Folks are getting interested in gold again, as often happens after a little surge of panic in the financial world, and so Marin Katusa is out with a promo about his “Project Gold Rush” idea… let’s dig in and see what he’s really talking about.

The ad is for his Katusa Resource Opportunities ($2,500/yr, nonrefundable), and the pitch is similar to what we saw from him a year ago:

“‘Project Gold Rush’

“An exclusive, backdoor way you could make 5X – 10X in the gold markets, alongside some major-league investors…

“Even if gold does nothing in 2023.”

He starts off with a photo of a big lump of crystallized ore of some kind, which also looks kinda familiar, and describes it in his email as “the rock worth more than a BMW”…

“It’s the most valuable rock I’ve seen in my 20-year career.

“And one that has attracted the attention of some of the biggest investors on the planet.

“That’s because the rock in the picture, about the size of my #1 best selling book, ‘The Rise of America’, contains a little over 10 ounces of gold and over 5 ounces of silver.

“At today’s prices, the meltdown value of the rock in the picture is worth over $18,000…

“This is the highest concentration of precious metals you will most likely ever see.”

Not sure why he used the BMW reference for that, though yes, I suppose you can buy a BMW for about $18,000… as long as you don’t mind that it’s about ten years old.

And as he pretty much always does, Katusa emphasizes his “boots on the ground” work in going and visiting these remote mining sites…

“Recently, at a location I cannot reveal because of a non-disclosure agreement…

“My team and I took a private plane to a mining region that, for reasons I will explain in a minute, the investment community has forgotten about…

“With miles and miles of rocks underground just like this one.

“I even brought international bestselling author and financial educator, Robert Kiyosaki along with me who was blown away at the site…”

Katusa refers to this as among the highest grade mines he has ever seen, not just for gold but for lead and zinc, and he says it could also be sitting above “one of the greatest undiscovered copper deposits,” and that he’s “pulling the trigger” and investing millions into the company.

And there’s apparently a “kicker” to this deal:

“This is your chance to get in on a very special company listed on a major exchange. And with a FREE, stealth upside kicker I’ll talk about shortly.”

Along with a list of “legendary” investors on board…

“I had a legendary hall of fame geologist, Roman Shklanka conducts his own due diligence on the project, and he has never in his 65-year career seen a project like this….

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“Legendary investor Doug Casey is on board.

“And legendary geologist Dick Silllitoe thinks they could be “pocket aces” in this project…”

Doug Casey, by the way, is Katusa’s former boss — Marin wrote some mostly mining-focused newsletters for Casey Research for years, until Casey was bought by Stansberry and Katusa went off on his own (partly, or so I heard, because Stansberry wouldn’t let editors own the stocks they write about).

So what’s the story? This is the second time that Marin Katusa has pitched this project, both times calling it “Project Gold Rush,” and it is a tease of the Tintic Project in Utah, owned by Osisko Development (ODV). The first time he touted the stock was a little over a year ago, when he was gathering investors for a private placement before a planned uplisting to the NY Stock Exchange (it was already public in Toronto).

Osisko Development was spun out of Osisko Gold Royalties (OR), largely as a way to monetize the Cariboo project and some smaller mines that that OR had ended up owning through various acquisitions, and the leaders are still from Osisko — the Executive Chair of Osisko Royalties, Sean Roosen, is also CEO of Osisko Development (and was a founder of the original Osisko, developer of Canadian Malartic, which I think is still the largest operating gold mine in Canada).

That private placement deal that Katusa touted was for $10.50 per unit, with each unit including one share of ODV and one five year warrant to buy at $18 (those prices are adjusted for the 3:1 share consolidation the company did last year, the original offer was $3.50/share and a $6 warrant). That hasn’t worked out particularly well, here’s what the stock has done since that pitch in February of 2022, shareholders who bought in the private placement would currently be down about 60%:

For some context, here’s that chart compared to the price of gold, the S&P 500, and the biggest mining stock ETF (Van Eck Gold Miners (GDV)) — gold and the average big gold miner both had a positive return during that past year+:

And yes, there’s a photo of Robert Kiyosaki sitting in the mine with Marin, wearing a hard hat. Robert Kiyosaki did visit the project, along with Marin Katusa, and hosted his podcast from a cavern in the mine on August 3, 2022, around the time that it was listing on the NYSE (yes, that little spike in the middle of the chart is his attention driving the shares from $4 to $7 or so in the first half of August).

Here’s that interview of Marin Katusa on Kiyosaki’s podcast, if you’d like a video version of the story where they call it the “highest grade operating gold mine in the world”… just remember that by “recently” he means “almost a year ago” (though, to be fair, the stock is at about the same price today as it was then).

What has happened since then? Well, to a meaningful degree it sounds like the Tintic project has really taken the place of Cariboo as the “lead project” for Osisko, they’re working on building a smallish mine there to increase production from the high grade area they know exists (the Trixie mine was already producing at a very small scale at this location when they bought it), and to keep drilling the area to see if they can find enough copper or gold to justify a much larger and deeper mine (which would also require raising a bunch more money). So far, they’re still releasing lots of select drill results, most of which indicate very high grades of gold and silver over very short distances (one or two meters). You can check out their March 2023 Investor Presentation for much more detail.

They do also plan to develop the Cariboo mine, they’re in the permitting process, but they describe that as “phased lower-risk development” right now. The first phase of that production will kick off in 2024, they think, costing C$137 million in initial capital (to produce about 73,000 ounces of gold per year), and they estimate they’ll need C$450 million more to build out Phase 2 to grow production in 2027 and build up to 194,000/oz per year, so it’s a pretty big project but not a monster mine — their estimate is that it will produce C$79 million in free cash flow per year. Using those new estimates in the pre-feasibility study released in January of this year, the Cariboo Project has a net present after-tax value of about C$500 million (assuming $1,700/oz gold and a 5% discount rate — which used to be a common discount rate, but seems awfully low now that interest rates have risen… if that concept is new to you, the discount rate is meant to reflect the fact that money they earn in the future is worth less, in this case 5% less, than money they have right now).

And that represents a bit of a “downgrade” for Cariboo — their Preliminary Economic Assessment (PEA) from last Spring, when they were raising money, was quite a bit rosier, with estimates of producing 236,000 ounces per year and a headline value, back in May of 2022, of over C$900 million for the project (or C$764 million given similar gold price assumptions)… so reducing that to C$500 million, combined with the dilution, probably deterred investors a bit. None of these numbers are final, and maybe it makes more sense to move slowly on Cariboo, but investors generally prefer to see the value moving in the other direction.

When I last looked at Osisko Development in February of 2022, they were valued at about $500 million, largely on the strength of the Cariboo Project, and they had about 44 million shares outstanding… today, after raising roughly $300 million over the past year or so in a series of private placements and equity sales (including Katusa’s private placement as well as a couple others, one of which closed just a few weeks ago), they have 83.5 million shares outstanding, which at a recent US$4.75 per share would put the market cap at about $400 million. That’s not counting the 40 million or so warrants, there are a few different warrant tranches at different strike prices and with different terms (the latest one is three-year warrants with a strike price around C$8).

And I’m not sure what Katusa means when he says “stealth upside kicker,” but it could be that’s a leftover from his pitch for the private placements, referring to the warrants. Those are not really currently available — it might be that the 2027 warrants will eventually be listed, at least in Canada, and begin trading to allow folks to speculate on warrants instead of just shares, but right now that’s not really an option. There is a warrant listed, at ODV.WT in Canada, but those are an older tranche of warrants that have a strike price of $30 and expire in December of 2023, which is, of course, not nearly as appealing as a 2027 warrant at $10.

Since those 2027 warrants are not publicly traded, we don’t know what the warrants Katusa was pushing for last year’s private placement might be worth, but they would certainly have some value… and the company is pushing to increase the value of those warrants, perhaps further diluting any shareholders who are not also warrant-holders (and giving a gift to their closest financiers). About 19 million of the outstanding warrants expire in the first half of 2027, and the Board has authorized them to reduce the exercise price by about a third (from US$18 to $10.70, with the Canadian ones similarly reduced from C$22.80 to $14.75). CEO Sean Roosen said in the press release announcing this reduction that, “The proposed warrant repricing is consistent with the interests of all shareholders who have provided and continue to provide considerable support to the Company as we execute on our goal of becoming the next North American-focused mid-tier gold producer,” though to me that defies logic — it’s in the interest of the people who own warrants, and, all else being equal, dilutes the ownership of those who don’t. Maybe it’s worth keeping your financiers happy, but it seems a little sleazy to me… will they reduce the strike price again if the stock keeps falling?

And that’s pretty typical of the world of junior miners — even when they have their hands on something that looks pretty exciting, and is even generating a little bit of cash flow right now, with good drilling results that portend something better in the offing, perhaps something much better if they’re fortunate, they have to sell so many shares and raise so much capital to do the exploration and development work that being a shareholder can feel quite frustrating, as the theoretical future value of the project is diluted by all those new shares. That won’t be the last of it, I imagine, if they’re going to build bigger mines in the future they’ll need more money, but they are at least pretty well-financed for the work they’re doing right now, they have well over $100 million in cash after their latest private placement.

The good news? The Osisko Development folks have done this before, they built the Canadian Malartic Mine many years ago, and they seem to think they can expand on these projects, get some cash flow going from initial production, and then perhaps built out much larger mining operations at these sites as more resources are discovered and delineated… with the hope that maybe there’s a big copper deposit underneath the Tintic gold mine That’s where being an optimist sometimes works out in mining — they’re not going to spend millions of dollars to find an elephant-size copper deposit right now, because they don’t have the money, they’re going to first produce this smaller gold deposit and use that cash flow to keep drilling to look for the bigger stuff.

Of course, mining executives tend to be pathological optimists, so you also want to keep your wallet close at hand. I tend to avoid speculating on junior mining projects, just because the uncertainties are so high and I have sometimes found myself too susceptible to getting wrapped up in a good story when it comes to this kind of stuff, but I’ll admit that this one does sound interesting, if that’s your bag.

Just know that it sounded pretty interesting a year ago, too, and since then the projects have made some progress, and we have an even clearer vision of their value, and the price of gold has gone up… but yet, the stock has fallen by 60%. These kinds of stocks, even if you like the story, are not for the impatient or the risk averse — you’re really putting venture capital into an unprofitable mining operation, and you don’t know for sure how successful it will be, when it might generate a profit or find a bigger deposit to excite investors, or even what the gold price will be at that future date. I like the story, it would be easier to buy now that they’ve raised a decent amount of their initial capital already and driven the share price down, and the management team has proven that they know what they’re doing… but it’s still a risky speculation. Just like with early-stage technology companies, the biggest rewards go to the optimists who take a chance on the future… but those optimists also take most of the punishment when it doesn’t work out. Size your bets accordingly.

Oh, and yes, I should re-share with you the P.S. from the story I wrote about Marin Katusa’s pitch of ODV last year… which is that his wife, Marina Katusa, is on the Board of Directors at Osisko Development (she’s also on the board at Silvercorp Metals (SVM), just FYI, though has not bought nearly as many shares of that company). Katusa didn’t quite mention that connection in his ad, though he does say his family are major investors in the company… according to SEDI, it looks like Marin and Marina own something like 200,000 shares and warrants.

So… ready to take a chance with the Osisko guys? Think they’ll find a major copper mine hiding under the high-grade little gold mine they’re digging at Tintic? See great things ahead for Cariboo? Do let us know with a comment below… thanks for reading!