The folks at Money Map Press are following in the footsteps of a few other advisories by trying to not just pitch publicly traded stocks, but to pitch the idea that they can get you access to a specific private investment deal that you can’t find elsewhere.
That’s probably true in some cases — there are private placements all the time, particularly in the junior resource sector where it makes sense for companies to raise money in fairly small amounts, and they aren’t open to all comers so there are often groups of friends or fellow travelers who get the allocations. In those cases, the newsletters themselves won’t be getting the private placement shares for you directly but would really just be pointing you to the company or the company’s agent to request a piece of the deal. It’s a little murky, since little of it happens in the public eye despite the fact that these are public companies, but I know that Frank Curzio had a similar project where he tried to get some of his high-end subscribers into particular private placements that were spearheaded or shared by the Katusa/Casey/Sprott folks and other “connected” resource investors.
But this is the first time I’ve seen the access to a private placement advertised so widely, and that’s probably a big dangerous… so let’s see what stock it is they’re talking about, and see what else might jump out from the ad.
The pitch is from Mike Ward at Money Map, and he’s advertising the Money Map Project, which is one of those high end (or “back end”, as the publishers would call it) services that they sell to their “best” subscribers. Usually such services are priced in the $2,000-5,000 neighborhood, and this one’s right in the middle at $4,000. I haven’t seen mention of this Money Map Project before that I can remember, so perhaps this is their first deal.
Here’s some of the lead-in:
“First Time Ever! An Exclusive Private Offering in What Could Be the Next…
“Multi-Billion Dollar Gold Venture
“You could have a rare chance to partner with an investment legend who’s already built two billion-dollar mining companies from the ground up.
“Independent analysis suggests every stake you own could turn into $595,000”
That list of “investment legends” who’ve already built billion-dollar companies is pretty short, so I expect many of us already know what the stock is… but let’s check a few more details to be sure:
“Today, for the first time ever, I’m thrilled to tell you about an exclusive private investment offering that’s open ONLY to Money Map Project Members…
“It’s a deal that gives you direct ownership in a company that, for the past two years…
“Has been aggressively acquiring dozens of huge, high-quality gold assets across Canada, Mexico, and the United States…
“At historically LOW prices….
“The gentleman you could “partner” with already built two multi-billion dollar mining companies from the ground up – making total gains as high as 17,900% for investors who got in at the beginning of both….
“The private offering I’m recommending to you today is unlike anything you’ve seen before.
“It comes with perks and sweeteners typically given to venture capitalists, investment firms, and billion-dollar investors like Warren Buffett…
“Including an immediate ‘private investor discount’ that’s worth thousands of dollars.”
OK, so we can at least get you the easy answer: This is indeed First Mining Finance they’re talking about, and the “investment legend” who founded the company is Keith Neumeyer, who has indeed created two billion-dollar companies (First Quantum and First Majestic Silver). First Mining Finance is a “mineral bank” created out of some of the low-priority projects owned by First Majestic, and they have spent the last year or two using their shares (and Keith’s reputation and connections) to buy up small gold miners to accumulate “ounces in the ground” that, the argument goes, will become more valuable in a bull market.
The strategy, eventually, will be to partner or sell these projects to miners in exchange for royalties or some similar upside participation, effectively creating a “bank” that buys undeveloped assets when they’re cheap and “monetizes” them when there’s more demand (ie, when the big miners are looking for acquisitions to replace their reserves, or when there’s more greed in the gold mining market and folks are throwing money at development projects).
I like the strategy, I own the stock and suggested it to the Irregulars almost exactly a year ago (along with a much-less successful “bank” that’s doing non-mining royalties). And they’ve been busy — back then they had just announced their first acquisition, of Coastal Gold, and they had about 100,000 shares outstanding and roughly a million ounces of potential “in the ground” resources (including measured, indicated and inferred resources) — now, they’ve acquired (or at least announced the acquisition of) seven companies, they have almost 500,000 shares outstanding, and the “resources” number, using gold equivalent (some of the mines have more silver or copper) is now about 10 million ounces.
This is really a financial and arbitrage exercise, though the eventual success will depend on gold prices — what they’re doing now is essentially creating value by moving one asset from a junior miner without a lot of investor interest into a “mineral bank” that’s heavily promoted and run by a well-known and investor-savvy Chairman in Neumeyer.
One of the slides in their current investor presentation points this out, noting essentially that the market values an ounce of resources at somewhere in the $5-10 range when it’s held by the distressed junior miners First Mining has acquired, and the market values First Mining at more like $20 per ounce of resources…. so just by swapping shares, the juniors, on average, get almost a 100% bump in per-ounce valuation.
I imagine that’s a big part of the reason why companies are willing to be acquired for First Mining shares, though it’s also true that a lot of companies don’t really (or didn’t until this year, at least) have much choice given the lack of financing available in the sector (First Mining doesn’t generally use cash for acquisitions — in fact, most of their cash has come in because of the cash on the books of the companies they’ve acquired, so sometimes the acquisitions improve their balance sheet).
So that’s the way the company works — and they probably would have been better off, frankly, if the slump in gold miners had gone on for another year or two and given desperation a chance to really set in for more of the junior miners who have appealing assets. It might start to get a little tougher to acquire mines if gold prices continue their bullishness — CEOs in the mining sector are way too optimistic as a general rule, so if they are fed some reason for optimism by the market they’re less likely to sell their companies at a steep discount to the amount of capital they’ve expended in acquiring and exploring their properties. Neumeyer’s assertion is that “normally” gold in the ground trades for between $50-150 an ounce, and right now First Mining is valued at about $18-20 per “resource” ounce in USD (I assume that he means US dollars, but in Canadian terms it would be C$22 or 23 for the current valuation).
The biggest property they’ve acquired so far is Springpole, which they got when they acquired Gold Canyon last September when gold was around $1,100 an ounce — the cost to First Mining in shares was roughly C$60 million at the time (now C$120 million for Gold Canyon shareholders who held, since First Mining has doubled since then), but Springpole has a PEA that indicates the value is well over C$500 million with gold at $1,300 an ounce, and it’s in a very active mining area in Ontario… I would assume that’s probably the first asset of First Mining’s that’s likely to get a development deal with a major miner, since it’s big and well-defined and near lots of existing infrastructure, but you never know. Neumeyer has indicated that other properties in the portfolio have some potential to have similar-size (several million ounce) resources, but they’re not yet booked or are historic and don’t meet current reporting standards. I don’t know if there’s some kind of skeleton in the closet at Springpole, I haven’t researched it at all, but if you’re bullish on that project and on gold prices, then First Mining is an easy buy at anywhere near the current price.
Is First Mining a “value” here? I’m not completely sure, but it’s a substantial position for me and I expect it to be quite levered to gold if gold rises sharply and dealmaking begins to take off again. I sold a portion of my First Mining shares after the first surge in gold miners at the beginning of April, and bought most of that position back at close to the same price a little while ago, so I have a decent allocation to First Mining as one of my more levered and speculative gold mining investments… it’s a smaller position than I hold in Sandstorm Gold (SAND), which is a cash-flowing royalty firm, or the gold mining ETFs (mostly SGDM), but it’s much larger than the little speculations I sometimes put on in micro-sized junior warrants and options that are too small to write about to a large audience (and which are, probably, fundamentally stupid investments because of high risk).
My uncertainty about First Mining stems largely from the fact that it’s so promotional and so loved by so many different pundits and newsletter guys — that’s a good thing in that it helps them have higher-priced shares that are good to use for acquisitions, but it’s a bad thing if the market turns and the promotional stuff no longer works, and investors sell it down to those bedrock “price per ounce” valuations that so many junior miners suffer under when the market is distressed. In that way, you can think of it as somewhat of a leveraged junior — though that’s also partly offset by the fact that they now own a lot of potential mines, not just one or two like most junior miners.
But if you can stomach that risk, that if junior miners fall 50% and things get ugly again then First Mining could conceivably fall even harder, I do like the model and the “optionality” they have to sell and partner a large variety of properties IF the market goes in their favor over the long run, and I like Keith Neumeyers track record… I just try not to drink too much of the Kool-Ade or make it too big a position, even though I’m sometimes tempted to because of the appeal of the “story.”
But what’s this story about a private placement? Does Money Map Report really have a private placement lined up at 67 cents, with warrants, as they tease?
Well, probably that’s at least generally true — though I don’t know how large it is, or if it will end up feeling like a bait and switch if investors sign up and aren’t able to get the allocation they want (or aren’t eligible — you do still have to be an “accredited investor” for these private placements, which usually means you have to have income over $200,000 or investable assets over a million dollars).
The private placement they’re talking about is at a price below the current market price, they say it’s at 67 cents (which is where the stock was about a week ago, immediately prior to the Brexit vote — it’s around 73 cents now), so that’s perhaps interesting even though that might not be cheap enough to be compelling enough to tie yourself to a private placement, which often comes with other strings attached (minimum holding periods, etc.) What is more compelling is that they indicate that their private placement also includes a “free” warrant — and warrants are where early-stage resource investors really get their big upside potential.
A warrant is essentially just like a call option, though they’re not as standardized and they don’t always trade on the market (some are listed, many are not) — a warrant gives you the right to buy a stock at a set price (the “strike” price) anytime before the warrant expires, sometimes with additional conditions or rules for exercising the warrant.
As a quick aside, if you do own warrants pay close attention to them when expiration comes closer — unlike with options positions, your broker is unlikely to act on the warrant on your behalf or notice that it exists, and even an “in the money” warrant can expire worthless if you don’t take action. Even if the stock is above the exercise price and the warrant is very valuable, if you don’t proactively sell the warrant or exercise it that valuable warrant can become worthless on the day after expiration.
Ward says that the private placement is being made in 20,000 share installments (so about $13,000, which is roughly $10,000 US), and that they’re being offered out-of-the-money warrants at the same time. So those in this Money Map-arranged private placement will get three-year warrants with a strike price of 95 cents, and you get a half-warrant for each share you buy (so a tranche of 20,000 shares would come with 10,000 warrants).
First Mining does not have any warrants trading today that I’m aware of, so I don’t know if this probably small tranche of warrants will end up getting listed — which means that getting your value back from them might require actually exercising the warrants at some point in the next three years instead of just selling them on the open market. And I generally love warrants, particularly long-term warrants, because, as you can easily figure in your head, they provide huge leverage — if you have warrants at 95 cents and the stock goes to $2, the warrant is suddenly worth $1.05 and you didn’t pay anything for it.
Is getting in on this warrant worth subscribing to Money Map Project for $4,000? Well, that depends not just on whether First Mining ends up doing well over the next few years (which depends on both their execution and on the gold price… and if gold doesn’t rise for a couple years and they make a lot more deals and issue more shares they could easily see their share price stagnate or drop), but also on the size of the allocation you might be able to get to this private placement. Money Map is really just making the introduction for you, they’re not guaranteeing that you’d be able to buy 20,000 units or 100,000 or whatever of the private placement, and as far as I can tell we’re not told how large the placement is going to be. There are no refunds for Money Map Project, so you can’t sign up and see if you can get in and then cancel if you fail to get some of the private placement, or don’t get the allocation you want.
So we can do some quick calculating to give some perspective, if you like. First Mining Finance is currently at 73 cents, so the value of getting in at 67 cents is six cents per share today. For that discount to make it worth subscribing just for this private placement deal, you’d have to buy 80,000 shares in the private placement (an investment of C$53,600, or about US$41,000). So maybe if you can get that allocation it’s reasonable… assuming that First Mining isn’t available in the open market for 67 cents, like it was a week ago.
I’d calculate that the three-year warrant is worth a minimum of 20 cents, according to a basic Black-Scholes valuation model that assumes 25% volatility, but that’s pretty much as valuable as interpreting smoke signals or tea dregs — it’s worth what you can exercise it for, or what someone will pay for it. If it were going to be a listed warrant, I wouldn’t be surprised to see it trade at twice that level given the current interest in the stock. If we assume that the value is somewhere in the middle of that, perhaps 30 cents per warrant, then that’s 15 cents per share (it takes two shares of the private placement to get a warrant). So to get $4,000 of value out of the subscription, based on just the warrants, would mean you’d need to buy only 25-30,000 shares (well, I guess you’d need to buy 40,000 since they’re selling in 20,000 share tranches).
So if you love the stock and would be willing to commit to it for some period of time, and were going to spend at least $10-20,000 on acquiring First Mining Finance shares anyway, and would find the leverage of warrants to be valuable, it’s possible that the $4,000 subscription would be worthwhile to you IF you could be assured of getting a minimum of something like 40,000 units of the private placement, depending on your own assessment of the value of the warrants. But even if you don’t get any units of the private placement, you’re still out the $4,000 — so that’s the major risk.
I don’t know what Money Map Project‘s track record is at identifying “private” investments — they tried to do something similar with direct investments in oil wells that were recommended by Dr. Kent Moors a couple years ago, and that has presumably been a disaster given the fall in oil prices (I’m just guessing, I haven’t heard what the results were from anyone). Previously they also have run ads indicating that they could get you “pre public” shares or special access to investments, and those ads were much more misleading than this one — so I guess that’s positive (those were the ads from Michael Robinson for getting in “privately” on Stellar Biotechnologies, and getting some special access to the SharesPost 100 Fund).
Whether there will be any deals from Money Map beyond this private placement that have any value, or whether you personally could get access to the private placement, I have no idea… but the placement itself, going by the description in the ad (I’m not a member, obviously, and haven’t seen the terms of the private placement), seems to have some potential if you’re interested in owning First Mining shares. And if you own First Mining already, I wouldn’t worry about this being dilutive — I would guess that the private placement would be quite small, perhaps just a couple million dollars or even less… and First Mining is going to keep issuing tons of shares to acquire more companies if things work out as they expect anyway.
Big picture? The ad cites several arguments for investing in gold, though the one that they keep harping on is the cyclicality — with the tendency of bear markets in gold to create average declines of 44% and bull markets to generate gains of 450%… and, not coincidentally, the current bear market in gold, as of a couple months ago, was down 44.1% from the September 2011 high. Here’s the table that Money Map borrowed from to make that point:
(That chart is in the World Gold Council’s first quarter report, which you can see here.)
And beyond that, well, you can make your own call.
My biggest fear for this particular offer, assuming you do find the actual investment in First Mining to be worth your money, would be the potential for either intentional or accidental “bait and switch” — that too many people might sign up and want access to this private placement, and that there won’t be enough private placement units to go around… or that unaccredited investors, for whom this private placement would be worthless, would sign up for an expensive newsletter that offers no refunds, and that might never have a deal that you find as appealing as this particular one. Any comment beyond that from me would be guessing, but if you’ve got an opinion on this, or any experience with private placements engineered by Money Map or other newsletters in the past, feel free to share it with a comment below.