Tiny co. Pays $3 million for $2.9 BILLION in gold …

By Travis Johnson, Stock Gumshoe, April 30, 2009

That’s the promise of the latest teaser ad from the Penny Mining Speculator, Chuck de Castro’s pricey newsletter ($5,200 a year) that shoots for the moon using little mining companies with great potential.

We’ve looked at de Castro’s stuff a few times before — he turned us on to a tiny oil stock that did well for a little while, and at least one other gold miner (I think that last gold miner of his that we looked at is probably his “bonus pick” in the current ad, more on that in a minute). We haven’t got any reviews of this service at the moment (if you’ve ever subscribed, please share your review of Penny Mining Speculator now), and I don’t know anything about his long term track record. He claims, of course, that it’s spectacular.

But this one sounds interesting, at least — so let’s dig it up, shall we?

Penny Mining Speculator remains a low-tech operation, it appears — they take their orders by phone and they often have little mail-in forms at the end of their email ads, so I can’t point you to their ad directly … let’s look at the hints in our teaser …

Here’s the big picture:

“If I told you about a little mining company that bought a large gold property in West Africa for $3 million, and right out of the gate found $1.4 BILLION of gold, would you be interested?

What if I told you that just recently they doubled that to $2.9 billion of gold … and all that gold came from just a small sliver of their property? And they’re just starting to drill on the rest of their property?

“The company’s boss is a mining veteran who spent 22 years finding some of the world’s biggest gold deposits for Canadian mining giant, Placer Dome.

“When he started this little company, he scouted out this 28-square mile property in one of the hottest gold regions in the world and nailed it down for $3 million in cash and stock.”

And it’s not just this one property that de Castro likes …

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“Moreover, they have a second property in the region, which I think is equally promising.

This second property is very close to a major gold mine owned by Newmont Mining.”

He goes on to tell us that he recommended this one to his subscribers six months ago, and they’ve already seen gains of 118%. Not bad, though if you picked the low about six months ago and the recent high, the gold miners’ index (as represented by the GDX ETF) also went up by about as much from November to April — six months ago was a really good time to buy almost any gold miner.

But the gains haven’t stopped, according to our teaser:

“$2.9 billion in gold makes this $66 million company’s shares risk-averse. Even if the gold market cools off, I expect the shares to double again by this time next year.”

Of course, I expect my kids to brush their teeth without being told, too, doesn’t mean it’s gonna happen.

He goes on to say that the shares are around $2, and they could easily triple in a rising gold market. So that’s most of the clues … whaddya think?

I threw all that into the mighty, mighty Thinkolator … and I’m told that this must be …

Keegan Resources (KGN in both NY and Toronto)

Keegan is indeed run by someone with over 22 years of experience, much of it at Placer Dome (Dan McCoy). And it does have two properties that match these clues precisely, both in Ghana in West Africa. The company changed it’s name about five years ago, they used to be known as Quicksilver Ventures, and back then they were mostly looking for gold in Nevada.

The first site that was teased, the one that’s furthest along, is the Esaase project — though the second project, Asumura, was actually acquired a year or so earlier (Esaase was acquired in 2006, Asumura in 2005). Both are in known mineralized zones, and have had at least some exploratory drilling done, and Esaase has reportedly already produced over 500,000 ounces through “artisanal mining,” which seems to be a lovely euphemism for “people digging holes without safety gear.”

Asumura is indeed very close to a Newmont site, as teased … and the Esaase project is 28 square miles (or 73 sq. km.) and was purchased for something in the neighborhood of $3 million (it was complicated, with lots of shares and not a lot of cash put up front, but that seems to be a fair estimation). Whether or not the gold is really worth $2.9 billion is another guess entirely — it does match the teaser, since they estimate reserves of 3.476 million ounces on their website, and that translates to just over $3 billion at $900/ounce … but of course, that’s not “proven” or even “probable” reserves, the biggest part of that number is about 2 million ounces of “indicated” reserves. I’m no mining expert, but there’s a bit of a dig and a lot of work between “indicated” reserves and pouring your ingots, so better minds than mine will have to judge just what that work should cost, and how much of a discount should be applied for the risk of not finding what’s expected under the ground.

The company is trading for $2.13 as I type this (C$2.55 in Toronto), and seems to have similar if low volume on both exchanges. There are also a couple million warrants outstanding, though I don’t think they trade publicly, and some options that are close to triggering, so the fully diluted share count is about 33.7 million — which puts us within a couple rounding errors of the $66 million teased market cap.

So is it a great speculative buy? Only you can answer that — it is, after all, your money. I can only tell you that this looks like a very solid match for the teaser that Chuck de Castro is sending around at the moment … and it has more than doubled in the last six months, but is also at about half the levels it traded at a year ago. Might be a wild ride, buckle up!

Oh, and I told you I’d share the “bonus pick” too — or at least take a stab at it. Here’s what he says at the close of the ad:

“A tiny company that brought modern mining technology to a once-great gold mine abandoned when gold was under $35 — and has already found 3 rich, fat veins of gold ore.”

This could actually be any number of companies, given those imprecise clues, but one potential match is the company he teased back in January — if you remember, my article about that was “Tiny company strikes gold in abandoned mine.” That was Hill End Gold in Australia, of which, for full disclosure, I currently own some shares (I don’t own any other stocks mentioned in this article).

There was also a third gold mining company teased in the ad — haven’t looked at the clues yet, but I’ll let you know if I can dig up another one for you in the days to come. Thanks for reading


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Bob$
Guest
Bob$
April 30, 2009 8:40 am

How about the new sjuggerud top secret gold mine? From phase 1 I think.

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J. Somario
Member
April 30, 2009 9:39 am

S & A Steve Sjuggerud is touting a $2.00 gold stock with a lot of upside. Could 1 of the above be the stock??

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Brandon
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Brandon
April 30, 2009 10:02 am

Keegan Resources is one of the picks recommended to me by Global Resource Investments Ltd. (www.gril.net), which is a resource investment firm recommended by Doug Casey, Paul van Eeden, et al. After researching it a bit, it does look like a really promising company. I’m just waiting for it to be bought out.

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Graham Jervis
Member
Graham Jervis
April 30, 2009 10:47 am

yes,

i am very interested to know what S&A is touting, i wish it was Matt Badali’s newsletter that was promoting it as i am subscribed with him, however i am not rich enough for Steve’s newsletter, anyone has any ideas as to which 2.00 company this is? please do tell.

Peter
Guest
Peter
April 30, 2009 10:50 am

Travis, needless to say ……your sleuthing abilities, to the detriment of many newsletter publishers, are EXTRA ORDINARY!
That having been said, I ran a chart on KGN, and it appears, “Dead as Casey’s Nuts”. Unless some dramatic news comes through on KGC , one could sit their “fanning his nuts” ….waiting with basically “dead money”.
Travis that does not take away from your efforts ….. THANX, your sleuthing efforts are lauded by me and many, do have a beautiful day!

Graham Jervis
Member
Graham Jervis
April 30, 2009 10:54 am

just incase,

i went ahead and nibbled at both Keegan and PZG, it cant hurt.

Darrell
Guest
April 30, 2009 11:30 am

Is the politicial climate safe in Ghana ?? I’ve looked in the past at KGN and read some info, but is their protection for any investment the company makes ?? PZG sure seems to be SS promo.

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Rose
Rose
April 30, 2009 12:18 pm

I have to agree with Peter. Your sleuthing abilities have saved me a few dollars and in this economy that is great.

Thanks

Ray Voigt
Guest
April 30, 2009 12:26 pm

Travis, About two months ago I put in a broker assisted bid for HEGLF at the then trading price of .10. Left it for about two weeks w/no success. How did you get it?
Thanks Ray

Graham Jervis
Member
Graham Jervis
April 30, 2009 1:07 pm

is HEGLF a good play? or is it more of a speculative play?

Darrell – you think PZG is really SS promo stock? they not really letting off much info.

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Graham Jervis
Member
Graham Jervis
April 30, 2009 1:38 pm

PZG 3 month volume is around 50,000 shares, today they are trading 1.8 million, hmmm….

ponce
ponce
April 30, 2009 4:52 pm

I sold KGN in 2007 for $2.15. If I held on to it until today it would be just a wash. But I should have bought it back in Oct 28, 2008 when it was way down. Oh well.

SageNot
Member
SageNot
April 30, 2009 6:59 pm

The PZG Yahoo board has SS’s connection to Albert Friedberg all over the board, so Phase One subs there are in violation, not us here Travis.

I’ll give it my best shot tonight, the NBA playoffs are too distracting to get deep into TA right now.

SageNot
Member
SageNot
May 2, 2009 11:09 am

Compared to the other two stocks discussed here, PZG is hardly a “mover,” but I ran across this NZ speculation in the meantime, & I like their chart for a resounding comeback (OCANF.PK)

http://finance.yahoo.com/q/ta?t=1y&s=OCANF.PK&l=on&z=m&q=l&c=pcg%2Ckgn%2CHEGLF.pk

But liking a chart & investing in