“The $58 Billion Mining Coup of the Century” (Sovereign Society)

By Travis Johnson, Stock Gumshoe, December 15, 2010

Well, we have here today another of those stinkin’ teaser ad “presentations” that doesn’t allow access direct to the transcript … so I’ve got to listen to the whole dang thing. Never doubt how much I love you, dear Gumshoe Faithful!

Here’s the pitch from the Sovereign Society, from Jeff Opdyke (he’s teasing to tempt us into subscriptions to just their basic Sovereign Society membership, which is $49/year):

“Tiny Rare Earth Mining Company Scoops:

“The $58 Billion Mining Coup of the Century”

“It’s a massive discovery that has the power to save America from a green tech crash… break what’s been called: ‘the world’s first MINEROPOLY’… and make early investors as much as 1,443% by January 31st…”

I’m going to assume (foolishly, perhaps) that they mean January 31 of next year, that being about six weeks away. And yes, though your friendly neighborhood Gumshoe is, of course, generally above such petty things as filthy lucre, he wouldn’t say no to making 14X his money in six weeks. He might say, “Ha!” … but not “no.”

So let’s figure out what the Sovereign Society guys are pitching — and whether they’re just trying to catch up on the massive wave of newsletter marketing that’s been profiting from (and in some cases, causing) the last several months of spiking share prices in rare earths stocks, or they’ve really got the ability to predict some kind of catalyst in January that might mean something.

And like I said, this one ain’t got a transcript, so your humble servant is forced to paraphrase and go from notes — I’ll try go get the details right, but I won’t actually do much quoting.

The ad says that the guys behind this relatively young stock come from other successful companies, including one whose price leapt 9,500% in less than four years.

So there’s one clue.

And “they’re going public with their latest small cap discovery” — so, in case you hadn’t guessed, this is a little company. As pretty much all rare earth explorers and miners are.

We get one clue about the size of the potential: He says this is a “4.9 million ton jackpot strike.” Remember that, that may be the only important and specific clue here.

Though this one is a close second: We’re told that this deposit is in “one of the planets last great mineral frontiers”

Opdyke says that this virtually unknown miner scooped up the $58 billion discovery in the “mining coup of the century.”

And we hear a lot in the presentation about rare earth metals in general, but if you’re like me you’ve got much of that memorized already — we know that these are needed for thousands of hot consumer products, strategic defense stuff like guided missiles, electric cars, etc, and that there have been supply shocks and the attempt to create a mineral monopoly (in China).

As you’re probably aware, the fear over supply cutoffs from China (which pretty well killed off all non-Chinese rare earths production a decade ago by undercutting on pricing, and is trying to use its rare earths hegemony to get rare earth users to move their advanced manufacturing to China), combined with increasing attention in the mainstream media particularly when some Japanese companies couldn’t get the exports they needed, has helped to drive the share prices higher for all these little companies.

And Jeff specifically notes tantalum, which he says was one of the hottest investment stories of last year as it tripled even though no tantalum was produced last year.

And he says that tantalum sparked a civil war way back when Sony’s PS2 introduction increased demand so much that it caused a civil war in the Congo.

But you probably get the point, he tells us that the market is increasing in size dramatically, and that it will double by 2015. But which rare earth miner does he recommend for profiting from the China-spurred supply crunch and the fears of China’s potential halting of rare earth exports? One of the many we’ve already looked at and seen teased by other newsletters … or someone new?

He also mentions Molycorp, which he says is “tiny” with “nowhere near enough to save the day” — mostly because he wants to tell us that this secret discovery is 100X bigger than Molycorp’s.

So, the company was “created by a number of old mining legends”

And their site is an “old abandoned uranium mine that was shut down in the 1980s.”

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We’re told that their resource base is 4.9 million tons of rare earth minerals, likely the biggest rare earth metal deposit in the world and enough to supply 25% of the global industry’s needs for the next 20 years.

Which, unfortunately, means this ain’t anyone new — we’ve seen them a few times before. But before I reveal the dramatic solution, I should tell you the catalyst info they share:

The stock is now listed on a small foreign market, but Opdyke thinks it’s about to launch on (one of?) the big North American or European exchanges, perhaps within 60 days. He tells us that he thinks the stock will go ballistic once it does “uplist” like this.

So who is it? Well, much as I’d like to be done with the Greenland mania, I’m afraid this is once again Greenland Minerals and Energy (GGG in Australia, GDLNF on the pink sheets), the same stock that was teased by Chris Mayer back in October (his pitch was a bit more florid, with talk of the lost B-52 in the Greenland ice). And yes, there is also still that other Greenland rare earths explorer, Hudson Resources, too, though they’re not the ones being teased in this pitch (I wrote about Hudson for an Ian Cooper teaser a couple months ago, too, and before that it reached our ears about a year ago following a Brian Hicks teaser).

And yes, rare earths are still on top of investors and politicians’ minds, and Greenland is emerging as an independent country and trying to develop a stronger mining and natural resources economy to further their independence from Denmark (their former owner and continuing benefactor).

The site that is likely to be first developed by Greenland Minerals, assuming that it does eventually get developed, is called Kvanefjeld, which is the resource that they claim as having 4.9 million tonnes of rare earth oxides.

And it was indeed a uranium mine, though only in the technical sense of the word — there is uranium there, and it was produced in small quantities during a number of pilot projects in the era between WWII and the beginning of the nuclear freeze movement (roughly 1950s-1980, when uranium mining was banned by Daddy Denmark — in part because of that crashed atomic bomber, but probably largely for political and environmental reasons). There isn’t a big mining infrastructure on the site or anything helpful like that, though it is reasonable close to some of the infrastructure (a main airport’s about 40km away) and some deep water fjords (7 km) that could theoretically host a port (there aren’t many roads on Greenland, most stuff moves by boat along the coast,or by plane). The site is also pretty close to the town of Narsaq.

They are moving along with exploration on the site, with a prefeasibility final report scheduled to come out sometime in the second quarter of next year … though they’ve already said that the capital costs are expected to be a bit over $2 billion, and that if they’re allowed to produce the uranium on site the uranium alone will pay for the total production costs over the 23 year expected life of the mine, so they get the rare earth oxide “free.” Uranium and rare earths are both technical and tricky products to produce, so I have no idea how reliable that expectation is or whether we should pencil in some more overhead.

The big speed bump, aside from the fact that they’re a junior exploration company and they’d have to raise the money, get permits, build the mine, produce rare earths, and find a place that can refine their ore … in a place where there’s relatively little mining expertise or history … is that they have to get government approval to produce either rare earths or rare earths and uranium at a site where uranium is coming out of the ground no matter what they do. The stock was halted for a little while this week when news came out about the latest development in that saga — the Greenland government had preliminary started to lift the uranium ban a few months ago, essentially saying that uranium could be included in studies of potential mines, but on Tuesday it got more specific and the company announced that they have received a “permit to fully evaluate the Kvanefjeld multi‐element project, inclusive of radioactive elements (uranium).”

There’s still a long way to go, of course — even the optimistic projections seem to put a potential mine on this site off until 2015 or so (feasibility study done by mid-2013, apply for license, construct mine by 2015), and there’s a lot of exploration to go before that, along with a bankable feasibility study and all the levels of permitting for actual exploitation (not just exploration or evaluation) of the mineral resource. And clearly, the stock moves largely on investor sentiment about rare earths and on large-mailing-list newsletter folks who have embraced the rare earth story in general, and Greenland’s potential as a producer specifically.

In terms of financials, the company presentation claims that they can (after production starts in 2015ish) generate $600+ million per year in “annual operating surplus” during the first five years, and that the mine has a net present value, using their assumptions, of about $2.2 billion (the $58 billion number in the teaser headline must be one of those “potentially worth this much” things for the whole possible production resource, though I have a hard time making that number appear on my calculator).

That’s close to the capital they say they’ll need to start production of about $2.3 billion, but at that cash flow they believe they’ll reach “break even” after five years (including the two years of construction). This is all from their investor presentation, which you can see here.

There are currently 250 million shares outstanding, and another 160 million “very in the money” options/warrants (20 cent strike, shares are anear a dollar) , so the market cap is something around either $250 million or $400 million, depending on whether you include the options. So those are the basics, add in your risk factors and your expected return and you can try to figure out what the stock is worth to you — and, of course, what rare earth oxide will cost in five years, when this mine is theoretically going to be done and when, one assumes, the marketplace will be substantially different than it is today (remember, China didn’t kill all those other rare earth producers in decades past by just discovering the best resources or controlling all the rare earth mines, they killed them by discovering some high grade resources, cutting prices with cheap labor, thinking strategically, and doing the dirty refining work that no one else wanted in their neighborhood).

Me? I have no idea what Greenland Minerals is worth — I speculated in Lynas, one of the emerging producers, a couple years ago but don’t own any of them now and have a hard time justifying the valuation for any junior rare earth stock by using anything number-like … but that has also meant that I’ve personally missed a big run in the stocks. I liked the comments by noted commodity stock broker Rick Rule, who clearly believes that the rare earths stocks are in a manic bubble — he basically said that he thought they’d probably keep going up in the near future (next year or two), and that they might be a spectacular market to trade on investor sentiment, but that he didn’t like them for the longer term because the stock market value of all these junior explorers and miners as a group is irrationally high (to paraphrase, he thinks the global non-China rare earths market should be worth about $1.5 billion, but the publicly non-Chinese miners and explorers carry a value of at least $5 billion now). You can see those recent comments from Rule in context and in more detail in an interview with the Gold Report here. (And of course, lots of folks think things get bubbly well before the prices really top — he also said much the same thing back in March, when the stocks were far lower).

But it’s your money — so, whaddya think? Have you been riding the rare earths rollercoaster over the last few months (or far longer, meaning you remember times when the stocks could go way down as well as up?) Think there’s still room for more action in Greenland or elsewhere in rare earths world (There are a dozen or so other juniors trying to climb similar ladders, mostly in Australia and Canada)? Let us know or share your favorites with a comment below.