This is the intro from the ad we’re considering today:
“Jim Rickards: Halfway to heaven, in a location with life-threatening temperatures, a little-known company is about to unleash…
“15 TIMES the concentration of the average global gold mine, this deposit contains arguably the highest-grade gold on the planet.
“And one company trading for less than $9 per share is
poised to begin unleashing $638,100,000 worth of ‘God’s Gold.'”
Who wouldn’t want to know what that is, right? The ad tells us that this is super high-grade gold (15.7 grams/tonne) and a large deposit (approximately 6.9 million ounces of proven and probable reserves), which will certainly help us to pinpoint the stock.
The ad is a pitch for Rickards’ Gold Speculator ($3,000 a year), which is headed by Jim Rickards and designed to profit from his prediction that gold will go to $10,000 an ounce… though it appears that the gold stocks are picked and the analysis done by Byron King, who has been Agora Financial’s natural resources guy for many years and helmed their Outstanding Investments for a few years along the way.
And, as so often is the case, there’s a near-term date to give us a sense of urgency…
“The deposit contains arguably the richest bonanza-grade gold on the planet…
“And a company that’s trading for under $9 per share is poised to begin unleashing $638.1 million worth of it.
“When that wave of cash floods into this tiny company’s books…
“I expect share prices to shoot through the roof.
“For reasons you’ll soon discover, I believe this could happen on or before March 20, 2017.”
The dates in these ads are, of course, usually either made up or given hugely exaggerated importance — with good reason, because advertisements that don’t have a sense of urgency don’t convert the curious into subscribers. Any good copywriter knows that if you decide to “sleep on it” or mull it over, you’re more than likely not going to buy the newsletter — you need to be convinced that the opportunity is urgent and immediate… buy now!
So what is this? We get a little more inducement to act RIGHT NOW because it’s your last chance to get in before everyone else knows about it… word is leaking out! OMIGOSH! HURRY!
The specific pitch about that date is that “the company is going to open a critical piece of infrastructure as early as March 20, 2017.” So we’ll check on that as we go along, too.
From the ad:
“… you’ll need to act RIGHT NOW…
“Already, news of this heavenly-rich deposit is rocking the mining industry.
“Renown mining investor Tommy H. calls it:
‘…A spectacular high-grade resource.’
“Natural resource analyst Evin R. gushes:
‘One of the highest-grade and largest-sized gold deposits in the world…’Are you getting our free Daily Update
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“Chen L. of the The Gold Report has this to say:
‘A world-class mine…’
“And one of North America’s leading mining magazines puts it bluntly:
‘…A jewel in [the company’s] crown.'”
See what they did there? Not just add urgency, but also add some authentication with quotes from “renown” and “leading” sources to give you some confidence that Jim Rickards is not just making this up.
Quotes from reliable-sounding sources and upcoming catalysts, check! Now all we need is the promise of ludicrous wealth!
Rickards does that with another familiar routine popular with newsletter ad copywriters: Talk about thousand-percent gains over and over again, even while putting in smaller type that, well, perhaps you won’t see gains like 5,379% or 1,380% or 3,757%… but maybe it will be “only” several hundred or thousand percent.
That 5,379% gain isn’t made up, it’s a reference to the price spike made by the stock of a silver company that was founded and run by the CEO of this same secret “God’s Gold” company. Here’s more from the ad:
“Could he really deliver another 5,379%?
“Well, it’s highly unlikely.
“While this ‘God’s Gold’ company is trading for just under $9 a share…
“The silver firm I mentioned before was sitting at 78 cents when it took off.
“But that’s not to say this $9-per-share company won’t return gains in the hundreds to thousands of percent.”
I know, I know, the suspense is killing you — me too! But we’re almost there… can we get just a little more intel about just what the heck they mean by this made-up “God’s Gold” term first?
“‘God’s Gold’ is typically found near volcanoes or in very high-altitude mountain ranges…
“And why it can be so cheap to extract from the ground.
“Just listen to what one CEO had to say:
‘The beauty about [‘God’s Gold’] mineralization is that for the most part the processing is a tried and proven technology of simply crushing and milling the ore. This is not a complex type of ore nor is it an expensive process.'”
OK, so, as you might have guessed, “God’s Gold” is, well, gold. It’s just that they’re referencing a particular kind of gold deposit that tends to be found in mountainous areas — that quote is from Ken Booth, who is CEO of a microcap gold explorer called Redstar Gold (RGC in Toronto, if you’re curious)… which is NOT the stock being pitched by Rickards, it’s just that Redstar’s potential gold deposits are, like the “secret” gold company being teased here, likely low sulfidation epithermal mineral deposits.
Woohoo! Sounds fun, right?
Well, to be fair, most of us are not mining geeks — but these kinds of deposits have inspired some lust among investors in the past. Several of the big mines hinted at in Rickards’ pitch, including Kupol in Russia and Cerro Negro and El Penon in South America, are characterized by low sulfidation epithermal mineralization, and those were all high-grade deposits that were bought out by big miners for multi-billion-dollar prices.
And, of course, our secret “God’s Gold” stock is also in some ways a similar kind of deposit — so what is it?
Well, I hate to talk about something that most of you have probably already heard of… but here we are again being teased about Pretium Resources (PVG).
Yes, Pretium is right around $9 a share (and, probably thanks in no small part to Rickards’ attention, it’s rising already this morning, up about 8% — though gold and the average gold miners are all up today as well).
Their main asset is the under-construction Brucejack mine in northwestern British Columbia, and it is indeed an unusually large and high-grade gold mine. It’s also going to be producing gold this year, and is fully financed through commercial production — so this is a big and established company that’s on the verge of actually producing revenue… as is reflected by their market cap, which is about $1.5 billion.
Pretium is not an explorer that’s about to shoot into the headlines with a big new discovery — it’s a discovery that has been well-known for many years… though, despite the fact that CEO Robert Quartermain is widely followed and respected (thanks to his work building Silver Standard, which he left — and then he raised a big pile of IPO cash to buy Brucejack from Silver Standard), you could perhaps argue that the unique nature of the deposit has meant that it didn’t get as high a valuation as it otherwise might have. The gold is found in narrow and extremely high-grade veins, and it took quite a while before skeptical analysts and observers were ready to accept the estimates about how much gold might be in the ground and the best way to produce that gold.
Now, though, the sentiment seems to have swung pretty well over to Pretium’s side — the stock is not overvalued if things work as expected with early production and the confidence in the reserves increases, but neither is it all that cheap based on the proven and probable reserves… so to some degree buying in here represents at least a small leap of faith that the initial mining will produce as planned in these early years, and that the reserves will continue to expand to extend the mine life.
I’m no expert on this particular project, though I know many of our readers have been discussing it with great enthusiasm over the past year or two — including hendrixnuzzles, who has followed it all year in the mining discussion threads he has shepherded (you can browse those threads if you like, but some recent comments on Pretium start around here). The company did upgrade their reserves in mid-December, as is detailed in the updated version of their investor presentation here — the changes were not huge, and the grade was reduced a little, but proven reserves were boosted enough to give some additional confidence about the first few years of production.
And yes, there are quite a few analysts who are pretty excited about Brucejack and Pretium now — a summary piece by the Gold Report quotes many of those same folks cited in the Rickards ad.
The economics laid out for Brucejack by Pretium itself indicate that it’s probably priced about right — they calculate that the after-tax net present value of the mine, at $1,100 gold and $14 silver (which is pretty close to where we are now), is about $1.55 billion. So it’s pretty easy to imagine the stock doubling if the early commercial production is successful and without any big hiccups, or if gold prices soar much higher in the near term, but the notion of thousand-percent returns seems pretty wildly speculative at this point. There is potential for a strong long-term producer to emerge from this as well, and a pretty stable one even if gold prices are jittery, since the reserves could expand beyond the current projected mine life of 18 years, and since the per-ounce “all in” costs are expected to be low (near $500 an ounce, half of what many mines incur to produce an ounce of gold).
There’s plenty of operational risk, since we don’t know if they’ll hit a problem in the commissioning of the mine (it’s been pretty smooth so far), or if the initial wave of mining will produce gold at the level expected, and there’s always a heightened risk when you’re talking about a single mine and reliance on a single commodity, but it’s a pretty well-advanced construction project and the skeptics have so far been wrong about Pretium.
Oh, and that “March 20, 2017” date? That could be a few things, though I don’t know that any of them will have a marked impact on the stock price (unless there’s a surprising failure, that is). The transmission line is probably the biggest thing that will be completed in the next couple months, though the construction of the mill should also be wrapping up around then as well, as will the underground infrastructure (crusher, transfer tower, etc.)… and the underground development is continuing, with most of the ramps and shafts well underway or complete — so you can take your pick, but there doesn’t seem to be any one big piece of the infrastructure that’s not expected to be complete on time, and the company has been clear about indicating that they expect the mill to be commissioned in mid-2017 and the “first pour” of gold produced from the mine could come before the end of the year, so it’s probably wisest to assume that investors are expecting things to proceed apace.
What usually has a big impact on stock prices are surprises — so if they finish early, or early production is better than expected, that’s a good surprise… if they hit delays, or something breaks, or initial production is lousy or the mill needs re-engineering of some kind, that’s a bad surprise. Beyond that, it’s investor sentiment about gold stocks and the price of gold (both of which, as we’ve seen over the last twelve months, can move dramatically and quickly), so you can throw all that into your mental model and, voila! You can decide how much the stock should be worth.
I don’t own this one personally and have mostly shied away from investing in individual mining projects, though Franco-Nevada (FNV), the royalty company I’ve been buying most recently, does have a royalty on Brucejack.
Sound like the kind of “God’s Gold” you’d like to own? Let us know with a comment below.