The folks at Penny Mining Speculator manage to get an awful lot of attention from Gumshoe readers, and they do it with email ads like this one — promising that they’ve found a company with a huge, undeveloped deposit that’s worth hundreds of times more than the stock market is giving them credit for.
Sometimes these work out, of course, but it’s far from certain or predictable. These are penny mining stocks, and, as is clear from the name of the newsletter, when you buy a stock like this years before any potential mine might be built you’re absolutely being a speculator. Nothing wrong with that, of course, but we’d all do well to remember the definition of that word “speculation:”
“engagement in business transactions involving considerable risk but offering the chance of large gains….”
I know, I know, there’s no need to get preachy — I just feel compelled to mention that “considerable risk” bit from time to time. Most people who invest early in junior natural resources projects lose most of their money most of the time, and it’s those few spectacular discoveries that make up for the losses in other speculations.
But this ad from Chuck de Castro, interestingly enough, implies that we’ve already got the discovery … and it’s still cheap. So that’s not necessarily likely to get me revved up to buy shares (I expect I would be terrible at picking junior miners, so I use my gold mining allocation to buy royalty companies instead), but I know there are a lot of junior mining lovers out there in the great Gumshoe readership … so we can at least figure out what the stock is and let y’all go figger on it yourselves.
Here’s more from the tease:
“A small company owns one of the largest undeveloped gold deposits in the world. It has proven and probable reserves of almost 20 million ounces of gold.
“The ore is also extremely rich in copper and silver. The mine contains almost 5 BILLION pounds of copper (at $3.60 per pound) and more than 40 million ounces of silver….
“When it begins production, it will be getting more than a billion dollars of gold out of the ground every year. By selling the copper and silver by-product, its production cost will come to only $18 per ounce of gold.”
De Castro compares this to past winners he’s touted like Keegan Resources (KGN) and New Gold (NGD) — and I can’t tell you exactly when he recommended Keegan to his readers, but I can at least verify that he teased it pretty aggressively in April of 2009, and that even after taking quite a hit this year it has still just about doubled since then.
Of course, the S&P 500 has just about doubled since April 2009, too.
The last hint we get for our teaser? The share price …
“$1.76 per share to $11.35 is perfectly reasonable to look for.”
So … we toss that info all into the Mighty, Mighty Thinkolator, and we find that this is almost certainly … Exeter Resource Corp. (XRC in Toronto, XRA in NY)
It’s not at $1.76 any more, but these ads often linger for several months without getting editing updates, and it was near that price last year.
Exeter has a major resource in Chile called Caspiche, and they do claim it as one of the major undeveloped gold mines in the world. The share price has come down considerably over the past year, but there are plenty of bullish profiles and articles about them — including this one from last April that does a pretty good job with the details.
From Exeter’s own website:
“The Caspiche project is well located in Chile’s Maricunga district which has good infrastructure associated with other large scale mining operations and projects in development. Caspiche has proven and probable ore reserves of 1.091 billion tonnes containing 19.3 million ounces gold, 4.62 billion pounds copper, 41.5 million ounces silver”
They would need a lot of water and money to develop that kind of huge mine, and that seems to have been the big concern of late — they’re exploring for water in their concession areas to see if they can find it relatively inexpensively, and if they want to build the full mine to exploit that massive resource it’s presumably going to cost several billion dollars. They say they’re going fairly slowly and trying not to spend a lot more money on the project or do dilutive financing until they can get a better valuation on financing or partnering deals, but they think that “derisking” the water and being patient will give them a chance for a much better valuation and possibly a very good deal to build the mine.
So they are continuing to spend some money on water exploration, which they think could give them a better position because nearby water from their concession areas would save them a lot of money over the high cost of buying water on the massive scale that they’ll need, and they have some optimism about that because they’re in a mining district and other local mines from large producers are getting their water from similar underground sources.
But they have been putting forth a public face of being patient with their big discovery — over the last six months or so they’ve been talking about developing the much smaller oxide heap leach deposit at Capische, which would cost less and demand less water, as the “first stage”, but even on that they seem to be very, very early in the process. Here’s how their Chairman, Yale Simpson, put it in a press release last summer:
“Exeter is in a unique position for a junior explorer. We have a world class gold-copper asset in an excellent jurisdiction and a very substantial treasury.Are you getting our free Daily Update
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“In my view the current depressed share price does not reflect the potential future value of the Caspiche deposit, a value that could well be a multiple of our current valuation. The timing will depend on metal prices and world economic conditions.
“The Board is determined to see a higher valuation and to that extent Caspiche is ‘not for sale’. We have set aside the funds necessary to maintain the asset for the months or years necessary to bring value to our shareholders. We remind ourselves daily that no one has found another Caspiche-size deposit in Chile for years, simply because there aren’t many left to be found.
“We have a treasury sufficient to consider the acquisition of another project however such an acquisition cannot jeopardise the security of our Caspiche asset. Our view is simply that there are some very interesting opportunities becoming available, potentially for joint venture or ‘on sale’.”
Now, the contrarian in me wants to tilt my head to the side a bit and say, “really? You want to buy some other project when you have one of the world’s largest undeveloped resources already in your pocket and you’ll need buckets of cash and perhaps a big partner to develop it? OK, so what’s wrong with Caspiche, then?”
But I’m probably being a bit grouchy. Haven’t had my lunch yet … and, of course, the financing of these kinds of massive projects is often so counterintuitive and complicated that I delight in staying away from them. Their management continues to hint around about making acquisitions as recently as last month, according to this article form minesite.
Exeter was valued at over $5 a share when they agreed to exercise their option to buy the Capische project from Anglo American back in 2011 after a few years of exploration drilling. The big numbers for gold, copper and silver at the time were similar to what they are now, though they’ve apparently been upgraded to “proven and probable” reserves, and they’ve spent $20 million or so on studies and operations over that time and the share price is down to about $1.30 now … so clearly some of the bloom has come off the rose.
Interestingly, Exeter spun off a company called Extorre about three years ago that ended up being in a somewhat similar position. I don’t know the full story, but Extorre had a big resource with large cap ex needs (though in Argentina, which means much higher political risk) … Extorre mulled around about building a smaller mine for a while to get some cash flow going to fund expansion, but ended up being taken over, at still a cheap cost/ounce price, by Yamana. That seems to often be the way, little $100 million companies just can’t seriously contemplate massive mines in this financial environment, big dilutive partnership deals or takeovers seem to be required to even think about financing these large, expensive mines.
The Cerro Casale project that’s controlled by Barrick Gold is the big comparison that Exeter likes to point to. Cerro Casale has gotten government approvals and is about 10km away from Capische, and fairly similar in size (reserves roughly 20-25% larger) and Barrick’s description says the estimated construction cost is $6 billion. I don’t know if the two are genuinely comparable, but they look similar on paper.
So no, Exeter is not going to be producing gold at $18 an ounce anytime real soon — though that is the potential, according to the project feasibility study on their website… but that is a big ol’ discovery. What do those of you who follow junior miners think? It seems to me like a bit of an open-ended speculation, given what seems to be a “no rush” attitude from management, but there is apparently a lot of gold there, they do have enough cash to keep moving forward cautiously, and perhaps news about the water options or preliminary environmental studies on the heap leaching will move the stock one way or another in the months to come. Beats me.
But I am, at least, quite sure that Exeter is the stock being teased by the Penny Mining Speculator … and hopeful that the rockhounds in he group can give some kind of assessment of Exeter’s prospects by sharing their comments below.