The promise is familiar to anyone who has had the pleasure of sitting through a promo pitch about a junior mining stock… here’s how Gerardo Del Real’s latest ad for his Junior Mining Monthly opens:
“Score at Least 1,000% on This Metals Superplay — But Only If You Get in by Its Next News Release”
So, naturally, inquiring Gumshoe minds want to know… what are you smoking, and where can I get some?
I mean, we want to know what the stock is.
And we’d rather know without subscribing, because then we’ll be free to be skeptical and cynical and think a bit more rigorously about it… once you pay for something, your brain tends to adopt it as your own and you’ll feel compelled to love it (and it gets worse if you paid for something and the first think you read about it is “it’s going up 1,000%” — then even the most skeptical little neuron that can get itself revved up in your brain has a huge hurdle to jump to even get your attention).
Here’s the sum-up from Junior Mining Monthly’s order form (the subscription comes at a $299 nonrefundable fee, incidentally, then $49/quarter for ongoing issues), to help us cut to the chase…
“This tiny $21 million company is sitting on a billion dollars’ worth of copper, gold, and silver — that fact alone justifies a 1,000% run in share price.
“This copper miner…
- Has a bottomless expense account
- Is permit ready
- Has new drilling results about to be announced
- Is likely part of a larger porphyry cluster PLUS a second cluster
- Will benefit even more from a copper bull market
- Is also sitting on tons of gold and silver, ensuring success
- And is benefiting from secret drilling results that will doubtless be announced soon.”
So that’s the basic rundown… what other clues can we find in the spiel that I might feed to the Thinkolator? Don’t worry, I’ll try to make it quick…
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“Numerous experts — the most respected geologists in the field — confirm this tiny little $21 million company is sitting on a BILLION dollars of copper.
“Plus 2.6 million ounces of gold. Plus 5.3 million ounces of silver.”
OK, so that’s the size of the deposit. What else?
“All of the copper I’ve told you about so far is located in this company’s first project.
“This copper miner has just begun exploring a second project — and it has yet to announce the findings.”
OK, so we’re dealing with some kind of explorer that’s got at least two different projects… that narrows it down a bit.
He said he viewed the company’s project in the Buckskin Mountains in NW Nevada, and that he got a tour by the CEO, whose name is “Michael.” So if those are true, that narrows it down considerably more.
“… the success of this small mining company is underwritten by a giant company with extremely deep pockets…
“It’s benefiting from a rare business arrangement where 100% of the project expenses are covered by a much larger mining firm.
“And by larger, I mean a whopping $14 billion multinational metals giant….
“… it doesn’t mind shelling out a river of cash to maintain its stake.
“This began with $59.3 million in 2014, then $58 million in 2015, and tens of millions since….
“This copper miner doesn’t have to pay for its share of the expenses until the project starts making money — it’ll slowly pay it back with the proceeds.”
And apparently that partner owns shares, too, as does Teck…
“7% of shares are owned by the $14 billion metals giant I mentioned above.
“18% of shares are owned by an even larger company, the $34 billion metals exploration company Teck Resources.”
And, of course, that bit about permits coming soon and providing a catalyst for the stock…
“Everything is on schedule and the permit will be approved just a few weeks from now.
“He showed me the site plan and the location of each body of copper
“Total reserves are at 2.7 billion pounds of copper — that’s enough copper to build an entire city.”
OK, so 2.7 billion pounds would be about $8 billion worth of copper, not “a BILLION DOLLARS” of copper. He includes this about the valuation assumptions:
“And since this project is now permit-ready, this $21 million company should actually be worth at least $225 million.
“If we were to conservatively estimate the average market price of copper at $2.50 per pound, that means the market value of this copper is $6.75 billion.
“And this doesn’t include the value of the 2.6 million ounces of gold and 5.3 million ounces of silver that’ll be extracted as well.”
And then we get into some clues that start to actually make sense…
“New drilling results at this copper miner’s second property will add entire new layers of value onto these favorable figures.
“Which brings us back to the Buckskin Mountains of Nevada, and my unquenchable thirst for bottled water and more copper.”
Ah, so this bigger project, the one that’s “permit ready,” is NOT in the Buckskin Mountains… that’s their “second property.”
And this one was apparently acquired by CEO “Michael” because he was friendly with the father-son team that was developing it… and that father-son team was overwhelmed with their more important project in Veracruz, Mexico, which is the only reason, we’re told, that they were willing to give up this valuable “Buckskin Mountains” project.
The other inducements are mostly about how this Nevada property is going to have drilling results soon, which could indicate that they’ve found major porphyry formations or deposits on this property, which is near quite a few other producing or past (or potential) copper mines… and, of course, about how Del Real thinks copper is going to have another bull run that will drive up the valuations even higher.
And, finally, he drops the hint that CEO Michael was “part of the executive team at True Gold.”
So that means we’re now quite overwhelmed with clues here, and the Thinkolator can tell us that this is must be Abacus Minerals (AME.V in Toronto, ABCFF OTC in the US).
Abacus’ most valuable asset is nowhere near the Buckskin Mountains, but it’s also not where they’re putting in their effort these days — those references to specific amounts of copper and gold are silver are exact matches from the reserve statements for the Ajax Copper Project, which is in the permitting process in British Columbia. Abacus has a 20% share of that project, having sold most of it to KGHM Polska Miedz — it looks like KGHM is funding Abacus’ share of development through to production, which is a big deal (the cap ex for building the mine is estimated at $1.3 billion, I don’t know if KGHM has any limits in their arrangement on what they’ll spend, and it reads as though AME does share in the cost of financing development when that comes), so Abacus is pretty much a passive participant at this point.
That doesn’t mean they don’t enjoy their share of the value of the mine, though, despite their passive position in the process right now… and if it does get permitted and built, as seems likely but is never certain, it will be a pretty big copper mine (and gold and silver). But they do just get their 20%, so perhaps that’s where the “BILLION DOLLARS” comes in — their share of the copper in the ground is more than a billion dollars worth at current prices.
Though we don’t use just reserves and current prices to calculate what a mineral deposit is worth, of course — for that you need to estimate the cost of building and financing and operating the mine, which is where feasibility studies and economic assessments come in.
The feasibility study estimated that the Net Present Value (NPV) of the Ajax Project is $543 million at a 5% discount rate, which provides an 11% internal rate of return and a 6.7 year payback… so it sounds like it’s probably worth developing if the operator, KGHM, is positive about the future for copper prices, but it’s not necessarily a slam dunk — that’s a pretty long payback period and a pretty big capital outlay, though KGHM has already committed quite a bit… and Abacus does in fact seem to be on the hook for paying their 20% share of mine development and financing costs once they get the “go” for development and construction, it’s not just a profit share (the skeptics among us will want to note that the NPV drops to $216 million if you derisk it further with an 8% discount rate… so if you derisk it a bit more, or use lower copper prices, that 20% share starts to look a bit less impressive).
If you want to do the math, you’ll note that this after tax valuation of $543 million means that AME’s 20% share should be worth about $108 million. That’s US$. So if you’re positive about that project, you might reasonably conclude that there’s some value in AME at the current market cap of a bit under US$20 million.
And what about that “Buckskin Mountains” property? That’s the Willow Property, which has barely been drilled at all but apparently is promising — they note that they’ll be spending C$788,000 on exploration at Willow this year, which includes up to 2,500m of drilling, so there could certainly be news out of that — whether it will be good or bad, I have no idea.
But what about that father-son team? That’s the Poliquins, of Almadex and Almaden Minerals — Almadex optioned the Willow project to Abacus back in February, and Abacus will earn a 75% stake by spending an agreed-upon amount on exploration and producing a feasibility study within ten years.
And when it comes to that teased Teck Resources relationship, I don’t know what the current status might be — Abacus did issue 18.5 million shares to Teck in exchange for milling and processing facilities that they bought from Teck Cominco in British Columbia, near the Ajax project… though that was back in 2005, and I don’t know if Teck still owns those shares (if so, they don’t talk about ’em much). AME has about 39 million shares outstanding, so that would be way more than 18%, though perhaps they’ve split or diluted them in the interim… they could have sold, too, for all I know.
But it’s getting late, so that’s where I need to leave you — it is an interesting teensy-weensy miner, with a junior share of a potentially substantial (but also fairly expensive) copper mine in British Columbia, and they’ll be spending at least three million dollars of the next few years to explore a copper/gold exploration project in Nevada, so news, good or bad, could come out of either of those ventures in the next few months (drilling results in Nevada, permitting progress in BC).
My first run-through of the numbers indicates that there might be some substantial value in that Ajax Copper Project, assuming the feasibility numbers hold up and permitting proceeds (and copper doesn’t collapse again), but not so much value that I’d expect a 1,000% gain anytime soon even if the permitting news is good… investor sentiment about BC regulatory regime is pretty negative these days, so if there is good news on permitting the stock should go up, just not nearly that much.
So it might be an interesting speculation that has some real catalysts, though it’s tiny and I haven’t done much of a deep dive on the agreement with KHGM to understand what other costs might come in, or if there could be other skeletons in the closet… and, frankly, it’s a stock that’s too small to be recommending in a newsletter of any size, which means that even writing some tepid comments about it here could easily generate more attention than the shares can handle — so be careful. Anytime the attention of our little crowd is enough to move a stock, it’s also likely that the stock will drift right back down once that attention fades.
I don’t own any of these stocks and won’t trade in them anytime soon… but what about you? Any interest in Abacus? Know of any reason to be optimistic or pessimistic about Ajax or Willow? Let us know with a comment below.