This latest ad for Matt Badiali’s Real Wealth Strategist has all the stuff I love to see in a teaser pitch… a secret undisclosed location, a mysterious leadership team, a huge “you’ll make a fortune” promise as the company “unlocks a tidal wave of wealth,” and, even better, the combination of two hot ticket investing themes: Gold and 5G.
What else could you want?
Well, the name of the stock, for starters — right?
Don’t worry, we’ll get through the clues and uncover that for you. Then you can decide if you feel like subscribing to Real Wealth Strategist (if you do, be careful — this is one of those sneaky ‘tagged on’ subscriptions, they sell it for $79 but also give you a free trial of newsletter you didn’t ask for, Alpha Investor Report, and will renew both of those newsletters for you at $97/year if you don’t cancel).
So let’s jump right in… here’s the lead-in to the ad:
“Former British Special Forces commander and Silicon Valley Titan recently united to revolutionize an estimated $926 billion industry. Their tactical alliance could send this $13 stock soaring — handing groundfloor investors the opportunity of a lifetime….
“On September 12, 2016, a closed-door meeting took place at an undisclosed location, believed to be similar to this one in Northern California.
“One of Silicon Valley’s most powerful tech leaders met privately with a former British Special Forces commander.
“Since then, details of their meeting have slowly leaked to public news sources — details that point to a very audacious and breathtaking plan.
“Their mission: the rapid, full-scale transformation of a globally vital $926 billion industry.”Are you getting our free Daily Update
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Exciting, right? There’s even the grainy photo of the “undisclosed location” — and, later, another one of the “unassuming, unmarked warehouse in the foothills of Nevada” that served as the “launch point” for their plan.
But that’s not all! We’re also told that this is a “19th century” business meeting the 21st century, and that this has something to do with the much-ballyhooed transition to 5G wireless networks….
“Everyone is looking at the ‘usual suspects’ — the Googles, Apples and Amazons of the world — when it comes to investing in 5G.
“But, the real gains won’t come from these tech giants….
“The chances of these companies seeing shares double or triple in the near term are next to zero.
“But NO ONE is paying attention to the one industry that could go from the Stone Age to the Modern Age thanks to this new technology.
“And virtually no one is paying any attention to the two guys I told you about earlier…
“Almost no one is talking about the private meeting they held in an undisclosed location…
“Few people realize that they could soon dominate a global industry estimated to be worth $926 billion…
“Or that they are expected to unlock a flood of huge, triple-digit gains—in the stock I’m going to give you details on in a moment.”
The basic argument, as I see it, is that this mining company started investing heavily in technology a few years ago… and therefore it will reap millions by being an early adopter of 5G and related technologies, making it more efficient and effective and helping them to explode in value. He compares this to other “early adopters” like Netflix and Amazon, and also says that this will compare to the last technological breakthrough in the natural resource sector, fracking, and create huge gains…
“Remember, the last time a technological disruption of this magnitude hit the natural resource sector, investors saw gains as high as 4,336% in record time.”
And he rolls out some entirely spitballed numbers with the bizarre claim that these are “projections”…
“… the company I’ve been telling you about has a first-mover advantage in digitizing an entire industry.
“And with this technology just entering stage 2 of the adoption cycle…
“Early investors could easily see gains of 100%… 200%… even 300% or more in just months.”
How long is “just months,” by the way? Any guesses? No? That’s why they use the term… if the publisher’s lawyer can stand up with a straight face and say, “he meant 74 months, your honor,” then you’re off the hook. The copywriter’s goal is to imply specific (and huge, and short term) gains without actually promising or tying himself to a number.
Badiali trots out his successes to justify his prediction, the big gains he made in stocks like Silvercorp Metals and Jinshan Gold Mines, and those are presumably accurate claims — I think I remember him recommending those stocks when he was at Stansberry five or ten years ago, and they did surge in value… though that was most likely in the 2008-2011 timeframe when gold and silver shot higher following the financial crisis. Certainly neither of those companies was particularly unique or technologically advanced, but they’re still around — and both went on, as pretty much all miners do, to be quite volatile and to lose most of their value when the prices for gold and silver dropped.
So what’s the stock? A few more clues for you:
“For over two years, this company has been aggressively implementing a plan that could help them take over the entire $926 billion mining industry.
“The company’s Chief Operating Officer looked to the tactics and skills he learned as a Special Air Service commando in the British Special Forces for inspiration when building their state-of-the-art, digitized mining network.
“He saw first-hand how electronic and wireless networks give commanders an edge on the battlefield.
“By signing a deal with one of Silicon Valley’s biggest tech outfits, his vision for dominating the mining industry is unfolding at a rapid pace….
“I expect a massive rollout to ALL their mining locations—worldwide.
“By using 5G technology and teleremote operations to connect data analysis, autonomous controls, digitized drills, equipment, vehicles and operations worldwide…
“They could rapidly grab market share and become the premier mining outfit on the planet.”
Badiali throws out some numbers, too, saying that they produced about $6.5 billion worth of gold last year, and that they expect technology to help them drop their production costs and add “over half a billion dollars” in profits.
We also get some of the quotes from respectable-sounding sources that indicate Badiali isn’t alone in his thinking:
“I’m not the only one who thinks so…
“Forbes called this company a ‘mammoth in the making.’
“MarketWatch wrote that it’s becoming a ‘gold-mining giant.’
“CNN said the industry has ‘a new king.'”
And we’re told that institutions are rushing in, like VanEck, Flossback von Storch, and First Eagle Investment… and, more interesting, that there has been some insider buying:
“Insiders recently bought 2.84 million shares for over $42 million
“One insider alone bought $22.4 million in shares.”
So… who is it? This is, sez the Thinkolator, good ol’ Barrick Gold (GOLD, ABX.TO).
And it’s not at $13 anymore, though it was last month — the spike in gold prices over the past few weeks has lit a bit of a fire under pretty much all gold-related equities, and Barrick is now around $17. Don’t worry, that’s not some top-secret 5G initiative that sent Barrick higher and now the story is over, that was just the kind of leveraged move that mining companies always get when gold prices surge quickly higher. Here’s what Barrick has looked like this year (in blue), compared to the GDX ETF of major miners (orange — Barrick is the second largest component, at about 10% of that ETF) and the gold price (red):
And, if you want to be reminded of how crappy gold mining stocks can be when the price of the metal is not consistently surging higher, here’s a public service announcement: This is that same chart going back about a dozen years:
So what’s the story? Yes, Barrick is investing in technology in its bid to reshape the old systems clung to by many in the mining industry — and they did have a meeting with a “tech insider” in 2016 that inspired their re-commitment to upgrading their technology, though it wasn’t particularly secret… here’s a story from BusinessReport about that meeting between Exec. Chairman John Thornton and Cisco Systems Chair John Chambers. Here’s a little excerpt from that 2016 story:
“Ultimately, the idea is to cut costs significantly, boost production and head off potential mishaps by closely tracking everything from water quality to necessary equipment maintenance. However, the two men – who have known each other for more than 20 years – say there is potential to transform entirely how miners get natural resources from the ground by being able to quickly adjust mine plans with computer algorithms that factor in variables that can range from market prices to weather patterns.”
Makes sense, I suppose… and yes, Barrick’s COO Richard Williams, was an SAS commander and he has headed the “digital reinvention” that started with their large Nevada mines. That was covered in this story by the Financial Post in the Fall of 2017 about a year into the “audacious reinvention.” It seems like the copywriter for this ad might have pulled some of the ideas out of that article, so it’s worth a read if you want to see where they’re coming from. The story makes the goals and the leadership team sound pretty impressive, but I don’t know anything else about them — and, of course, even if Barrick may be focusing more on this than most, the rest of the industry is not sitting on its hands and ignoring the productivity gains and efficiency that can come with adopting new technologies.
The “mammoth in the making” stuff and that series of quotes is not about Barrick’s technology investments however — those quotes are about Barrick’s latest acquisition, the deal to merge with Randgold that closed at the beginning of this year… and that, coincidentally, led to the retirement of Richard Williams as the management deck chairs were shifted around to incorporate the Randgold folks. The most visible part of the change, since Barrick didn’t change its name, is the new ticker — Barrick has now adopted Randgold’s coveted GOLD ticker symbol.
Will things turn rosy for GOLD? They do, of course have some massive mines and some strong production, though it isn’t always growing and the constant search for new deposits and reserves to replace production is presumably a big part of the reason for the Randgold merger. And they are generally more efficient than most of the huge miners, though those numbers fluctuate a lot.
Narrative-wise the story has shifted recently from “reinventing through technology” to “becoming huger and having the best reserves” following the Randgold merger, but presumably they’re still working on building their technology infrastructure, which they’ve admitted a few times has gone more slowly than they would have liked.
Will this lead to a huge surge now? On that, I have no idea… Barrick is the easiest big mining stock to buy, but that’s not saying a lot and it has done worse than the average mining stock for a very long time. I tend to avoid the big miners and invest in the royalty companies instead for gold leverage, which cuts into returns during great times but dramatically improves results during weaker times (and I do dabble in a little junior miner from time to time, too), and if I were speculating on a big surge in the miners in general, fueled by rising gold prices, I’d probably just buy the GDX ETF (or SGDM) instead of trying to choose between Barrick, Newmont, Agnico-Eagle and the other biggies. (I do have some GDX call options in the Real Money Portfolio, for disclosure’s sake.)
Barrick certainly has ambition, they’re already one of the largest miners in the world with a $30 billion market cap (along with ~$6 billion in debt) and will be among the largest holdings of any big precious metals or mining ETF, and they’ve had a good year and should be able, with the Randgold merger, to keep growing production.
Analysts give them a “hold” rating at the moment and have a price target right around where the shares are now, with estimates that they will earn 45 cents per share this year and 57 cents next year, but those estimates are based on the various projections those analysts make about the gold price. Barrick is, like all other miners, a price taker and not a price maker… their costs for mining are relatively fixed (though they rise with higher energy costs and interest rates), but they don’t get to decide what to charge for the gold they produce, they sell it at whatever the market price might be, so their margins, revenue and earnings will all move around quite dramatically if the gold price makes big moves. They might become incrementally more efficient than other miners if their technology investments bear fruit, I’ll defer to Badiali and others who have studied the details when it comes to that prediction, but most of the future for Barrick’s share price will be determined by where the gold price goes. If Barrick doubles or triples in the next year or two, it won’t be because they’re a technology “early adopter,” it will be because gold prices are rising — and that will lift almost all other gold stocks as well.
Sound like a story you want to be part of? Expect huge quick returns? Think Barrick will outperform the average big gold miners over the next year or two, whether because of their technology investments or the Randgold merge? Have other favorites in the space? Let us know with a comment below.