“Tiny co. strikes gold in abandoned mine” Chuck de Castro

By Travis Johnson, Stock Gumshoe, January 30, 2009

Is it even possible to slip back in time a year or two, to our delightful bull market past, and remember how differently we looked at things?

At this time of year in 2007 we would have been sifting through teasers about how the latest LCD maker or electronics store was going to benefit from sales of big screen TVs for the Super Bowl … or about how much money Chinese travel companies would make during the Lunar New Year celebrations.

Today, alas, we’re looking at gold. That pretty much says everything you need to know about investor sentiment.

Chuck de Castro edits the Penny Mining Speculator newsletter, which, as you can guess from the name, looks for microcap mining stocks that might have the potential for massive returns. It should probably go without saying, that almost has to mean that the record of his newsletter is going to be based on a lot of duds that didn’t pan out, and a few hugely successful breakout companies. He claims credit for a few big winners, notably Nido Petroleum, which he says got his subscribers 2,844% gains.

I can’t verify that, of course, but I’d urge you to note that in his advertising he doesn’t brag about his overall returns, or his average returns — though the dozen or so closed trades that he claims credit for in the ad do sound impressive (most with 100%+ short term gains, a few with losses of 20% or so, and his “open” portfolio apparently has some good recent performers, perhaps thanks in large part to the big run in gold and silver prices recently).

That’s neither here nor there, of course — the question is, for the gamblers out there, what is the tiny company that he thinks is the most exciting glold play right now, and is it really all that he says it is?

For that, you can turn to your friendly neighborhood Stock Gumshoe — assuming, of course, that you’re not interested in ponying up $3,250 for a subscription … and I think we’ve got some interesting info about this one, but let me preface all of this by saying that I’m no expert in gold miners, nor am I a geologist. I plain don’t understand much of the stuff about “assays” and “veins” and such … but certainly folks love gold these days, so let’s see what we can uncover for you.

Here’s the marketing language from de Castro:

“This gold mine was once one of the richest gold mines in the world, and it looks like it’s going to have a second day in the sun.

“It set many world records, several of which still stand after a hundred years — including the most gold ever extracted from a ton of ore, and the largest single nugget of gold ever found (containing 3,100 ounces of gold).

But as the old miners followed the rich veins of gold deeper into the earth, they ran into a water table. They were sure there was a lot more gold deeper down, but every time they tried to get at it, the mine flooded.

“Since they didn’t have sophisticated pumping systems or diesel generators back then, they had to shut the mine down. And the mine lay dormant for more than 80 years.”

There are a couple clues in there, but we get some more further down in the letter:

“small company bought out all the old mining claims around the old mine and secured 591 square miles of highly promising gold properties…”

“Near-term, I expect them to produce 50,000 ounces of gold a year. In two years, I expect that to grow to 100,000 ounces a year….”

“you’re looking at a company which almost certainly has at least $2 billion of gold in the ground — and probably a lot more.

“The managing director told me he thinks there’s $5 billion in gold, and has gone on the record saying so.”

We learn that the company was originally working with one old mining site, but that they’ve bought up some neighboring companies and mines and continued drilling, including one drill sample that “showed an amazing 355 grams per ton.” (He noted earlier that many mines are very profitable at 5 grams/ton, and this companies drilling had shown an average of 31 grams/ton).

These shares are currently trading for 11 cents, we’re told … and of course, we’re told that the potential is stupendous …

“I see the shares doubling or tripling over the next 12 months. Longer-term, if you’re prepared to sit on your stock while t