by Travis Johnson, Stock Gumshoe | June 2, 2017 4:05 pm
We’ve got a veritable smorgasbord for you this week — first, a quick update on one of our Real Money Portfolio stocks, then I’ll take a very quick look at the “Seven Deals” teased by the new Rick Rule Alliance pitch by the Money Map folks, and, finally, I’ll dig into the little hints that Frank Curzio has been dropping about the new gold stock that he says might be one of his best stocks ever if he recommends it to his Curzio Venture Opportunities subscribers. Ready?
So the small update for the week is that CoreSite (COR) raised their dividend. Again. This was a surprise one, though, our favorite data center REIT has been boosting its dividend payout reliably every year, and by huge leaps in many years (averaging 20-30% a year). In my memory, and I’ve followed this one since it paid its first dividend, those increases have always happened near the end of the year. This is the first mid-year dividend raise I’ve noticed from them, and it was meaningful in size (increasing the payout by 12.5%, from 80 cents a quarter to 90 cents).
Coresite’s share price also bumped up a bit on the news, getting to $105 or so and maintaining roughly a 3.5% forward yield. Which is probably reasonable for a strong dividend growth company even if the dividend growth seems destined to slow down, and I do like the company even if I haven’t been willing to add to my position at these all-time high prices… but it makes me a little suspicious that they’re doing this largely unnecessary dividend hike now. It makes me think, actually, that they’re either fearing a takeover bid or are interested in raising more equity capital themselves and want to make sure they get the share price up as high as they can before either of those things happens.
That could just be me trying to add a story where none is needed, it might just be that, as CEO Paul Szurek noted in the press release, that “reviewing the dividend level on a semi-annual basis allows us to more closely align the dividend with performance and return operating cash flow to shareholders according to our policy.”
And, really, regardless of the reason, it’s OK with me — that means, at least, that there’s no immediate reason to worry about their cash flow dropping, and it probably indicates that there’s a reasonable guess that they’ll be beating their estimated funds from operations numbers this year if they’re already confident enough to raise the dividend. But I’ll still hold, enjoy the rich-but-rational valuation, and hope they do an equity raise just when interest rate panic hits the market, and that investors freak out and drops the price. We can dream, can’t we?
Rick Rule’s Seven Deals
I’ve been inundated with questions about the latest Rick Rule “Interview” from the Money Map Press folks, so I thought I’d at least see if I can confirm for you the quick solutions to the seven teasers he drops in the ad — I’m not going to be able to get into each one in a lot of detail, but most of these are very well-covered (for junior resource stocks, at least), and some of them have come up in the pages of Gumshoe in the past. There’s already been quite a discussion of the ad among readers, many of whom identified several of the stocks, but let me see if I can add anything.
The basic premise is that you subscribe to the Rick Rule Alliance from Money Map, and he gets you in on the deals for these tiny companies — they’re not terribly specific, so I don’t know whether he’s really promoting private placements in these stocks, or just recommending the stocks and providing his insight (they’re all publicly traded already, but junior resource companies are almost always looking for more money — and they often do private placements, which are often murkily handled and sometimes promoted by intermediaries like Rick Rule or Marin Katusa).
It’s a little bit odd, actually, to see Rick Rule’s name on the masthead of a newsletter service — he’s a large owner of a lot of microcap resource stocks, and as president of Sprott U.S. Holdings he’s also at the helm of a broker-dealer and investment management company that is managing accounts of investors who invest in the stocks his firm recommends, as well as being affiliated with the larger Sprott investment banking and asset management operation in Canada, so the possibilities for conflicts of interest seem rife if he’s actually selling a newsletter with his personal “best picks” as well. I don’t know the intricacies of the rules under which he operates, and he has always been extremely widely quoted by most of the natural resources-interested newsletters, particularly those from the Agora-affiilated publishers, so perhaps this is just a small extension of that (yes, Money Map is yet another spoke on the great Agora wheel).
So that’s the idea — you pay $2,995 a year for this newsletter, with no refunds whatsoever (lots of the “high cost” newsletters seem to be quietly moving to a “no refunds” policy — which means you’re taking a real leap of faith with what is, for most individual investors, a large amount of money), and you get Rick Rule’s picks in monthly “deal briefings” and buy and sell alerts, and presumably a lot of additional coverage of the stocks (they talk about dossiers and video tours and the like). I’m not going to do any of that… but I can at least tell you what the stocks are so you can do a bit of your own research and think for yourself.
First up is the stock that Rule is hoping is the second coming of Paladin Resources, the uranium stock on which he and Doug Casey both made 10,000-100.000% returns. That’s also the stock that is brought up whenever anyone is trying to predict the next bull market for uranium, which does logically seem like it should come sometime but which has been “obvious” and “imminent” since at least 2014 (and uranium has dropped by about 50% in those three years).
So we should be mindful, of course, that these things are not nearly as predictable as an ad spiel will imply, either on a macro level (predicting uranium market prices) or when it comes to a specific company’s success… and, of course, that it takes a certain intestinal fortitude to hold some of these super-speculative stocks. Paladin fell 90% over the course of many months before it rose 10,000% to the 2007 peak (it rose 100,000% if you bought it after the 90% fall instead of before). Lots of stocks fall 90%, and in a lot of cases they don’t ever recover… so your appetite for both wild volatility and permanent loss of capital has to be pretty robust.
Which means that for ANY of these kinds of junior resource stocks you need to keep in mind the most important risk-management tool in every investor’s toolbox: position sizing.
Greed gives us the unfortunate tendency of making “big bets” on exciting stories, because we imagine the life of luxury we’d live if we put $100,000 into a stock that rises by 10,000% (that gets you $10 million, in case you don’t have a calculator at hand)… but if your portfolio is $500,000 and you’re betting $100,000 on one tiny stock, it’s far more important to think about the difficulty of rebuilding your portfolio if that $100,000 goes to zero. Because anything that has the potential of rising by 10,000% also has the very real, non-theoretical potential, even the likelihood, of falling by 99-100%. The reason we hear about the 10,000% gains is that they’re extraordinarily rare — even for folks like Rick Rule and his colleagues.
If you bet on these kinds of “might work out, will take a few years to see if we get a bull market and some exploration success” stocks, I think it’s best to assume that you’re putting your money at risk with a strong likelihood of a 100% loss, the same way you would if you’re betting on a number at the roulette table (though not necessarily with the same odds) — and if you plan to spend a week in Las Vegas, you don’t take your entire budget and bet it on one number on the roulette table on the first day.
There are lots of other risk-management tools out there, of course — one of the favorites of many investors and newsletter folks is the “stop loss” order… a policy that you will sell a stock if it falls by 20%, or 30%, or whatever, and not question anything or look back — just sell to protect your capital from further loss. Those don’t typically work very well for tiny stocks like most junior resource companies — not if you’re hoping for huge windfall gains… but it does suggest a framework for how to think about these kinds of investments.
What do I mean? Well, If buy shares of Apple (AAPL), for example, and decide that you’ll use a 20% trailing stop loss order on those shares (selling if the shares ever fall 20%), and that makes sense to you and fits with your psychology and your portfolio management strategy, then you’re probably pretty well assured that you won’t lose more than 20% of your investment. Apple is huge and steady and there is obviously some risk that something cataclysmic could happen that drops the value of the company in half overnight, but that’s a vanishingly small probability because of their entrenched position in the world, their profitable profit lineup and happy customer base, and their huge cash position. They might fall by 50%, but it would probably take weeks or months for that fall to happen even if things get really ugly — you could almost certainly get out at near a 20% loss if you wanted to sell on the way down.
That’s not the case with stocks like Paladin. There isn’t always a buyer in the wings if sentiment suddenly shifts and the company has a terrible drilling program or gets kicked out of the country where it’s operating or there’s another nuclear accident and more countries shut down their reactors.
So what do you do with risk management in that case? Well, beyond making your own personal assessments about how much to risk on any particular company because of your conviction in the prospects of that company, you can apply a stop loss calculation of your own. If 20% is the biggest loss you can stomach in one of your investments, then take the amount you were going to invest in whatever that next hot junior stock is and reduce it by 80%. That way, you know that you’re risking the whole thing and you’re comfortable with that. If you would put $10,000 into BHP Billiton or Newmont Mining, for example, with the expectation that those are volatile and subject to price swings from commodity cycles but that you can probably get out with a 20% stop loss if you want to, then perhaps the little teensy stock you’re hoping is the next barn-burner in a similar sector should get a $2,000 position, and then maybe you’ll have the stomach to hold it through an 80% loss if you still think that their assets represent the potential for dramatic gains if and when the cycle turns (or if you’re right about the chances of them having success in their exploration projects, or whatever).
So that’s my lecture. What, then are the stocks?
“Deal #1: ‘Paladin 2.0.’
“This is a ‘second chance’ to relive one of the most successful stock plays of the last 100 years.
“It’s a virtual carbon copy of Rick’s investment in Paladin that returned 99,900%.
“Right down to the same asset…
“The same market conditions…
“The same management team…
“It was even recently priced at the same “penny a share”….
“And here’s a very important piece of intel Rick disclosed to me when I was vetting this new deal:
“This tiny miner now owns Paladin’s database.
“And they’re using it to acquire millions of tons of the highest quality uranium in the world – at rock bottom prices.
“Take just one of those assets – a mine in Namibia.
“It holds an estimated 23.3 million pounds of uranium….
“Even at today’s low uranium prices, this Namibian mine could be sitting on $570 million worth of uranium.
“That one discovery alone is worth 15X more than this miner’s current $36 million market cap.
“Plus this company has also acquired another deposit that’s potentially sitting on an additional $1.14 billion worth of uranium.”
This is almost certainly Deep Yellow (DYL in Australia, DYLLF OTC in the US). It is a tiny, tiny stock — the market cap is about A$34 million right now, as of the close in Australia last night at A$0.26, but the attention from Rick Rule is likely driving the stock up as the week closes, trading during the day in the US OTC market was at much higher levels (26 cents in Australia should equal about 20 cents in the US, and Australia is where the volume is so that’s arguably the fairer price… but the stock was changing hands at 25 cents in the US when I checked earlier today, 25% above the “fair” price in Australia).
Be careful with Australian stocks that trade over the counter in the US, the pricing is often wildly higher or lower in the US and the vast majority of trading and “real” price-setting is typically done on the Australian market, which is never open at the same time as the US markets. The same is true of Hong Kong stocks — OTC stock pricing in the US is usually much less frightening for stocks that have at least a short window during the day when their home stock exchange and New York are both open… prices are often perfectly in alignment for Canadian stocks and usually pretty close for stocks in London or Paris.
If you’re really interested in trading Australian small caps, I’d suggest doing it yourself through an international brokerage account (I use Interactive Brokers, which will let me pop in ad midnight and trade Aussie stocks if I want to, at low cost, but there are other brokers that offer direct online access to foreign markets as well).
Deep Yellow was effectively spun out of Paladin Energy — Paladin sold a bunch of Namibian assets to Deep Yellow a decade or more ago, and sold off the last of its shares in Deep Yellow just this past December, during what has been a pretty relentless wave of what looks like “survival selling” by Paladin.
And Deep Yellow now has a lot of Paladin’s former management team and directors on board, including CEO/Executive Director John Borshoff, all presumably hoping for another bite at the apple as they explore and develop their uranium deposits in Namibia. I don’t know much else about them, and I don’t know if they actually own the “database” from Paladin or just the Namibian data and exploration properties, but their May investor presentation is here and they do have a strategic alliance with Sprott (Rick Rule’s employer) and just raised some money with a rights offering.
That rights offering did included five-year options, so perhaps Sprott is also offering those up to their accounts — maybe that trickles over to offering them to Rick Rule’s subscribers, I have no idea. Like Paladin and most other uranium names, Deep Yellow soared in 2007 and 2009 during those prior spikes in uranium prices (it was up over $12 for a while in 2007), and has been on a pretty steady decline in the years since… but has shown some signs of life over the past six months. No idea what’s going to happen there, or what the specifics are of their exploration projects in Namibia.
“Deal #2: The Kenyan Blue Whale.”
Rick rule says in the interview that…
“I’m particularly comfortable investing with people who have made myself and my clients a lot of money in the past….
“The opportunity that I’d like to talk about is an oil and gas opportunity, which is important because the Lundin family has been successful in the oil and gas business since the 1970s…
“And successful in frontier exploration.
“They have made money by discovering big deposits and selling them in places as diverse as Ras Al-Khaimah, Sudan, and Colombia…
“And the opportunity that we’re currently involved with them in is in Kenya, in a brand new basin.
“A basin that has been completely unexplored by modern technology, until the Lundins drilled a basin opening discovery….
“It looks like it will exceed one billion barrels of oil, which in the parlance of the oil business makes it a blue whale-scale discovery….
“Will past be prologue? I don’t know.
“What I do know is that I’m working with a billion barrel discovery and I’m working with a team of entrepreneurs, a family that I have been successful with going as far back as 1975.
“That’s as good as it gets, as far as I’m concerned.”
Rule also notes that the oil that has been discovered in this Kenyan basin will be moving to the coast within three years (meaning, presumably, that Kenya will have figured out a pipeline infrastructure for developing and exporting the oil by then).
The ad goes on to say that…
“The market cap of the exploration company that controls this Kenyan Blue Whale is around $1 billion…
“And shares are trading for about $2 apiece! ….
“Investors who are buying into this discovery – they aren’t securing their stakes in this company based on the current market price for oil.
“This deal has factored in a deep discount on this oil – it’s being calculated at an “exploration value” of just $4 a barrel.”
This one is a stock I own and have followed for a long time, Africa Oil (AOI on the Toronto exchange, AOIFF OTC in the US). Africa Oil discovered a substantial oil field in the Lokichar Basin in Kenya and holds several exploration areas, though they have partnered off much of the financial exposure to those areas with much larger companies in exchange for cash or funded drilling and exploration (Tullow, Maersk and Marathon are their main partners). I originally bought shares of this one before the discovery, took profits after the huge run the stock made following the discovery about five years ago, and have just been holding my stub of shares at what I consider a negative cost basis (though I note my original purchase price on the Real Money Portfolio) as I wait to see when and how the oil discovery actually enters production.
We’re getting closer to that patience perhaps paying off, though everything moves slowly — there are some agreements regarding pipelines, and Africa Oil is still likely to reach initial oil production without having to raise any additional capital because of the large cash position they have ($450 million or so, roughly 2/3 of their current market cap) and the large commitment by their partner Maersk to fund up to $400+ million more in development if things stay on track. I still consider it to be a relatively low-risk exposure to a large potential oil production area, with exploration upside — but it could also take ten years to get a pipeline in Kenya, not three years, even assuming that oil prices don’t collapse, so patience remains important. You can see their latest investor presentation here — I would assume that they’re not interested in raising money, so presumably Rick Rule’s not offering a private placement here but is just recommending the stock, but I don’t know those details.
“Deal #3: The Tier 1 Trifecta.”
From Rick Rule:
“The next opportunity is probably one of the greatest contrarian speculations I’ve ever made in my life. Contrarian in the sense that it really defines political risk.
“The next company is involved in two countries – South Africa, which has its challenges, and Congo, which, in fact, defines challenges.
“The truth is, however, that this company controls three world-class, Tier 1 deposits. And Tier 1 deposits always get financed, always get produced… irrespective of political risk.”
And the specifics of those three “Tier 1” assets:
First is a platinum deposit…
“The first opportunity is in South Africa, where the company has made what I think is the most important platinum and palladium discovery made in the world in the last 100 years…..
“The attraction of the deposit that’s been discovered by this company is it will be able to be mined by very efficient, non-labor-intensive methods. We believe it will be the lowest-cost platinum and palladium producer in the world…
“And we believe that it will produce for three or four decades.”
Next is copper…
“… the company has a copper deposit which once again is probably the most important copper deposit discovered in the world in the last 30 years.
“It was discovered as an extension of the Zambian-Katanga Copperbelt in the southern part of Congo, the most important copper-producing province in the world.”
And some more on the company:
“This company is run by the most successful mining entrepreneur of my generation. A person who has been responsible for five prior exploration successes with sales to majors…
“So the question becomes: ‘Can this gentleman who has been serially success for 30 years, with his partners, which include the government of Japan and a para-state Chinese mining company, overcome the political risks in Congo and South Africa?’
“When I look at the financial resources and the needs of the nation of Japan and the financial resources and the needs of the nation of China, my own personal belief is that the answer is yes.”
And their other deposit, which gets a bit more hype-y treatment from the guy who’s interviewing Rick Rule:
“PLUS, as a kicker – and Rick didn’t reveal this, but I will…
“The company also retains a 68% ownership in a Tier 1 zinc deposit. It’s in the heart of one of the richest mineralization zones in the Democratic Republic of Congo.
“This deposit could hold as many as 10 million pounds of high-grade zinc worth roughly $1 billion at today’s prices.
“So let’s put it all together…
“This company has a Tier 1 deposit of copper that’s worth $11 billion…
“They have another Tier 1 deposit of platinum worth $145 billion…
“And another Tier 1 deposit of zinc worth $1 billion.
“The grand total for this Tier 1 Trifecta could land at $157 billion.”
Most of you who are interested in mining stocks will already know this one, it’s Ivanhoe Mines (IVN in Toronto, IVPAF OTC in the US).
Ivanhoe is not at all a small company, with a market cap near $3 billion, though it is still small relative to the size of the three major mineral deposits it controls in the Congo and South Africa — whether that’s just because of political risk or because of any concern about funding these giant projects, I have no idea, but certainly Robert Friedland, the man behind Ivanhoe and probably the most successful mine-builder of this generation, is a man worth following if you’re interested in mining. And he’s certainly not a single-region or single-mineral specialist, he played major roles in discovering and developing the Oyu Tolgoi copper/gold mine in Mongolia and the Voisey’s Bay nickel mine in Labrador, Canada, among many others.
I don’t own Ivanhoe personally, though the price has been coming down a bit so it might get more attractive — whether that’s just because copper has settled down after rising sharply late last year or because of the political risk or whatever else, I don’t know. There has been a long-running discussion of Ivanhoe among a bunch of Gumshoe readers, particularly spearheaded by hendrixnuzzles, and you can check in on that if you’re interested — if you don’t want to read six months of comments you could go back a few weeks and check in here if you want to catch some of the recent comments from readers.
“Deal #4: Ross Beaty’s $1 Billion Power Play.”
And some hints from Rule:
“Occasionally, I do something fashionable.
“I’m involved right now in alternative energies, and I mean the whole range of alternative energies. Run-of-river hydro, wind, solar.
“I’m involved with a serially successful entrepreneur by the name of Ross Beaty, who again, I have known for 40 years.
“Ross has been successful all through the mining business, but he has also been successful in developing clean energy around the world.
“One company that he’s involved in is the largest foreign owner of geothermal assets in Iceland.”
This company is hinted at as having several long-term deals to sell energy from their hydropower and wind generation to utilities in Canada and the US… and to sum up:
“Right now, Beaty’s company has eight ‘live’ plants.
“And already the projections are enormous – they’re capable of generating over 3.3 million megawatt hours of clean, green energy every year.
“That’s impressive. Even more impressive… this is still an early-stage company with under $90 million in revenue.”
This is a company that’s been on my watchlist this year, mostly because I’m hoping the price gets driven down enough to make their long-term power purchase agreements look cheap — Alterra Power (AXY in Toronto, MGMXF OTC in the US). The shares have jumped up 20% in the past month, including a recent bump up that’s probably a result of this Rick Rule Alliance attention, so perhaps I’ll keep missing out for a while. Alterra is very reliant on their large geothermal power projects in Iceland, but they do have meaningful run-of-river hydro assets in British Columbia and some windfarms and smaller geothermal projects in the US (and very early stage projects elsewhere), the company is essentially the survivor of a bunch of geothermal and alternative energy companies that boomed in 2010 and 2011 and were wildly hyped by Ross Beaty and others (including Rick Rule, if memory serves), but then collapsed. I think the problem for a long time has been not that their geothermal or hydro or wind projects can’t succeed, but that they were just given too wildly optimistic a valuation — partly because of the Ross Beaty connection.
I’ll keep watching, but I’m not in a rush to chase this one — the appeal to me is the long term 20-30+ year contracts for their power plants, not any mega-growth (which will have to be financed), so I’ll try to check back in after the Rick Rule attention drifts away.
Another? My fingers are tired!
“Deal #5 Involves a Goldfield So Big, You Can See It From Space.”
And some more hints from the interview:
“Rick and I love each of these deals, but this one has to rank near the top of the pack for me.
“After all, it’s not every day you hear about a goldfield that is so big, it can be seen from outer space.
“It sounds almost mythical. But this is very real.
“This goldfield is controlled by a very, very small exploration company – their market cap is only $105 million.
“Rick and I have both been in this industry for a long time.
“I can tell you this type of situation has an extremely predictable outcome.
“This tiny miner could soon – without question – smash records for how much a major is willing to pay to acquire it.”
So… it’s in the Middle East. Other clues?
“This goldfield is located in a mountainous region near the Black Sea….
“It’s also smack dab in the middle of a major fault zone….
“We’re at the very early stages of this discovery.
“At the moment, the stock is trading for $0.84 a share.”
And, though you can also say this about pretty much every junior miner that’s made a discovery, there’s more exploration potential because they’ve only explored part of their potential asset…
“This miner’s claim spans an enormous 28 square miles….
“This miner has only physically explored about a half-mile of this discovery.”
Huh. That sounds very much like Mariana Resources (MARL.V in Canada, MRLDF), which owns 30% of the Hot Maden deposit in Turkey… but Mariana is also in the process of being acquired by Sandstorm Gold (SAND), which is not really “new” news, and the stock has also not been at 84 cents (or the market cap down to $105 million) since it first listed in Canada almost a year ago. I guess it was near those marks in US$ terms back in April for a while, before the Sandstorm Gold takeover was proposed, so perhaps this is still the stock in question.
The other clues match up perfectly, Hot Maden is up near the Northeastern corner of Turkey, not far from the Black Sea… it is 70% owned by Lidya, a major Turkish company that has partnered with Mariana… it does, per last year’s press release about t heir resource estimate, have 2.79 million ounces in gold and 166,000 tonnes of copper in the “indicated resources” category… and, as teased, they have 313,000 ounces in “inferred” gold resources in the Southern Zone that has been more recently drilled.
But as to the “This tiny miner could soon – without question – smash records for how much a major is willing to pay to acquire it” bit of the ad, I’m a bit at a loss — Sandstorm has already agreed to acquire it, and at a nice premium, but it’s not an overwhelming deal. There could be further upside for Sandstorm IF they can derisk the deal by turning their 30% operating interest into a streaming deal, presumably with Lidya or another miner that wants access, but the chance of a huge takeover bid above and beyond what they’ve already agreed to with Sandstorm seems pretty overstated to me. I wrote in more detail about that Sandstorm/Mariana deal a little over a month ago here if you’re interested. So I’ll assume that they’re indeed teasing Mariana, and just didn’t bother to update their thoughts with the major news that was announced about five weeks ago before starting their mega promotion campaign for this newsletter (which wouldn’t be that unusual, actually — it probably takes a while to get some of these promos and new services through legal and compliance scrutiny, and often the story has changed a bit by the time they try to sell it).
Two more to go… stay with me, we’re almost there!
“Deal #6 is The Danube River Gold Discovery.
“This deal involves a small exploration company that controls what could be another truly historic gold find.
“It’s located along the bank of a tributary for the Danube River in Southeast Europe.
“This tiny miner just acquired the deposit nine months ago…
“And in its early stages, the potential is off the charts.
“Preliminary tests have found concentrations of extractable gold spanning from the surface of this deposit all the way down, 1,477 meters below.”
I haven’t seen the specific mention about 1,477 meters anywhere, but this seems very likely to be the Timok project in Serbia, which is partnered with Freeport McMoran — that was owned by Reservoir Minerals last year, but Reservoir was acquired by Nevsun Resources, which operates mines in Eritrea, last Summer. So I’ll guesstimate, without 100% certainty, that this is Nevsun (NSU).
There are other potentials, I suppose, but none that were really a large acquisition roughly nine months ago, at least not that I’ve located thus far — there have been acquisitions and other interesting exploration stories in that part of Europe, so you could stretch things and say that the new licenses Eldorado Gold has picked up surrounding their Cerej discovery in Romania might possibly match the clues as well, but nothing matches quite as well as Nevsun.
I haven’t looked into the details for this project recently, but it has been teased quite a few times over the past decade — most recently, Nevsun was pitched (post Reservoir acquisition) as a junior miner that “might be your next 10-bagger” by a different newsletter, so you can see some other (older) thoughts about that one here if you’re interested.
And we have one more to go. Deep breaths.
“Deal #7: The Ancient Incan Silver Expedition.
“This is the very definition of a treasure hunt.
“An incredible silver deposit has been unearthed.
“It was found in South America, in the heart of a region once ruled by the Ancient Inca.
“The initial estimates are coming in at 29.4 million ounces.
“That would put the low-end value of this deposit at $514.5 million.”
That’s not a particularly big silver mine, if that’s all they’re talking about — the map they include in the teaser pitch indicates that this “discovery” is in southern Bolivia, presumably somewhere near Potosi, where there has been silver mining for centuries.
Probably the closest match that’s fairly reasonable is Pan American Silver (PAAS), another Ross Beaty company, so that makes some sense… and they do have 29.4 million ounces of proven silver reserves in Bolivia, at their San Vicente property… but that’s only 10% of the proven and probably reserves for PAAS, which has much larger operations in Peru and Mexico, so a 29 million ounce discovery isn’t necessarily all that meaningful. Last year they added 38.1 million ounces in reserves, some of them in Bolivia, to replace the 32.4 million ounces they mined, so that’s good — but it doesn’t necessarily change the story dramatically, it just makes the company more viable because they’re finding and defining new reserves as quickly as they can produce them.
And I’ll close our our initial look at the Rick Rule Alliance there — presumably we’ll be hearing from them again as they drum up more subscribers in the future, but there’s a start on those seven names for you if you’re interested in doing some further research… and yes, most of them match what has already been identified by Gumshoe readers so I’m not necessarily breaking new ground here.
Finally, I have one more long-winded story to tell… and a puzzle to solve.
I’ll close it out with a note about what Frank Curzio was hinting at in his podcast a week ago, it’s a little teaser puzzle for which I’ve got a good solution… but he hasn’t really promoted it or advertised it, and it’s a teensy weensy little microcap, so I thought I’d give a little background, buy a few shares to help me keep track of it (and because it’s an interesting story, though tough to value), and we’ll watch it together.
If you’re not familiar with Frank Curzio, he does a popular investing podcast in addition to the newsletter publishing company he recently launched (after a career of writing newsletters for a few major publishers). The podcast is called Wall Street Unplugged, and it’s often an interesting listen… but he dropped some hints about a possible new recommendation for his Curzio Venture Opportunities newsletter last week, and some readers have asked, so I’ll try to figure it out.
We’re told that this is an exploration-stage gold company, and Curzio implied last week that it’s not yet publicly traded (it is, though it’s a complicated story and the deal to take them officially public closed recently), and he said last week that he was going to visit the site over Memorial Day Weekend and either recommend it for his Curzio Venture Opportunities newsletter in early June, or watch it if he thinks it would be better to wait.
So it’s not at all fair to consider this a recommendation of Curzio’s at this point… and, frankly, it’s not even really much of a teaser since he’s not pushing subscriptions to his Venture Opportunities letter at the moment, but it is a puzzle, and I can’t help it, I want to solve puzzles.
What else did Curzio note about this stock in his podcasts last week?
He noted that you don’t have to be an accredited investor to buy the stock, unlike some of his previous private placement ideas.
That it’s going to be trading on the Nasdaq, not in Canada, so no worries about pink sheets or OTC trading or that kind of thing.
And he says that they’ve put together a team that built a billion-dollar company, and generated 300% returns for investors when Curzio recommended it “a long time ago”… including a rock star (my words) geologist, who has found some of the biggest deposits in Nevada. They’re all rich and don’t need to do this, but they couldn’t pass up on the opportunity.
He also said that it’s not an IPO, but it will be listed on the exchange in about two weeks — I think that was him misspeaking a little bit, the stock has been unofficially trading since April and it became official on May 24.
He said that no one knows about it, not even contacts in the mining industry like Rick Rule, Marin Katusa… Curzio knows them because he backed their last company and believed in them, so they contacted him.
And, finally, he said that it could be “one of the best mining companies I’ve ever recommended.”
So what is it? Well, I’m pretty certain that the company he’s teasing is U.S. Gold Corp., which has two early-stage exploration assets — but it’s not really U.S. Gold anymore, because it effectively reverse-mergered into a Nasdaq-listed technology company in order to get a public listing.
So what’s the story? Well, the merger was approved by shareholders in early April and is now complete as of May 24, the stock is publicly traded now, it’s not an IPO, and it’s called Dataram (DRAM)… though it wouldn’t be at all surprising if they changed their name back to U.S. Gold or something else gold-related in the near future, and they might even change the ticker.
Dataram wasn’t just a blank shell of a company, they do have a legacy business of computer memory chips that has been gradually failing for a decade or more in the face of global competition from much larger companies, but if you read between the lines they’ve really effectively given up on that business, it will become a stub of a subsidiary that no one pays attention to, and all the company leadership will be focused on the new gold assets. They could spin those chip-related assets out to pre-merger shareholders as a separate entity at some point, but those buying DRAM shares now wouldn’t get that if it happens — and I suspect it’s probably not going to be worth anything, anyway, given the persistent and long decline the stock had enjoyed before the merger was announced last year.
So yes, this company is moving into gold mining.
Well, gold exploration, anyway.
Sounds like a red flag, right? A company that has a wild change of business? That’s the stuff pointless stock promotions are made of, the kinds of stocks that send glossy mailers to your house with a ticker emblazoned on the front, hoping that you’re inexperienced enough to believe their bluster (and that a a 3-D printing company, that became a rare earth minerals mining company, that later invented a new social media network, is a great buy at 99 cents a share.)
This one, however, is at least a little bit real. It’s not a name change, it’s a reverse merger that enables an exploration team with two potentially valuable assets to get a compliant Nasdaq listing and public company infrastructure overnight, which will presumably make it easier for them to raise money on good terms so they can further explore and develop their properties.
The two properties are Copper King in Wyoming, and Keystone, which is on or near the Cortez Trend in Nevada. So presumably Frank Curzio was visiting the Keystone property — which makes sense, because there’s where the real long-term value for Dataram will lie, if there is any.
And the connection to a past Curzio recommendation is very likely to Gold Standard Ventures (GSV), which is also developing a large “district scale” property on the Cortez trend, and which he recommended to subscribers of Phase 1 about five years ago, (that was his pricey Stansberry newsletter at the time. The stock did go up about 300% pretty quickly after that, though it then collapsed in the weak years for gold before recovering again last year and setting new highs.
So it’s an interesting story, and it’s not getting a whole lot of attention (there has been some coverage — 321Gold wrote it up a couple weeks ago, and James Dale Davidson, an investment author/economist and newsletter doom-and-gloomer, was just added to the board this week, so he’ll probably get some attention from the publishing crowd) — so I thought I’d add a few shares of DRAM to my portfolio to see what happens, but it’s a small nibble.
Why small? Well, aside from the fact that this is really a Carlin Trend exploration stock, and exploration can always fail, I’d be aware of the stock price because they’re probably going to want to raise a lot of money before too long, which could impact the stock dramatically.
Why is it possibly worthwhile? Well, because they do have some good people on board, and one pretty compelling exploration asset that’s not valued at much right now, so it’s possible — particularly if they get into “roadshow” mode — that they’ll get investors excited about the potential of their Nevada property.
And to some extent, a good story combined with a fundraising can make that good story more valuable — that’s because raising cash makes an exploration company real and viable, even as it also dilutes the current owners. The storytelling has pretty clearly begun, since they invited Frank Curzio and others to Nevada to visit the site and have put up their first investor presentation here, but it hasn’t gotten that far yet.
That’s a little bit of “greater fool” theory at work, though, because buying now assumes that any fundraising they do in the next few weeks or months will do more good in raising their profile than it does bad in diluting the shares. And there could still be plenty of selling to be done from the old legacy shareholders, despite the fact that this transition to the gold business has been underway for about a year (Dataram was not exactly a well-known technology company, but it was long-lived — it just celebrated its 50th anniversary a little while ago).
They now have authorized 200 million shares of common stock, plus 50 million preferred shares, though most of them have not yet actually been created or sold, but the stock data isn’t really up to date on any brokerage feed just yet (and some feeds also haven’t updated for their latest 4:1 share consolidation). Right now, this is what the latest filing says about their share count:
“Following the Closing of the Merger, the Company had 8,174,605 shares of Common Stock and 45,000.18 shares of Series C Preferred Stock issued and outstanding.”
The Series C preferred shares are convertible into 100 shares of the common, apparently, so that’s another 4.5 million potential shares… which would get us up to about 12.7 million shares outstanding on a diluted basis. There are also some five-year warrants, though they aren’t publicly traded, and some employee options. So that means the company’s market cap should be about $40 million at the current $3 share price.
They did raise some money last year, almost $12 million in October, and they’ve already spent a fair chunk of it — but they said that they had $7.6 million in cash as of January 31, and that their 2017 exploration programs are “fully funded.” I suspect that they will either do the offering within the next couple weeks to raise up more money to speed up exploration, or wait until they have some kind of news (like an updated PEA for Copper King, or even an initial drilling result for Keystone) before raising a larger chunk of cash late this year or early next year — investors so far have not been enthused about the stock, so it has already dipped well below the $5 price they achieved by doing a reverse split just a few months ago.
So in financial terms, it doesn’t look so bad — one development-stage project that has a historical PEA with a $150 million or so valuation estimate, one exploration-stage project in an area where “elephant” deposits have been found and developed for decades, with people who have a record of success in this same region, and $7 million in cash… all for about $40 million. That sounds reasonable, but you’d have to be comfortable with the fact that $20 million sounds just as reasonable, so the stock could get cut in half pretty quickly if there’s no positive news to drive attention (or if gold prices come down)… and all of that could, of course, become immediately meaningless if they try to do a $100 million capital raise when gold is falling in price, or have lousy early exploration results or permitting problems. On the flip side, if a bunch of pundits fall in love with the story of they have a great initial drilling program, the stock could go up 500% in a hurry (that’s not imminent, to be sure, there’s not much indication that they’ll have any new drilling results soon).
The more advanced property that they own with that old PEA is the Copper King project, which is near the southeastern corner of Wyoming, between Cheyenne and Laramie. The deposit has been studied and drilled by at least a half dozen different companies over the past 40 or 50 years, and did operate as a tiny mine for a little while before that.
It does have some measured, indicated and inferred resources booked, thanks to a 2012 technical report, totaling just under 300 million pounds of copper and about 1.1 million ounces of gold, all of it quite low grade and apparently suited for open pit mining. That’s just going from the company’s SEC filings, I don’t really know anything about the details and the data is pretty old now.
It seems to me that the inclusion of Copper King is really to give some valuation “ballast” for the shares, since that old assessment of this project that gives it a net present value of $159 million (with gold at $1,100 an ounce and copper at $3 a pound, not terribly far from the current ~$1,370 and ~$2.60), but if you read between the lines it doesn’t look like they’re going to be in a hurry to develop that property quickly — they do say they’ll update the preliminary economic assessment and begin developing a permitting strategy so they can move to a pre-feasibility study maybe as soon as 2018, but, from what I can tell, the real focus is on finding out whether there’s a real district-scale deposit to be found on the Keystone property.
So the probably more valuable and important but very underexpolored and undeveloped project is Keystone, in Eureka County, Nevada. And it’s likely to be valuable not just because it’s in the same trend as several mega mines (and large deposits that aren’t yet developed, like the Railroad/Pinion project from Gold Standard Ventures), but because it’s being explored by Dave Mathewson, who is a famous prospector in Nevada (he made some major discoveries for Newmont in the same region in the 1990s, and then for Gold Standard ventures more recently), and because the company is being built by some of the founders of Gold Standard Ventures… so the hope, clearly, is that they’ll find something big like they have in the past. You should never take the dreams of a prospector to the bank, they are pathologically optimistic as a rule, but Mathewson is quoted as saying that this is “the best exploration project I have seen in my career.”
I’m no geologist, but from my perspective it looks very risky but also perhaps worthy of a speculative flier… mostly just because of the connection to Gold Standard Ventures and Mathewson, and the fact that they’re following the same pathway as they did at GSV by building up a large “district” for exploration… and, if gold and copper prices remain steady, the smaller Copper King project could provide some foundation for the company’s valuation.
Finding gold deposits is partially luck, but the luck comes more readily to those who have a deep understanding of exactly where to look, and what kinds of geologic formations give you a chance of finding a large deposit, and certainly Dave Mathewson is one of those exploration geologists who knows how to increase his chances of being lucky, particularly in this part of the world.
They did some very exploratory early drilling in the Keystone district “for information purposes” last year, they have staked some additional claims next door to bring the total area under their control to 15 square miles, and they expect to identify drilling targets soon and initiate an actual drilling program, to be followed by more exploration in 2018. Unless they are very fortunate with some of their first drilling targets, there could well be no real news for a while. But you never know.
So yes, another little gold explorer goes into the Real Money Portfolio as a “special situation” gamble, and I’ve kept the position small so I can let it ride for a while as they get their Keystone exploration underway. There’s no rush, as far as I can tell, they’re probably not going to have real exploration results or news in the near future and they could easily want to raise money if the new attention the stock gets drives the shares up at all, but at this valuation of about $40 million it looks like a reasonable speculation — one that could just as easily be worth $15 million or $100 million if sentiment shifts in a hurry.
And that’s all I’ve got for you today — thanks for patiently sitting through a loooong Friday File, and I hope you have a fantastic weekend!
P.S. I neglected to note that I sold shares of another “story” stock to make some room for Dataram — so I am no longer a shareholder in LiCo Energy Metals (LI.V, WCTXF) — that position was always a speculation on a frothy bubble appearing in Cobalt and Lithium penny stocks again, which certainly remains possible… but I missed the one bump up the shares had this year, and I have no fundamental basis for owning this stock (unlike eCobalt Solutions, which actually has a mine in development and which I also own). So… adieu, LiCo. I wish you the best.
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