Several folks have been asking about the latest teaser pitch from Stansberry Gold & Silver Investor, and the header of that ad pretty much tells you why:
“Urgent ‘Gold Trigger’ Buy Alert From Stansberry Gold & Silver Investor:
“The last time this “Gold Trigger” alert appeared, it made investors 123% in a single day.”
That’s pretty much the dream of every trader, the daily double, so what is this “Gold Trigger?” Let’s dig in and see if we can identify the trade for you.
The letter comes from an analyst at Stansberry named Bill McGilton, who I’ve not heard of before, but this gold investment offering was launched earlier in the year when gold stocks were just starting to go bonkers — that was back when it was just called Stansberry Gold Investor, before they added silver to the mix, and they were pitching it as a way to profit from the “Metropolitan Plan”.
I expect all of the ideas they suggested then have probably done well, given the strong environment for gold and gold miners that we had for a few months following that launch… and most of the names we ID’d as being on their list are still up, despite falling back from their highs from earlier in the year (gold is up about 3% since early April, and the GDX ETF of large miners is still up about 20%).
Here’s some more of the pitch from McGilton:
“I’m actually a corporate lawyer.
“I’ve worked on major cases for Fortune 500 companies, with some of the biggest law firms in the U.S.
“For the past 6 months our team has traveled all over the world… visiting dozens of companies, and meeting with CEOs from nearly every continent.Are you getting our free Daily Update
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“All while looking for this one very specific type of opportunity…
“Something I call a ‘Gold Trigger.’
“It’s a very specific type of setup found in a small percentage of gold stocks.”
He gives a few examples of when “Gold Triggers” would have hit with other companies — including Eldorado Gold (EGO) back in January, and Alacer Gold (ASR.TO) on March 31. Both companies were at catalyst points for either permitting or legal reasons at those times and did leap higher after those dates, at least for a little while. There are a half-dozen other examples as well, but then McGilton explains it a bit more:
“… any given time, there are a small handful of gold and silver stocks involved in ongoing issues — both big and small — with government officials.
“When these situations are finally resolved, these stocks can pop on the news.
“These issues can take any number of forms…
“For example, when Alacer Gold soared 53%, it was because it received a land use permit from Turkish authorities.
“When Eldorado Gold jumped 103%, it was because it received a development permit from the Greek government.”
And he says this leads to gains even if the price of gold is not going up, though I imagine having a bull market in gold helps the market to better appreciate good legal or regulatory news — and, of course, gold was moving nicely higher and getting a lot of investor attention in both January and April of this year, which likely helped those stocks.
But anyway, that’s the general idea — his “gold trigger” is stuff like permits, licenses, negotiations with governments, etc. Makes sense, those are commonly followed by mining investors… if you want to compare it to biotech firms, then the drilling results and assays are the clinical trial data, the permits and licenses are the FDA approval for drugs to either continue to move through the process or, in the end, to be manufactured and sold. Those are, broadly speaking, the two major catalysts for almost any miner: Finding and defining the deposit; and getting permission to explore and develop and build the mine.
More on this “gold trigger” strategy:
“… what’s important to understand here is that these situations can weigh down a miner’s stock for months, even years at a time… depending on the severity of the issue.
“And because it’s often a government decision we’re talking about here, you can usually expect a LONG waiting period.
“These situations often seem so hopeless that most investors — both small and institutional — stop following the company altogether….
“But this is precisely what makes these opportunities so incredibly lucrative, when our “Gold Trigger” buy alert appears…
“Nobody is paying attention to these events before they happen.
“They’re forgotten opportunities, until these issues are resolved and the story breaks.
“At that point, investors pile into the stock, sending it soaring, rapidly…
“So I realized that if you could simply identify when these issues are about to be resolved… you could make a fortune, in a very short amount of time.”
And he says this legal expertise helps him to judge when matters are likely to come to a head for mining companies…
“… that’s precisely what we’ve designed our very own ‘Gold Trigger’ alert system to do…
“First, it digs deep… scanning the entire mining industry to find companies that are deadlocked on some critical issue with local or national government officials.
“That’s how we pinpoint WHAT we recommend you buy.
“And then it determines the ‘window of opportunity…’ an estimated date that the issue should be resolved, with a high degree of confidence.
“This part of the system is where my corporate law background comes into play….
“The sort of stocks our ‘Gold Trigger’ system identifies puts the odds of success in your favor to make you huge amounts of money in what can often be a short amount of time.
“The only thing the ‘Gold Trigger’ DOESN’T indicate is how high the stock will jump on favorable news…
“But as we’ve seen, if you buy these stocks when the ‘Gold Trigger’ alerts you to make a move, you can make a ton of money… even more than 100% in a single day.”
And, you’ll be unsurprised to hear, the reason we’re seeing this ad right now is that the “gold trigger” has signaled a buy for them. So what is the stock, and what’s the timeframe?
These are the clues we get:
“Our ‘Gold Trigger’ System Just Alerted Us: Buy This Stock NOW!
“The ‘Gold Trigger’ opportunity our system alerted us about who is going to be receiving a critical permit from the U.S. government any day now.
“Without this permit, this company has absolutely no hope of constructing a mine.
“But this isn’t your average up-and-coming miner story…
“This company is truly unique in the industry, both in size and scope.
“See, it owns half the rights to the largest untapped gold deposit of its kind on the planet.
“A ‘mega deposit’ of 39 million ounces of proven gold reserves, with another 6 million ounces expected to be found once they begin digging.”
Well, it’s true what the ad says at that point: this is indeed a rare, huge gold find. But, thankfully, that makes the Thinkolator’s work pretty fast and easy this time around: This is NovaGold Resources (NG), which was also one of the stocks teased in Stansberry’s earlier Metropolitan Club ad back in early April. The shares took a tumble in August, but have now recovered and are sitting right about where they were when Stansberry first hinted at this stock as a big buy about six months ago.
The mine being pitched here is the Donlin Gold mine in Alaska, which is a 50/50 joint venture of Novagold and Barrick Gold (ABX). He furthers the case by saying that the company is valued at a massive discount to the value of the gold in the ground at their mine, and that they haven’t yet even explored the whole area and the mine could grow considerably from here. That’s certainly true, but that’s also true of every mine — usually, miners only explore a project enough to ensure that it is economically viable and can get financing, there’s not a huge incentive to do expensive drilling and analysis once you’ve got enough justification that the mine will be worth building, so it’s common to start production and get things rolling and then to gradually continue exploring as you think about expanding the mine plan. But this is, in fact, an exceptionally large and valuable mine, and it’s remarkable that they’ve already explored it enough to identify huge enough reserves to forecast that the mine can operate at a world-class production level for 27 years. Partly that’s because they’ve been exploring this property for 20 years now, and partly it’s because the infrastructure investment is so massive that they really want the confidence that a huge, long-lived mine can be built to justify that up-front cost.
So yes, Donlin Gold is very big, it’s a high grade open pit mine that can be pretty easily understood, and it’s in a mining-friendly jurisdiction (I think only one mine has every been rejected in Alaska).
And it’s also a huge infrastructure-building project in a pretty remote area of Alaska — beyond the “normal” costs of building a mine, like processing plants and tailing facilities and all the huge shovels and trucks, this mega-project will require building a cargo port, a big barging operation to move the ore, and a large gas-fired power plant — which will mean building a 315-mile underground natural gas pipeline to bring in fuel for that plant. The estimated capital costs in the last feasibility study were about $6.7 billion to get everything built, leading to a mine that can produce a million ounces of gold per year at an operating cost of something like $600 an ounce. That would make it one of the largest gold mines in the world, so that part isn’t hyperbole.
So what’s this “Trigger” point for Donlin Gold and Novagold? It’s the environmental impact statement. Here’s some more from the ad:
“The National Environmental Policy Act requires that all new mining projects in the U.S. receive what’s called an “Environmental Impact Statement” (or EIS).
“To receive this approval, the U.S. Army Corps of Engineers takes an in-depth look at the positive and negative impacts a mine will have on the mine’s location….
“The rigorous study of this “mega deposit” mine began all the way back in mid-2012.
“… the final public comment period just ended in May. After this comes the final decision.
“As of this morning, the Army Corps of Engineers is still busy reviewing all the information…
“But, based on my research, I expect that they will be issuing the final Environmental Impact Statement any day now.”
So apparently this is a bet both on the timing of this EIS approval, and on the fact that they expect gold prices to be strong when this EIS comes through, which will make the project more viable. As you can probably imagine, it’s difficult to sink $7 billion into a mine when you can’t be sure what the gold price will be in five years when the mine is operating… particularly if that up-front cost means you need to produce for many, many years to come close to break-even on the capital investment. Here’s some more from the ad:
“last year, when the EIS first draft came out, gold was trading below $1,100 an ounce.
“At that price, even though the deposit is absolutely massive… the mine’s progress was not economically feasible.
“At $1,110 an ounce, the mine wouldn’t have been profitable quickly enough to justify the construction costs.
“But gold prices have rebounded…
“Meaning that we expect, as long as gold is trading about $1,200 an ounce or more, when the permitting process is complete, investors are going to go nuts over this news and pile into the stock.
“An official spokesman for this company confirmed my thinking here, admitting that, ‘The more above $1,200 (per ounce of gold) the happier we are.'”
The Army Corps of Engineers is not promising to have an answer on the EIS by January 1 — the only official date I’ve seen is that the final EIS is estimated to be ready at the end of 2017, which is obviously a pretty long wait if you’re counting on January 1. Maybe they’ll finish before then, I have no idea — and maybe the Stansberry insight is that they are certain the EIS will come early because of their understanding of the permitting process or whatever, but I don’t have that kind of insight to share with you. The Army Corps of Engineers has a website up for the project here if you’d like to look at the official reports. The quote about being happier with gold over $1,200 an ounce is from this article about the project, from about six weeks ago.
And with that I’ll leave you to chew on the idea and share any thoughts you might have with your fellow Gumshoe readers — NovaGold is not a tiny company, with a market cap of $1.7 billion, but it’s pretty small to be undertaking such a gigantic project (their partner, Barrick Gold, is a $20 billion company, though they obviously have other large projects as well). Over to you, dear readers…