by Travis Johnson, Stock Gumshoe | October 22, 2010 3:55 pm
Here we are on Friday again, and as luck would have it we have before us an interesting teaser for a teensy little company that might have some merit — just the kind of thing I like to focus on for the Friday File, since sending out a stock like this to the whole free group of Stock Gumshoe lurkers would probably drive the stock up for no good reason.
This time we’re looking again at one of the more pleasant parts of the gold mining business — prospect generators, companies that don’t spend a lot of their own money on developing mines, but try to use some kind of edge to locate, prospect, and explore land, stake a claim, and get someone else to develop the mine for them in a partnership deal of one kind or another. That’s what one of my portfolio companies does (Altius Minerals), and I find great comfort in the model — so I always like to take a look when one of these kinds of companies is teased. Without further ado, then …
The ad is for the Resource Windfall Speculator newsletter, edited by Dr. Russell McDougal (no, the Dr. doesn’t mean much for mining or investing — he was a dentist, a fact that he doesn’t hide, and like many investment newsletter guys he essentially turned a hobby into expertise, and expertise into an editorship. I guess once you’ve paid for that degree you like to keep using the title, kind of like Dr. Stephen Leeb with his doctorate in Psychology … though come to think of it, given the craziness of the markets maybe some psych knowledge would help).
And he does take credit for some very impressive stock picks in the past, though I have no objective knowledge about his record — including picking big winners Silvercorp Metals and Altius Minerals well before I had ever heard of them, for huge gains.
But anyway, here’s what Mcdougal tells us about this latest pick of his:
“At an undisclosed site in the Southwestern U.S…. World’s Greatest Gold Prospector cuts us in on his NEW Strike worth up to $12.5 BILLION
“He’s made three major discoveries leading to an astounding $4.1 billion worth of gold. But this remote mountain peak we’re standing on promises to be his biggest strike ever…
“Your biggest payday, too — if you join before October 27, 2010”
Just gets your toes tapping, doesn’t it? The tease refers to this discovery as the “Spindletop of Gold” — which is almost certainly ridiculous hyperbole, but it does have a nice ring to it… as does the extrapolation of that Spindletop comparison, when he calls this “the next Texaco.”
Our intrepid teasermeister then goes on to tell us that this stock matches up with his “three secrets” for picking a winning natural resources stock:
“A Proprietary Secret – Knowing a secret formula is good, but OWNING it is best. (Our CEO has 100% control of the best wealth sniffing tool in the gold-mining industry.More about this in a minute!)
“Genius Unleashed – Most geologists never make a key discovery but our CEO and his crack team have EIGHT big wins under their belt. PLUS news of their BIGGEST discovery ever is just ahead …
“Multiple Triggers – Here’s the kicker. Hitting the ‘mother lode’ at the Spindletop of Gold could send the share price skyrocketing. But it’s not our only chance at cashing in. Any one of 13 active projects could light the fuse.”
The “proprietary secret” is a special geological database that apparently only this company owns — the teaser calls it …
“the MOST accurate tool in existence for uncovering early stage gold and precious metal strikes.
“Already, it has transformed barren fields in Mexico, Chile, Peru, Turkey and China into some of the most profitable gold mining operations in the world!
“I like to call this treasure trove the ‘MS-DOS of the gold prospecting industry’.”
And then we get some more detail about this “Spindletop:”
“Gold on the surface is pegged at 1 gram per ton over 1.5 miles. And it keeps growing …
“In 2009, our CEO launched a drilling program at the Spindletop of Gold. Gold was found in all 5 holes!
“Better yet, the depth of gold increased to 200 meters … DOUBLE the initial estimates.
“So what if it really holds 10 MILLION ounces of gold as I suspect?
“Now, this is purely my speculation here. No testing has been undertaken to prove a 10 million ounce strike and only our CEO will confirm that possibility.
“But consider … today the entire firm is valued at barely $19 million. So it’s like a once-in-a-lifetime opportunity to own gold bullion for a mere $1.25 per ounce …”
So that’s one reason I like to keep these smaller stocks to the Friday File when I can, $19 million is really ridiculously, unfathomably small for a public company. Frankly, whenever I see a company this size I wonder why the management team bothers to be public at all.
To be fair, management apparently does own a fairly decent chunk of the firm — we get a few hints about other major holders (though for a company this small, major is definitely subjective — 100% of this company would be a small holding for most institutions):
“And BIG investors are plowing in. Senior management owns 8.4% of the firm, which I like. And how’s this for a shareholder Dream Team?
“8.8% of the company is owned by Rick Rule’s outfit. A shrewd operator … he manages $1 billion in mining investments.
“3.4% is owned by the mining giant Lundin Family. They built their empire while gold traded below $300. Savvy investors, for sure …
“5.1% of the firm was snapped up by Kinross Gold, the 3rd largest gold producer in North America!”
So that sounds intriguing — Rick Rule and the Lundin’s are heavily-followed investors in the mining world, so it’s nice to see them involved in a stock.
We also get a little tidbit about the CEO, and about the fact that the company isn’t a stock-diluting monster like most junior mining stocks:
“Our CEO is ‘Mr. Thrifty’. He is committed to running a lean and mean operation only having issued 24 million outstanding shares.”
And they don’t even make us do the market cap math — the teaser says the stock is at about 81 cents.
Finally, we see a little graphic that displays some of the work they’ve completed, and what lies ahead — it includes a note that the “Spindletop of Gold” drilling was done in November and December of last year, and that the stock hasn’t gone up all that much since then (it was around 65 cents then) … the final note on the board is for Fall 2010 and it says they’re moving assets forward into production, so that, along with the gold price, would seem to indicate that this is pretty timely.
The ad is nice and long, as so many are, and I won’t share every detail — but that’s enough to get us going (if you want to see the whole ad it’s available here).
So who is it? This little prospect generator is … Riverside Resources (RRI in Canada, RVSDF on the pink sheets). The shares are up a bit from when the teaser was finalized, but not too crazily, it last traded at 92 cents as I type.
The company is primarily focused on Mexico, and their acquisitions in Mexico have been made to leverage the proprietary knowledge in their Mexican mineral database … but I assume that the “Spindletop of gold” that they refer to is their Sugarloaf Mountain property, which is in Arizona and is the only property not in Mexico that they feature on their website. That property, though not a game-changing “spindletop” as far as I can tell (that gusher was apparently in an area where lots of experts were skeptical of finding oil at the time), it is a property that looks similar to nearby producing mines, which is usually good news. They describe themselves as being undervalued given the gold discoveries on their projects to date, and as benefiting from future catalysts as more discoveries are made or current discoveries move forward into development (but of course, no mining outfit lacks optimism).
The investors in Riverside do match the tease, including Rick Rule’s Global Resource Investors (now owned by Sprott, I believe), and the Lundin Family. They also do have joint venture projects underway with two mining firms, Kinross and Cleveland Cliffs, that seem to endorse the quality of Riverside’s data and the value of their management’s expertise — both companies are essentially paying to develop properties that Riverside has identified, or paying Riverside to identify and acquire land for them to invest in.
Just to further match up the clues, they do have about 24 million shares outstanding (up to 30 million fully diluted), and about $3 million in cash, so if we assume that future development projects will continue to use “other peoples money” in joint venture deals they shouldn’t have to raise money anytime soon.
So there you have it — if you’re looking for a prospect generator in the gold arena, this one seems likely to get more attention as their projects move forward, and it’s certainly teensy and pretty well connected, so perhaps it’s worth a bit of research. That’s not to say that the shares can’t be cut in half, of course, or that I’ve fully investigated the shares (or would be an expert even if I did … as always, I’m no geologist or mining maven). But this sounds like the kind of stock I like, limited downside and possible big long-term upside on profit sharing and/or royalties if you’re patient and their properties pan out with joint venture partners.
I personally can’t commit any more to junior mining stocks without selling something else, since I’m fairly heavily into Sandstorm Resources, Altius Minerals and Sprott Resource already … but I’ll be keeping an eye on Riverside and possibly doing a bit more research, let us know if you’ve got an opinion on these guys. And, as always, have a lovely weekend.
Full disclosure: as noted, I do own shares of Sandstorm Resources, Altius Minerals, and Sprott Resource. I will not trade in any of those stocks or any other stock mentioned above for at least three days.
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