Frank Curzio’s latest pitch for his pricey Phase 1 Investor newsletter has the Gumshoe faithful mighty, mighty curious… he gets us going with a little intro about how he was at an “invite only” meeting at the Plaza Hotel in New York that he said was about investing in Brazilian resources.
The lead-in to the piece is all about the famous and powerful people who were at that meeting — and we end up learning that what Curzio is pitching here is a company that’s been buying up resources in Brazil and “hoarding” those resources (ie, not throwing a lot of money into building mines just yet, but trying to buy up cheap assets waiting for folks to see value in gold resources “in the ground” again).
So we’ll get to explaining which company this is (we’ve covered it before, so it’s not a huge task for the Mighty, Mighty Thinkolator), but first let’s let Curzio set the stage for you a bit… because a big part of the argument he makes is that this stock is connected, with important backers.
“Ambassadors, foreign ministers, a consul-general, senators from both the U.S. and abroad…
“All rubbing elbows with private equity fund presidents, merchant bank chairmen, executives of the world’s largest commercial banks… even a few Ivy League professors.
“We had gathered there for an exclusive, invitation-only summit.
“On tap for discussion, among other things, were the details of potentially quite lucrative investments to be made in the gold-mining industry of Brazil.”
And then, apparently, it was in the “hallway” chatter that this “secret” gold stock came up:
“I was pulled aside for a private chat…
“Suddenly, I was standing in a circle with some of the most powerful men in Brazilian politics, including the man widely expected to be their next President, current Vice President Michel Temer.Are you getting our free Daily Update
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“The topic of discussion?
“The future of one tiny gold stock in particular…
“Scarcely three years old, this tiny company is completely off the radar of most investors, including virtually everyone on Wall Street.
“But since its inception, it’s been quietly buying up some of the Para State’s richest gold mines… for pennies on the dollar.”
Some of you might already know what stock is being chattered about here — it’s got a lot of connections in newsletter-land… but we don’t want to spoil the surprise, so here are some more of the clues:
“It only went public a few years ago, and more than half of their shares are closely held by the executives, directors, and a few big, key players in the resource investing world.
“I caught wind of this situation about a couple months ago.
“During my research, I consulted with legendary resource investors like Doug Casey and Rick Rule, and was personally introduced to this tiny company’s founder, who Rick praises as ‘one of the most formidable mining entrepreneurs on the planet under 40.'”
And he describes “hoarding” thusly, in comparing the potential of this stock to Yamana Gold (AUY) or Lumina Copper, which we’re told grew into a multi-billion dollar companies by buying up unwanted assets in the early 2000s, when gold and copper were cheap:
“… a firm engages in “resource hoarding” by raising money during the down times in a commodity cycle and buying up as much of a particular resource as they can at bargain basement prices.”
Then we move on to some more clues about the “connected” folks involved with this company:
“The people at the highest levels of management are among the most connected — and successful — in the business.
“For example, one of their Directors, and biggest investors, is a man I’ll call M.G.
“You might not recognize his name if I told you, but in Brazil, his name is like the Kennedy name is here — everyone has heard it….
“… it was M.G. that organized our meeting in Manhattan, and personally invited everyone in attendance.
“And I sat there in amazement as each and every one of them, from former Lehman Brothers CEO Dick Fuld, to former Senator Christopher Dodd, came over to shake his hand.”
And some other insiders are hinted at:
“One advisor was the former Minister of Regional Politics in the Brazilian cabinet.
• Another was the exploration manager for Kinross Gold in Brazil — where he oversaw the expansion of the country’s largest gold mine.
• One of their Directors is the former Canadian Minister of Natural Resources.
• Their CEO was the Head of Exploration for BHP Billiton, the world’s largest mining company.”
And the founder:
“… the founder of this firm is making a name for himself doing exactly this type of thing — forming a company, getting it off the ground, and making his shareholders rich.
“Back in 2005, he formed an energy-exploration company that went from early-stage asset acquisition to full-on production by 2010.
“After the stock market bottomed in 2009, you could have bought shares for as little as 60 cents. By the beginning of March, 2011, shares had soared to $6.00.”
And the bit of chatter from the secret hallway meeting that got Curzio heated up:
“… during that private meeting in the hallway of the Plaza Hotel, the Vice President of Brazil practically gave the ‘keys to the country’ to this tiny gold firm.
“‘Whatever you need, whatever you need,’ he said over and over again as the founder of this company explained his agenda.”
And finally, after we’ve been inundated with the chatter about how connected this company is, we get a little bit of detail (or as we say here at Gumshoe HQ, “clues”) about the company’s actual business:
“Using their extensive contacts, this company has already accumulated nearly 4 million ounces of gold in the ground….
“The biggest coup happened just at the end of last year… when this tiny firm acquired a gold-mining outfit that had fallen on hard times due to plummeting gold prices.
“From around $1 in the summer of 2011, this gold miner’s share price had fallen to 10 cents. Its market cap had been slashed from around $100 million to $17 million…
“… it also had 2.5 million proven ounces of gold in the ground…
“… this tiny gold hoarding company was able to acquire 2.5 million ounces of gold for just over $5 an ounce.”
So who is being teased here? Brazil Resources (BRI.V in Canada, BRIZF on the pink sheets), which is indeed a tiny gold “hoarder” if you want to use that term, rolling up undeveloped assets in Brazil, and which was founded by the same Amir Adnani who built Uranium Energy (UEC) and has been a (sometimes controversial) promoter of his companies’ stock. I don’t know a lot of details, but he came under fire from short sellers during the first run-up of UEC in part because he also ran Blender Media, which is an investor relations company built for promoting stocks in Vancouver. That doesn’t make him evil, of course, but he’s very much in touch with the importance of promotion in building junior mining companies — after all, these kinds of companies all need to raise money most of the time.
Adnani also has a big fan in Doug Casey and Marin Katusa and the Casey Research folks, who feature him in their NexTen listing as a key young mining executive to watch. And they also bought in during Brazil Resources’ last funding round at the end of the year, picking up shares and warrants.
Which is a good time to let you know that your friendly neighborhood Gumshoe also owns some Brazil Resources warrants (BRI.WT in Canada — late 2018 expiration, 75 cent strike price). I don’t often write about derivatives that I own or trade, since they’re too illiquid to call much attention to them and I’m not particularly confident in these little speculations I make from time to time, but I am occasionally lured into long-term warrants or options on speculative ideas (a “bet on a bet”, in effect). I bought these not because I’m convinced that the company will turn into Yamana Gold and be a great, productive company, but because they are picking up assets fairly cheap and I might get lucky — and it doesn’t hurt that the Sprott folks (Rick Rule et al) and the Casey folks are big fans and owners, which is likely to keep attention high on the stock. This is a 100% downside/500% upside scenario, so I made a small bet — and, to be clear, any real upside depends on the gold market really heating up again. Which is not, despite what you or I or the natural resources investing fans or the might think, guaranteed to ever happen. (For what it’s worth I also did some options speculating on UEC, the other Adnani-connected company — I still hold those options, they’re likely to expire worthless unless there’s a big recovery in uranium prices).
Myron Martin, who writes columns for the Irregulars and mostly is interested in junior mining stocks, has also been a pretty big fan — he urged folks to look at it back in January after Casey bought in, though he mentions the stock fairly often and has owned it since he started writing for us a year ago and still called it a “strong buy” last week.
And the “M.G.” teased is Mario Garnero, who is a director and merchant banker who helped spur an earlier wave of investment in Brazil. The other folks teased as directors or advisors are all who Curzio says they are, you can get more of the story of the company in their investor presentation which, as befits an entrepreneurial and promotional founder, is pretty slick and descriptive (and the photo in Curzio’s teaser pitch, of Mario Garnero with Brazilian President Dilma Rousseff, is from this investor presentation).
I’ll leave it at that for you — this is a promotional company trying to roll up gold mining assets in Brazil but without a lot of cash (or interest, it seems) in pushing to develop those resources, including those acquired in the relatively large acquisition of Brazil Gold late last year that helped bring the shares down and inspire the private placement to Casey et al. They also have a uranium exploration joint venture in Canada, though that came about somewhat accidentally from one of their acquisitions and they’re not likely to spend a lot of money on it (Areva is their partner, the details are here).
And importantly, we should note that these are discovered and somewhat explored assets — but they’re not likely to become mines in the near future. They do not have any proven reserves that I noticed in my skim through their materials, these are indicated and inferred resources they’re reporting that tally up to that 2.5 million or four million ounces that Curzio cites. And such unproven, partially explored resources are obviously worth far less than proven reserves that are known to be economically mine-able, so it’s not surprising that the company trades at a steep discount to the value of gold “in the ground” … pretty much all explorers trade at steep discounts to that potential value, partly because no one knows where gold prices are going and folks are pretty negative on gold these days, but mostly because it’s extremely expensive to build a mine and get gold out of the ground.
So, it’s an interesting company, it generates a good amount of press coverage and has some big investors and well-connected folks on the board and in their ownership rolls, and that’s why I personally speculated that the price might go up sharply enough to make the warrants valuable in the coming years… but other than that, when it comes to actually looking at the mineral assets and the cost to produce and their timeline and who they might partner with or sell to in order to get mines developed, well, I’m no expert on mining fundamentals so for that you’ll have to make your own call. Or, of course, you could join Phase 1 and get in on their conference call to discuss it with Mario Garnero and Amir Adnani next week, but that’ll set you back $3,500. I’m guessing they’ll tell you that you should buy lots of stock in their company and be patient.
What do you think, then? Interested in a piece of Brazil Resources that Frank Curzio is selling a special report about “Why You Need to Buy this Stock Right Away?” Nervous about the valuation or the price of gold or management? Let us know what you think with a comment below.