big open-pit mines that process far more rock, but are much cheaper to build and are more efficient and lower-cost, are often down at the 2-3 g/t level.
And it might be a huge project one day, they’ve got ten drills running to try to quickly identify more and more areas of the deposit, and the area is massive and follows 20 kilometers of the fault structures that apparently created these high-grade gold zones. I don’t see anything to not like about it, other than the fact that they are very promotional — but that’s probably the cantankerous New Englander in me…. being promotional is one of the core competencies of a successful mining company, and rabid-self promotion is generally required, along with a side order of almost obscene optimism, in order to get these giant projects funded and built over a decade or more.
So what’s it worth? Man, I have no idea. Eric Sprott a month ago invested C$15 million at C$5.25, so that’s one valuation touchstone for you. The company notes that there have been some historic resources claimed on various parts of the property, but that they don’t have any resources or reserves that meet the current rules for claiming such things, so we’re still dealing with a very high-grade discovery, with some initial drilling that indicates it probably extends over a large period, but no real numbers that put an obvious future value on the project. And we won’t see those for years.
Discovery is fun, and companies often post extraordinary stock market gains when they make big discoveries and follow them up with lots of press releases indicating that the potential resources is growing larger and larger. That’s how the stock is at a roughly $1 billion valuation right now. And Kirkland Lake is an interesting comparison, because they bought what became the Fosterville mine for roughly a billion dollars at a pretty hot moment for gold in late 2016, so if you want to exaggerate a little you can sey they bet roughly half the company on that project (the deal included other properties too, so that’s not fair), and Kirkland has since roughly quadrupled in value… though that’s mostly because of the Macassa Mine in Canada and Detour Lake, Fosterville and their other Australian operations are a relatively small part of the overall value at Kirkland Lake. At that time, we should note, Fosterville had not yet discovered its massive high-grade zones that were deeper in the ground, but it did at least have a few hundred thousand ounces in reserves, and therefore was years further along in exploration and de-risking than is New Found Gold’s project today.
How much are you willing to pay for a gold discovery of indeterminate size? If you want to buy a piece today, you’ll have to pay about 50% more than Eric Sprott did a month ago, it’s currently trading around C$7.65. I’m often tempted by these kinds of glitzy presentations… but when I slow down and think rationally I know that I shouldn’t be too excited about buying into a large discovery project at this early stage, partly because I know I’m not particularly talented at identifying gold exploration stocks that will have enduring value (I don’t like buying biotech stocks very often, either, for similar reasons — I know the person I’m buying from is almost certain to be more of an expert on the sector than I am), but the temptation is there… it certainly has more impressive drilling results than I remember ever seeing, and it has some luminaries attached, so we can pretty much guarantee that it will continue to get a lot of attention from gold enthusiasts and speculators. Especially if gold prices rise as they continue to release impressive-sounding drill intercepts.
So with that, dear friends, I’ll pass it back to you to share your thoughts — it is, after all, your money at stake. Willing to bet that this discovery will become a multi-billion dollar mine someday? Think the stock will keep trading up on the news in the short term? Wish you could follow Eric Sprott around for an afternoon just to collect the gold flakes that must fall out of his pockets when he reaches for his keys? Let us know with a comment below…