by Travis Johnson, Stock Gumshoe | October 4, 2017 6:33 pm
Today we look into the teased “Gold-X” from Gerardo Del Real, who writes the Junior Mining Monthly newsletter and calls himself a “Texas gold expert” … his ad promises an easier way to get huge returns on little gold stocks while taking a lot less risk.
“Gold-X” seems an odd name for a “secret” investing strategy, since to me it calls to mind Bre-X, the biggest mining fraud in history (and the reason why Canada regulates geologists and has specific reporting standards for geological data from mining companies)… but that’s probably just me.
What, then, is this less-risky way to make huge returns from junior gold stocks? Let’s dig into the ad and see what clues Mr. Del Real drops for us while enticing subscribers to try his Junior Mining Monthly (nonrefundable fee of $299, then $49/quarter to continue the subscription… this newsletter used to be more awkwardly titled Resource Stocks Digest Premium, in case you’re thinking that Gerardo’s name sounds familiar).
Here’s the opener:
“Texas gold expert reveals a strategy unknown outside of his billionaire clients:
“The easiest — yet least-known — way to land 100-bagger returns on gold… while cutting your risk by 87%
“WITHOUT owning giants like Barrick Gold
“And WITHOUT touching coins, bullion, futures, or ETFs.”
Del Real does note that he’s convinced gold has entered a new bull market, which is certainly a common refrain among gold-focused newsletter writers, and that he thinks it is going up for the foreseeable future.
But, again like most newsletter pundits, he thinks he has a better way to “play” gold that you don’t know about. So what is this “Gold-X?” More clues:
“A way to profit from gold almost entirely unknown outside of billionaire resource insiders like Rick Rule….
“I’m talking earth-shattering returns like 2,700%, 6,120%, and EVEN 12,006%… often in a year or less.
“All from just tiny jumps in gold… or even if the price goes down.
“And with absolutely none of the risks of buying typical gold stocks.”
He also notes one of his biggest “Gold-X” successes, which he recommended early in 2014 at 16 cents and recommended to sell when it hit $1.50 after about six months, at a time when gold prices were actually falling, so that’s interesting — and he notes that “Gold-X plays” surged by an average of 121% while the junior mining sector was falling by more than 50% from 2009 through 2014… and he does show charts for a few examples, AVU, CGP and RSV.
So what makes these kinds of little gold stocks attractive? Why are they “Gold-X” and not just like all the other wildly volatile little junior mining stocks?
Well, partly it’s backtesting — you can find anything you want if you’re looking for historical patterns… but there is a different kind of gold company that Del Real is teasing. Here’s a bit more from the ad:
“John Paulson, who famously made billions shorting the housing market before the 2008 crash….
“He’s now making another big bet with $900 million in gold stocks, including ‘Gold-X.’
“In fact, he recently headed a round of financing worth $55.9 million on a single ‘Gold-X’ play.”
And, of course, he can’t avoid mentioning every junior mining analyst’s favorite guy, Rick Rule…
“Billionaire Rick Rule calls it…
“The #1 Ingredient for 100-Bagger Returns in a Gold Bull Market”
So what makes these “Gold-X” stocks more interesting? From the ad…
“These firms don’t just own one gold mine, or two, or three.
“Often they own fifty or more different gold properties, spread out over multiple jurisdictions.
“That means the opportunity for a big discovery is exponentially higher.
“So it’s no surprise that so many ‘Gold-X’ plays are highly successful, where gold miners fail.
“Some of these companies may literally discover five or more successful gold deposits.”
And they are apparently not as profligate as other gold companies…
“While so many junior miners have to fund their own exploration, and punish investors by diluting shares…
“‘Gold-X’ plays do NOT dilute shares.
“They are free from debt.
“And the money you invest is off the table.
“How is that possible?
“All of their exploration is funded not by you, but by partnerships with deep-pocketed companies…”
So, as Del Real does eventually get around to saying, what he’s pitching here are prospect generators… which are usually small companies focused on a team of geologists who study historic data, do very light exploration work, and stake out properties that they think are prospective for gold (or something else). In general, these kinds of companies try to do the bare minimum when it comes to exploration, proving up their ideas and properties only enough to attract a deep-pocketed partner who will jump in and provide most of the exploration spending and, later, do the heavy lifting of proving reserves and financing mine development and actually mining.
And yes, that’s an attractive business model — though it’s also not a guarantee of success, lots of geologists and explorers spend a lot of time spinning their wheels exploring territory that doesn’t turn out to have any special value. But which ones does Del Real like? He goes on to drop some hints about his three favorites, so we’ll try to ID those for you and get you started on your thinking…
“‘Gold-X’ Play #1: Why the “Smart Money” Loves This 50-Cent Gold Play
“Immediate upside potential: 2,300%+ ….
“The first prospect generator I’m eying is one the “smart money” loves.
“Rick Rule owns 9% of shares. And Doug Casey owns another 9%.
“Its projects include…
- 9 gold-copper-zinc properties in Alaska
- A uranium project in New Mexico
- 3 gold properties in British Colombia
- And 14 gold-copper properties in Mexico”
Any other clues on this one?
“This savvy management has attracted partnerships from companies with values totaling $30 billion.
“So far its exploration has been 86% funded from these mega-partners.”
He says that their team of geologists includes the man who discovered the Pebble Deposit (that’s a giant and hotly-disputed project which is currently about to start the permitting process in Alaska), and that shares jumped 2,300% during the 2009-2011 gold supercycle and could repeat that move… and he tells us that the comapny spend the past couple years of gold doldrums buying up new properties “for pennies,” including those exploration projects in Mexico, some past-producing mines in Alaska, and three projects in the “golden triangle.”
So what is it? Thinkolator sez this is Millrock Resources (MRO on the Venture exchange in Canada, MLRKF OTC in the US).
Millrock is currently a minuscule little prospect generator, trading at 34 cents a share with a market cap under C$20 million, but it did indeed have that massive run back in 2009 and 2010, going from about 50 cents to $10 a share — though, unlike some prospect generators, it seems they have not been all that shy about issuing new shares for acquisitions, the share count has gone from 3.7 million to 22 million since 2009 (so even when it was at $10 a share back in 2011, the market cap was still quite small at C$55 million).
The company says it “rigorously adheres to the Project Generator Model,” and you can review their projects here if you’re interested (yes, they perfectly match the clues).
Sometimes it can be hard to tell from lists like that where the company is actually focusing its work or expecting to see value created, but usually the investor presentation will spoon feed their favorite projects to you — in this case Millrock doesn’t really focus overmuch on any of their specific projects in their latest presentation (from August), but they do note that drilling is underway this Fall on their Stellar project in Alaska (sold to PolarX, with Millrock retaining about 10% plus royalties and other considerations). The initial drilling sounds like it was positive for copper on visual inspection, according to the PolarX announcement yesterday here, though it will take a little longer to get the first assay results with real data.
And they do note that they are specifically focused on looking for something big. The presentation puts it this way:
“Our goal is to discover a giant ore body and move it through to feasibility before selling our interest. Therefore, we focus on geological terranes and deposit models where giants are possible. This primarily means porphyries, pluton-hosted gold deposits, high-grade vein gold deposits, polymetallic volcanogenic deposits and low production cost uranium deposits.”
They do have a lot of projects, with many of them already partnered and in various stages of exploration. The nature of these kinds of companies is that big news could come at any time if they’re drilling, and they are more or less continually drilling somewhere — next will be at their La Navidad deposit in Mexico, and then in El Picacho.
I have no idea whether or not they’ll be successful, but they do have a strong shareholder base — the Sprott funds (that’s where Rick Rule is these days) own more than a quarter of the company, Casey owns 5%, and Altius Minerals (ALS.TO, ATUSF), my largest mining holding, also owns about 5%. The stock is quite illiquid and it isn’t that unusual to see it bump up or down 10% intraday, so do be careful, but it’s probably worth researching if you’re interested in being patient. I’m not looking for another copper/gold speculation at the moment, and Altius (which itself also has a core prospect generation business) already owns shares, so I’ll leave it there for now.
What about the other two? Here are the clues for the second one….
“‘Gold-X’ Play #2: 30-cent stock owns the world’s hottest gold AND lithium Mines…
“Immediate upside potential: 800%….
“Three red-hot gold plays in Nevada, including one of the area’s most significant gold deposits.
“And six lithium properties bordering America’s only operating lithium mine….
“Back in 2014, in the middle of the bear market, this play’s shares surged 800% on news from one of its gold deposits.
“So in the middle of a bull market for BOTH gold and lithium, similar news could send it even higher.”
This one is almost certainly, sez the Mighty Thinkolator, Nevada Sunrise Gold (NEV on the Venture exchange in Canada, NVSGF OTC in the US). This one has come up before as I’ve researched lithium stocks, thanks to their half-dozen or so properties that are near Albemarle’s Silver Peak lithium “mine” in Nevada (actually, like most profitable lithium operations, Silver Peak is a lithium brine evaporation project), but it does also have two gold projects (they had three, but they dropped their “option to purchase” on Roulette after disappointing drilling results in June).
When it comes to lithium, I don’t put much stake on Nevada Sunrise’s prospects — it’s possible, of course, but there’s a reason why Albemarle hasn’t been investing in expanding their Nevada project or acquiring these little neighboring claims: It’s not nearly as profitable or appealing as their South American lithium brines. Nevada Sunrise does claim some water permits, and they have been drilling and testing on the lithium projects, which look to me like their clear priority, but I’d agree that the gold projects probably have a better chance of profitability in the end.
News on their lithium projects has been mixed over the past year, with some appealing-sounding drilling results but also a rejection of their water rights (they’re fighting that in court) and the move by their partner, Advantage Lithium, to discontinue its option on four of Nevada Sunrise’s lithium projects (they’re still partnering on a couple other projects).
Those remaining gold projects are Kinsley Mountain and Golden Arrow.
Kinsley Mountain is partnered with Liberty Gold (LGD.TO, LGDTF) — that’s the one that inspired Nevada Sunrise’s 800% move in early 2014, when Liberty (then named Pilot Gold) announced some good drilling results.
And Golden Arrow, the property they have called their “flagship” since at least 2009, is now under a non-binding letter of intent to be optioned to Emgold Mining (EMR.V, EGMCF), which can earn 51% of the project with $250,000 in cash, about 1.5 million Emgold shares, and $1.5 million in exploration expenditures over two years (they can get to 80% by spending more and giving Nevada Sunrise more shares within another year after that) — that agreement ought to be signed and official at some point over the next few weeks (they had a 90 day period for negotiation and due diligence), so we might hear something soon.
This is the trouble with the tiniest project generators, like Nevada Sunrise: They usually end up dealing with and relying on other really tiny copmanies. Emgold, according to Ycharts, doesn’t have $250,000, and 1.5 million shares would be worth about $300,000 and would give Nevada Sunrise roughly 15% of a C$2 million company. That’s not a typo. $2 million companies should not be publicly traded.
On the plus side, Liberty Gold is far larger… but with a market cap of about C$70 million it’s not exactly super-strong (and it has two presumably higher-priority projects that are really driving its results). Counterparties are hugely important in mining — if things turn against you or the gold market is soft for a while (or even declines), it’s much more comforting to rely on cash-rich miners who can afford to invest for the long run, rather than tiny juniors who have to sell shares every couple quarters to keep the lights on.
Again, these kinds of stocks can move sharply if there happens to be a fantastic drilling result… but those are awfully tough to predict. There are appealing-sounding older drilling results or resources at both of those gold projects, but none of them strike me, a non-geologist and non-expert in mining, as phenomenally exciting… which is probably why this is a teensy little C$7 million company.
On the plus side, it was a C$13 million company before their last two bits of disappointing news, the failure of drilling at Roulette and the dropped options by Advantage Lithium, so if you love their other projects, well, they’re cheaper now. And it’s so tiny that it certainly could surge if one of those projects turns out to be a lot sexier than it looks to me. They have about $600,000 in the bank, which ought to be enough for about six months at their current rate of cash burn, a little longer if the deal with Emgold goes through and they get their $250,000, so if they do have any good news at all over the next few months I’d expect them to follow that up by selling some shares. This one seems far more speculative than Millrock to me, though if you like their lithium projects perhaps it will appeal to you.
And there’s one more — what’s behind door number three?
“‘Gold-X’ Play #3: The NEXT Big Gold Buyout Target
“Immediate upside potential: 1,100%
“What I believe is the next big gold buyout target for the majors.
“Its flagship gold property is a 4.2 million ounce asset in Mexico, and it could be much bigger.”
OK, so that sounds appealing — a nice-sized discovery, something for a cash-rich acquirer to sink its teeth into? What’s the stock?
Let’s check a few other clues:
“It’s embarking on a major drilling initiative….
“It’s the longest running and operating prospect generator with a 30-year track record of success.
“In that time frame it’s made five BIG gold discoveries, two of which were brought to production….
“… it has zero debt…
“Enough cash on hand to explore for years…
“And the share structure is solid.
“… backing from some big-money investors like Mexican billionaire Ernesto Echavarria, who owns approximately 8% of the company….
“Right now it’s unbelievable that we have the option to buy this company for just $1.50.
“In all my years in the resource space you almost never see bargains like this one.”
Thinkolator sez that Del Real is almost certainly hinting here at Almaden Minerals (AAU, AMM in Toronto), which had a big pop today for some reason I’m unaware of. Almaden is indeed one of the original prospect generators, with an impressive history going back to the mid-1980s, though it has mostly shed all of its “prospects” now in the spinoff of Almadex Minerals (AMZ on the Venture exchange in Canada, AXDDF OTC in the US), which is really now the prospect developer.
So if it’s a big portfolio of prospects you’re looking for, perhaps you’ll find Almadex more appealing — but Almaden is the one with a pretty big, well-defined mine that’s readying for development, and which, depending on how you look at the numbers, could be said to be a “4.2 million ounce asset.”
Almaden’s primary asset is the Ixtaca Deposit, which is expected, according to their prefeasibility study, to produce more than two million ounces of gold equivalent (the deposit is roughly half gold and half silver, economically speaking). It’s not a massive mine, but it’s pretty big with potential for an average of almost 90,000 ounces of gold per year, and the all-in sustaining cost is $862 per ounce, with several promising exploration targets in the surrounding Tuligtic Property that could extend that mine life.
I don’t know whether someone will come in and try to buy Almaden for the Ixtaca mine, but I suppose it’s possible — they could be in production as early as late 2019 if feasibility and permitting go well (both are underway now) and they are able to get project financing, but a lot certainly depends on what gold and silver do over the next year or two — at $1,250 gold and $18 silver the estimated NPV in the prefeasibility study is $310 million (using a 5% discount rate), but if that drops to $1,150 gold and $15 silver it drops to $175 million, which means the current $130 million market cap doesn’t promise a huge upside (on the more optimistic side, $1,350 gold and $21 silver get you a $443 million NPV).
Ernesto Echavarria owns about 8% of both Almaden and Almadex (makes sense, since Almadex was spun out of Almaden), so if you want to follow his investment you could buy either one — Almaden’s Ixtaca Deposit is an appealing and fairly large potential mine that could be a takeover target, but it’s not really a “prospect generator” idea at this point, if you want wide optionality across a lot of assets, and the exploration team led by the Poliquins (Duane, who founded Almaden, and his son Morgan, the current CEO), you’re more likely to find that with Almadex. Which, incidentally, maintains a 2% NSR royalty on Almaden’s Ixtaca, so you get a piece of that mine either way. Almadex does also have a promising discovery that could also be large in El Cobre as the current “flagship” of its portfolio, though it’s far earlier in the exploration stage and doesn’t have any booked resources or reserves just yet.
And I’m out of time today, so I’ll leave you there — see anything to like in those prospect generators from Gerardo Del Real? Have other rock-kickers you like in the business? Let us know with a comment below.
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