“Three Million Ounces of Gold Buried Beneath an Australian Peninsula”

by Travis Johnson, Stock Gumshoe | November 5, 2010 1:04 pm

Most of you are aware that I usually spend my Fridays writing new material just for the Irregulars (the Friday File[1] and the “Idea of the Month” writeups) — but sometimes, after a bit of time has passed, I will share occasional “Irregulars only” ideas with the rest of the class.

That’s the case today — with gold[2] at all-time highs I’m seeing this teaser roll through again with some regularity, it first appeared near the end of September and I wrote about it then for the Friday File. That article[3] also included my updated thoughts on the valuation of one of my personal gold holdings, and that’s already pretty much out of date so I won’t share it with you here, but since the teaser’s still running I thought you might like to see the solution to this “gold under an Australian peninsula” teaser.

The following is excerpted from the Friday File of September 24, it has NOT been revised or updated. (The stock in question is up about 40% since then, just FYI).

So since we’re talking gold again today, I thought I’d also get you at least a quick start on the latest teaser running from the Sovereign Society, all about an Australian gold miner. Or make that a Canadian gold miner, with a property in Australia.

They tell us that this company has “three million ounces of gold buried beneath an Australian peninsula,” but of course they trumpet it a bit more boldly as well:

“Canadian Company Makes Massive GOLD Discovery… Under Aussie Peninsula

“Tiny Toronto-based Company set to extract over 3 million ounces worth $3.8 billion… from below Australia’s rugged Outback…

“Early estimates show as much as 1,727% gains for investors who get in this junior miner before next month…”

And it’s actually “over 3.09 million ounces”, so it’s even MORE exciting. What else do they tell us about this company?

“This tiny Canadian mining company bought $3.8 billion of gold (at today’s prices) for just $47.8 million dollars. Or, just over $15 an ounce.

“In a nutshell, it went ‘all in,’ purchased over 2,500 square miles of resource-rich land (that’s bigger than the state of Delaware) and hit the “mother lode.”

“The best part: This company – and its massive discovery – hasn’t even registered a blip on Wall Street’s or the mainstream media’s radar. At least, not yet.

“And nothing sends the price of a junior mining stock higher than a big gold discovery…”

The clues are abundant with this one (yippee!), so I’ll continue — they go on to give more hints about the precise location:

“… it sits in Australia’s Northern Territory roughly 60 miles south of the capital city, Darwin.

“The Miners operations are adjacent to the Stuart Highway and the transcontinental railway line.

“This means it doesn’t have to build the costly infrastructure to transport its gold… it can essentially hit the market the minute it’s extracted. “

This is another case of a mine, like Hill End Gold’s properties, that has a long history of production, with much of it 100+ years ago — the tease says that 3.7 million ounces of gold have historically been produced on this site, and that there are “over 600 documented gold occurrences” on this huge parcel of land that they acquired.

And as our kicker, we hear about the management team:

“Management Knows the Secret to Gold Riches

“Of course, the key to successfully growing any business is having the right team in place.

“The Miner’s team consists of experienced mine operators and developers from the world’s largest, most successful gold companies.

Are you getting our free Daily Update
"reveal" emails? If not,
just click here...

“Simply put, management has a proven track record of developing and growing production to boost shareholder value.

“You see, the CEO, CFO, and COO worked together at a company that has become one of the most profitable gold miners in the world.

“I’m talking about Goldcorp Inc. (NYSE: GG). An incredible company whose stock handed a few investors windfall gains of 2,493%.”

So who is this? It must be … Crocodile Gold Corp (CRK in Toronto, CROCF on the pink sheets)

And they’ve spent a fair amount of effort at building a brand and a fancy website, so they seem to be ready for the attention that the Sovereign Society is trying to send their way — you can see their investor presentation here if you’re interested[4].

The facts from the teaser are all good matches, and more or less in line with reality — they do have 3.09 million ounces of measured & indicated resources (not yet booked as actual reserves, mind you), and an other 1.94 million ounces inferred. They do have a really massive property portfolio of more than 2,500 square kilometers south of Darwin, and they are producing gold (first pour last December). With a share price of $1.13 at the close last night (Thursday) and 203 million shares, they carry a market cap of about $230 million, call it an even $250 million if you include the outstanding warrants[5] and options[6].

The company claims that their infrastructure on site, including two mills, would have a replacement cost of $200 million in itself, which may or may not mean it’s actually worth that much — but they are definitely close to civilization and to highways and utilities[7], so they don’t have nearly as much work to do as some remote miners. Commercial production began in July and they are currently producing from three mines, with an expected output of 85,000 ounces of gold this year. They have one additional underground mine in development to start producing next year, the Cosmo mine that is really their flagship project — this one itself is expected to help reduce per ounce costs (it’s bigger and has higher grade ore than current producing mines), and to produce at least 100,000 ounces a year. Cosmo is reportedly ahead of schedule for development, and they also reportedly have a fifth open pit mine in development without a stated production date (that I saw). They say they have potential for near-term low-cost production to be brought on line from other targets as well.

Which all sounds pretty good. So why did is the stock so far off its highs?

Well, I certainly am not yet an expert on this one (and probably will never be), but the stock had a historic run late last year when they merged with Franc-Or, got a Toronto exchange listing, started mining operations at two of their smaller sites, and announced a big exploration program and the discovery of some appealing targets. That drove the price up from about 20 cents to a dollar last November, then to $2 by January as the enthusiasm over their Cosmos mine took hold and they got more attention, but it’s been a pretty steady trip downward ever since.

So that’s what I know about this one so far — an interesting story, lots of gold to be produced, but it does sound like costs will be a critical factor as they build up to 100,000+ ounces of annual production. I don’t know if or when they’ll become profitable, but those of you who love the gold juniors now have a weekend project as you determine whether Crocodile is a buy or not for your portfolio.

My guess would be that since this is going out to some huge mailing lists for the Sovereign Society, and because it’s an appealing story that’s being offered for the relatively inexpensive $49 subscription, that this one will probably get a lot of investor attention for at least a few days and it wouldn’t be surprising, particularly with higher gold prices, to see the stock take a nice bump upward. It’s always tough to predict what exactly will happen to stocks like this that move thanks to a newsletter tout, of course, and it could easily fail to find traction with investors — or fall back down more quickly than expected if the attention dries up, but it is at least a reasonable size at over $200 million, and it does have real producing assets, so perhaps it’s at least worth some research if you’re in the hunt for another junior miner.

Updated disclosure: I did not own shares of this stock when first covered, and I have not traded it since and will not trade in the shares of any stock mentioned for at least three days.

Source URL: https://www.stockgumshoe.com/reviews/sovereign-investor/three-million-ounces-of-gold-buried-beneath-an-australian-peninsula/