“The Small Exploration Company Bankrolled by the Big Gold Players”

By Travis Johnson, Stock Gumshoe, April 5, 2011

It’s shaping up to be Ian Wyatt week here at Stock Gumshoe — yesterday I took a look at a veiled hint of a Polish natural gas stock, and today we’re looking at a tease that looks like it may have started a couple months back but has been recently re-invigorated (and I haven’t researched it before, so it’s new to me — and maybe to you, too).

The pitch this time is all about precious metals, which is not a surprise — and particularly about silver, which has been on an incredible tear this year. He teases a couple stocks, and uses the increasingly popular tactic of “giving” you a silver coin in exchange for subscribing to his newsletter (no, you don’t get the coin if you cancel during his “trial period”) … which sounds so much sexier than a $40 discount, right?

But anyway, the current rate is $195 … and I’d rather not pay that just to learn about another silver stock. So let’s try to identify it on our own, shall we?

There are actually a couple stocks teased in this letter, but the one that sounded most appealing to me was the most unusual one — it’s not just about one specific silver mine, though it does apparently have exposure to a site in the Sierra Madres in Mexico. No, it sounds like this one is much more diversified … here’s how he teases it:

The Small Exploration Company Bankrolled by the Big Gold Players

“You’ve probably heard that precious metal exploration companies are among the riskiest investments in the world.

“And for the most part it’s true. Most of them never produce a single ounce of gold or silver. Most of them are literal holes in the ground that people throw money into.

“But I’ve recently discovered a small metals explorer that’s doing it right.

“For one, they have the backing of one of the largest gold companies in the world. This huge gold company is lending them their help because they too realize the profit potential of the Sierra Madre region.

“But even better, this small explorer also has a variety of mining operations all over America, all in different stages of progress.

“For instance…

“They have access to gold and silver in the Sierra Madres…

·They have gold, nickel and copper mines in Alaska.
·They also have Uranium mines in Arizona.
·Copper mines in Nevada and Utah.
·And molybdenum mines in Texas and Montana.”

And yes, we’re told that the Sierra Madre project alone is apparently enough to drive the shares higher if Wyatt is right — in his words:

“While we wait for this company’s Sierra Madre silver production to come on line, we can rest easy knowing that they have many other projects in various levels of exploration.

“So the stock will remain relatively stable – and then when the silver production kicks in…

“Well, suffice to say that this company currently has at least $450 million worth of indicated silver reserves in its Sierra Madre deposit alone.

“Right now this company’s market cap is under $200 million. It’s not hard to see what will happen to this company’s stock price once they start bringing just a fraction of that $450 million deposit into production.”

So who is this? It’s a dreary, rainy day here on Gumshoe Mountain, but it always cheers me up to see the little lights coursing across the screen of the mighty, mighty Thinkolator … it had to chew on this one for a few minutes, but, lo and behold, an answer always come through:

Quaterra Resources (QMM in NY, QTA in Canada)

Quaterra is on some levels a “prospect generator” like some of the favorite stocks I’ve written about here before, including Altius Minerals (which is one of my largest personal holdings). They amass land positions, drill and survey to identify resources, and then bring in partners to do the lion’s share of funding for the drilling that will book actual reserves and then, hopefully, the planing and building of the mine — and in exchange for their early work “discovering” and staking the prospect and doing some of the initial exploration, they keep a junior ownership position in the mine.

Prospect generators don’t all work on exactly the same model (Altius, for example, tries to sell off equity holdings in mines at opportune times, spin off projects into public companies to raise money, and keep royalty positions in perpetuity), but their goal is to turn early exploration into something that has real potential value, but not to spend too much of their own money developing it — thereby cutting the risks considerably. And many of them, like Quaterra in this case and like Altius, try to have pretty diverse portfolios of assets that are in various stages of development — sometimes all within a small or defined geographic area where the company has particularly valuable expertise, or connections, or historical data, and sometimes spread across the globe.

In Quaterra’s case, the assets are spread throughout North America — and they do match exactly the teaser clues from Wyatt, though the most advanced and important projects that they’re still spending on (ie, they’re not partnered or funded yet) are clearly the gold and silver prospects in Mexico and the Yerington/MacArthur copper project in Nevada. And I can see why Wyatt pitches this one as a Mexican silver idea, since that’s where much of the expertise of company management comes from — many of the folks at Quaterra came from Western Silver, which was the firm that found and did the initial work on the Penasquito mine, now a prime asset of Goldcorp and one of the biggest new mines in the world. Probably as a result, they continue to have a relationship with Goldcorp, a strategic alliance that guarantees Quaterra $10 million in funding for exploration over two years along the Penasquito Trend in “underexplored areas” which includes about a dozen prospective properties (950 square miles of land), and they also already have an unnamed 50/50 partner for their Nieves silver prospect, which is also fairly near Penasquito and has more than 50 million ounces in indicated and inferred silver resources (not “reserves”, a term that Wyatt probably uses too loosely in the teaser — assuming that the Thinkolator is right on this one).

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The company seems to have some good relationships with big miners — in addition to their exploration deal with Goldcorp they have a similar-size deal with Freeport McMoran for copper exploration in the US (Arizona, Texas and Utah) … and Freeport is also an early stage partner on their Molybdenum prospect in Texas. Two smaller companies were partnering their Alaska projects, which don’t seem to be of headline-generating size