What’s Chuck de Castro’s “Mammoth mine” that “will soon begin producing gold at $18 an ounce?”

by Travis Johnson, Stock Gumshoe | February 7, 2013 12:57 pm

"A small company owns one of the largest undeveloped gold deposits in the world."

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[1], and that even after taking quite a hit this year it has still just about doubled since then.

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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[2] that does a pretty good job with the details.

From Exeter’s own website[3]:

“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[4]:

“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.

“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[5].

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[6] 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[7] 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[8]… 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.


Endnotes:
  1. teased it pretty aggressively in April of 2009: http://stockgumshoe.com/reviews/penny-mining-speculator/tiny-co-pays-3-million-for-29-billion-in-gold/
  2. this one from last April: http://news.goldseek.com/GoldSeek/1334948400.php
  3. website: http://www.exeterresource.com/
  4. press release last summer: http://finance.yahoo.com/news/exeter-provides-caspiche-gold-copper-103000944.html
  5. according to this article form minesite: http://minesite.com/news/exeter-resource-corporation-could-hit-the-acquisitions-trail-as-it-mulls-development-options-for-caspiche
  6. exercise their option to buy the Capische project from Anglo American back in 2011: http://miningweekly.com/article/exeter-to-buy-chile-goldcopper-project-from-anglo-american-2011-02-14
  7. Barrick’s description: http://www.barrick.com/operations/projects/cerro-casale/default.aspx
  8. according to the project feasibility study on their website: http://www.exeterresource.com/

Source URL: https://www.stockgumshoe.com/reviews/penny-mining-speculator/whats-chuck-de-castros-mammoth-mine-that-will-soon-begin-producing-gold-at-18-an-ounce/


  1. Avatar
    Gary
    Feb 7 2013, 01:42:57 pm

    This was teased by Casey years ago.
    Still on his list as “Buy if you dare”.
    I have owned this since 5.00 a share.
    Ouch.
    Thinking of adding another 1000 shares in hopes of a boyout bounce to get me close to even.

  2. Avatar
    Roger Bond
    Feb 7 2013, 02:02:13 pm

    I also bought Exeter as a Casey recommendation, fortunately I took a “Casey Free Ride” years ago, got my money back and have half of my shares riding (downward) for free.

    In the words of Peter Grandich, the last several years have been the worst market for junior resource stocks in our lifetime. Almost any long term money in that sector has been dead and/or dwindling for coming up on 7 years.

    So personally, I think “buy if you dare” is a fair warning for most anything in that sector. We currently have only highly speculative money allocated for that now. Maybe if we finally threw in the towel they would all become 10 baggers or more 😉

    Roger
    InvestLetters.com

  3. Avatar
    Timothyi
    Feb 7 2013, 02:25:01 pm

    Casey just touted this one again last week as a Best Buy. I took a third of a position at market ($1.35) and will take another third at $1.10 (a recent low), with the last third at 0.90 (the 2009 low); plus maybe some extra–that’s back-up-the-truck territory. But I’m out if it closes below 0.85, for a 24% loss. Acceptable risk for something with this much upside–but damn this sector is sick.

  4. Avatar
    Thane
    Feb 7 2013, 04:16:24 pm

    I’m not much into miners, but I do like a speculative play once in a while. My day job is selling 401k plans in AZ, and a few years ago, I had a meeting with a business owner who’s company was doing soil research for a miner from Canada, AZC. He told me he just dumped 20K into it. So I figured what the heck. Invested $1,000 and rode it up for a double. Been in and out a few times in the past 2 years since it seems to roll. But for you miners out there, that’s another one for you.

    • Avatar
      todd welch
      Aug 5 2013, 03:29:29 pm

      I lived in Tucson and get regular updates from Rosemont Copper (AZC). I bought a few shares and they have gone down, but I had the intention of holding for a while anyway. Production is supposed to start in 2015, and they have recently cleared some political obstacles (environmental), so we will see.

  5. Avatar
    voiper
    Feb 7 2013, 04:43:20 pm

    Travis, I love that you pick out what’s being teased and how you present the market around each particular stock.

    Do you have a summary of your sector allocations, current stock picks, and why? I’m curious what you’ve ended up with.

  6. Avatar
    Ventureshadow
    Feb 7 2013, 04:46:23 pm

    The Stansberry Group recommended Exeter a few years ago. Soon after it crashed down through their stop limits and they said to sell for a loss. These are the usual events with their mining recommendations. The alternative is to hold for a greater loss. The only way not to lose with such wild speculations is to avoid them. The problem here is that when you spend money to subscribe you feel as if you’re wasting your subscription fees if you don’t invest as they say. So it is CRUCIAL NOT TO SUBSCRIBE to newsletters that recommend speculations that crap out, i.e., virtually all newsletters that recommend speculations.

    While the present share price may or may not represent potential future value, it sure does represent the present value, in my opinion.

  7. Avatar
    SC
    Feb 7 2013, 05:36:18 pm

    This is indeed a very sizeable deposit, but would require a multi-billion $ CapEx. A few things that immediately struck me in my cursory examination of the project is that this is a low grade deposit, of which the vast majority of the “ore”, 93% to be exact, is hosted in sulfide mineralization. Approximately 62% of the deposits gross metal value is in gold. Sulphides invariably result in difficult metallurgy for the extraction of the gold (OK for the copper though) . This typically requires a lot of grinding and roasting of the ore, which of course demands a lot more expensive equipment, more employees and a ma$$ive energy demand while typically yielding less than optimal recovery rates. Obviously this will drive the operating costs northward. If this combination of factors doesn’t make things tough enough, there is that pesky 3% NSR held by Anglo. When you take 3% of pure margin off the endeavor, you have to amortize out a, say $3-$5 billion capex and you throw in the above metallurgical difficulties and expenses, well, let’s just say, this thing looks pretty darn tough in my humble opinion. Additionally, this obviously leaves very little if any margin for geological, political, labor, commodity pricing risks and so on.

  8. Avatar
    Mr. T
    Feb 7 2013, 05:56:00 pm

    Overall the Jr mining sector is really depressed. It seems every Jr I am sitting on has lost 50% or more in the past 18 months. I think banks have really pulled back on lending to Jr mining companies in general which is why they have had to dilute their shares so badly. It is a boom/bust sector and it has been on the bust for awhile now. Not to mention the sector as a whole is tiny and is easy to put downward pressure on with massive short sales. What caught my eye on this company is the call options pricing for May. I think if I was going to buy this company I would write a covered call for May @ $2.50 for .10. It isn’t fantastic but I could at least collect some cash while I am waiting for it to come back up. Might be able to collect a few premiums before it comes back up. Overall I am getting closer to buying more Jr miners. I think they are getting closer to running their course and will start to become popular once again. More than likely it will take gold and silver to pop once more before the computers start buzzing shares of jr miners/explorers.

  9. Myron Martin
    Myron Martin
    Feb 7 2013, 06:10:20 pm

    I certainly share peoples frustration with the junior mining market which has been in a funk for at least 18 months, on the other hand, after the 2008 market meltdown I turned $55,000 into $210,000 in 3 years primarily with junior mining shares, nearly 200 became free trading, i.e. returned my money with about 1/3rd of the shares left. In hindsight, having picked good entry and exit points I would have been better off selling ALL of my shares at the high at which they became free trading. Juniors are not a “buy and hold” proposition, they require careful monitoring of their development cycle for profitable trading.

    YES, I still hold some Keegan shares which is in a “merger of equals” deal with PMI Gold (which I also own) and will be re-named, and am very bullish on the combination as a potential mid-tier producer. Keegan has done very well by me in spite of the sell off the past 18 months. Exeter was likewise another free trading pick and with the spinout of Extorre made me good money. The interesting part for me is that YAMANA who bought Extorre is one of the very few mid-tier producers that did not get punished in the sell-off and is actually UP y/y and may well represent one of the safest buys in the sector.

    Over the last couple of months there have been a number of “false starts” indicating the market is turning positive, but I do believe 2013 will see a strong resurgence in the precious metals markets. Given the “money printing” going on by the Fed, then the ECB (Europe) and now Japans Central Bank, it is only a matter of time until DEMAND for “honest money” starts a rush out of collapsing bonds and conventional stocks. With demand from China and India where gold and silver are much more valued and viewed as real money and the best way to SAVE and preserve purchasing power the “smart money” is already there.

    Once people en mass realize that the national debt that has been accumulated is simply un-payable, the collapse of the dollar will accelerate and the tiny market for silver and gold will be overwhelmed with demand that can not be filled without a HUGE increase in price.

    I have been studying this market and the Ponzi scheme called the Federal Reserve for nearly 60 years, and if you have not done some serious research on the subject then I suggest you get yourself a copy of the book “Creature From Jekyl Island by Griffin and/or you start monitoring KING WORLD NEWS “daily” for their interviews with some of the smartest investors in the world, most of them millionaires and even billionaires, some of which have anywhere from 50% to 70% of their net worth in precious metals.

      • Myron Martin
        Myron Martin
        Feb 8 2013, 05:19:40 pm

        Have been accessing their site for years and today got the same virus corruption message. Somebody must be upset with the news they are putting out, so best to give it a few days for their expert team to clean things up.

    • Avatar
      Mr. T
      Feb 9 2013, 01:55:32 am

      You hit the nail on the head Myron. Other than a few Jr’s I am sitting on at a major loss, I have had much better results with Yamana, Royal Gold, Sandstorm, silver wheaton and even just the straight bullion holdings. Platinum has been a good one for me also.

  10. 44 |
    Avatar
    Carl Brady
    Feb 7 2013, 06:26:12 pm

    After reading Yale Simpson’s statement: There’s a lot of jargon here. To mangle an old proverb, “Those that can, do. Those that can’t write long winded, incomprehensible BS.”

  11. Avatar
    Dwight Fisher
    Feb 7 2013, 07:46:32 pm

    These Jr. miners remind me of the boitech penny stocks. Long on promise while they burn through uddles of dough, while investors wait for something to happen. 20 million for research? Wonder who got that money?

    • Avatar
      Dave
      Feb 7 2013, 10:42:16 pm

      Who got the $20M: Suppliers of very expensive lab equipment and supplies needed to do the research, and the senior scientists & tech support staff. Research in biotech costs a fortune.

  12. Avatar
    T. Walker
    Feb 7 2013, 07:51:06 pm

    I am so glad for this site as it gives me much to think about. why not consider commodity funds? you don’t have to worry about the costs of the miners, just the material itself.

  13. Avatar
    BonnieEmber
    Feb 7 2013, 08:11:06 pm

    Hello Gold Rush Investor’s.

    Have you seen the Ruby & Sutter Mines in the California Gold Rush areas?

    Sutter is currently producing gold, & Ruby is set to start this summer.

    Ruby has know deposits of approx $750,000,000.

    The largest nugget pulled from the Mine was 201 ounces.

    Ruby trades under the symbol: NBRI

    Sutter is SGMNF.

    I get these pump & dump emails too & have to laugh.

    Yes, in America, it can cost a billion to open a mine.

    Why fund other people’s dreams, when you can buy a genuine California Gold Rush Mine Stock, already producing.

    These stocks do not have a pump & dump campaign & I suggest that everyone take a good look.

    NBRI is trading at ,045 cents.

    Sutter is about $. 30.

    I drove up to Downieville this summer to make sure Ruby was not too good to be true, & it is as real as it gets.

    Now we need to call the owner & ask him a few questions about hedging, share dilution,
    etc.

    Regards

    Gold Rush Woman.

  14. Avatar
    Marco polo
    Feb 7 2013, 09:09:02 pm

    Great book…..jeckyl island…….opened my eyes totally……they say 10-20% is the safe allocation for precious metals?……..to me, it seems like 1 of the only true stores of value…..the real stuff!

  15. Avatar
    SageNot
    Feb 7 2013, 09:41:58 pm

    Why would billionaire Doug Casey be recommending junk while being in the book writing business? His recent “Totally Incorrect” never mentions these speculative losses like XRA or their Caspiche project, which I read & hear is a find.

    If Intl car sales are in a boom mode, buy platinum & palladium stocks, catalytic converters must have this metal (diesels require palladium). If I’m not mistaken a new ETF has been, or w/b, launched with stocks primarily in these two metals.

    Cheers!

    • 11593 |
      Travis Johnson, Stock Gumshoe
      Travis Johnson, Stock Gumshoe
      Feb 7 2013, 10:06:34 pm

      Good point, palladium and platinum have indeed both been on a tear — big auto sales returning, combined with labor trouble in South Africa where much of the platinum comes from, and still platinum has dipped below gold a few times, something that still seems shocking given their relative abundance. I don’t have any real exposure to either of the major PGMs, but I probably should.

  16. Avatar
    SageNot
    Feb 7 2013, 10:53:21 pm

    Good evening Travis. PLTM is a seasoned metal trust that tracks platinum & palladium mostly. Look where it was before the markets broke down, & yes, platinum is missing it’s premium to gold presently. Maybe not a 10 bagger, but easily a double+ if auto/truck sales continue to rally. China’s air is the worst, so they must clean up their air supply, which is right up the platinum/palladium’s alley. This seems like a no-brainer to me regardless of the Euro problem.

    http://www.wikinvest.com/fund/First_Trust_ISE_Global_Platinum_Index_Fund_(PLTM)/WikiChart

    If I find that ETF for these metals I’ll post it for you guys.

    • Avatar
      Jim
      Feb 8 2013, 12:45:04 am

      Take a look at SPPP. Holds physical metal in Canada in a closed ended fund. The premium/discount to NAV is available on their Web Site. Suggest consulting before purchase.

  17. Avatar
    Michael Hullevad
    Feb 8 2013, 05:33:18 am

    I stay away from juniors that does not have funds and permits in order. (getting permits in the US is VERY hard to get). Explorers can be put on the radar, but it is a fact that it takes 8-10 years to get a new mine up and running.
    Far too risky! The gold grade looks very low. One have to consider return on energy invested,

  18. Avatar
    blackjack
    Feb 8 2013, 06:13:42 am

    have a look at Medusa in the Phillipines – run by an Aussie co ASX:MML
    produce at less than 300 bucks per ounce
    well priced SP
    lots of potential

  19. Avatar
    shredder
    Feb 10 2013, 10:48:44 am

    Can get some valuable info from Brent Cook’s site and the Phase 1, Phase 2 and Phase 3 parts of the Jr reource sector
    Or as Rick Rule tells us…in this sector either you are a Contrarian or a victim

    • Avatar
      Bill
      Feb 14 2013, 09:33:46 am

      Yes I do. Barkerville is a scam and any money you put into it will go up in smoke. If there are 10 million ounces there, I will sell you some swampland in Florida that’s worth a lot more, ok?

  20. Avatar
    Elliot O'Neill
    Feb 12 2013, 04:18:06 am

    You guys got any opinions on Barkerville Gold?
    Currently has a CTO @ $1.22. However trading on OTC market under BGMZF @ .64 cents. Expecting the report to come out within a month, with an expected resources of 10m oz and decent grades.
    Ian Gordon has been touting them for a while, any views on him also?
    Cheers

  21. Myron Martin
    Myron Martin
    Feb 12 2013, 12:09:23 pm

    Their upcoming report should be quite revealing. Thank you Elliott for advising that the stock is still trading on the OTC market even though trading was halted on the home Venture exchange @ $1.22. This would indicate to me that there could be an initial drop of 50% when the trade restriction is lifted, UNLESS the report is so positive that the OTC purchasers get an instant 50% RISE to match the price at which trading was halted. If indeed a 10m oz. deposit is confirmed, (depending on configuration between Indicated and inferred) there could even be a substantial price increase, but that is what the “halt” was all about, questions about whether there is really that much gold there that can be mined economically. In short, it could go either way if someone wants to speculate, so buying on the OTC BEFORE the announcement could pay off handsomely, but is still high risk.

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