Today I’m looking for the first time at a teaser ad from Bill Shaw, who is the Senior Analyst for Stansberry’s precious metals service — that service is now called Stansberry Gold & Silver Investor, and it’s one of the “no refunds, get a portfolio all at once” services that Stansberry has been pushing lately.
That’s a great deal for the publisher, it seems to me — they essentially sell a service only as a “lifetime” service, with a huge up-front payment ($1,750 in this case), no refunds allowed, and a smaller “maintenance” fee ($49/month, in this case — which is $588 a year, for the math-challenged) to keep the updates coming. That way they not only don’t have to worry about refunds, and get a large cash infusion that they can keep even if they cancel the service after a year or two, but they also probably improve their retention rate — you’re more likely to keep paying that $49 a month, even if you’re a little angry about the “overpromise” of the ad that first hooked you, because you don’t want to lose the service you “bought into” for $1,750.
The move to big-ticket no-refund services is a little worrisome when the service is sold with a hype-filled pitch, since some novice investors really believe those promises and probably stretch to “buy in”… but I guess it must be working, at least for now, because we’re seeing more and more of it, particularly from the Agora-affiliated folks.
So… in case you’re tempted to spend that $1,750 but are worried that you might be putting too much weight on their promises of wealth, let’s unpack the ad for you a little bit, name that “Single Biggest Gold Discovery” stock so you can think about it for yourself a bit… then, if you feel like it, go right ahead and subscribe if you like. But please don’t spend $1,750 and commit to a pricey ongoing subscription just to learn about a “secret gold stock.” (Stansberry Gold Investor was launched in the Spring of 2016, just as gold was making a big surge last year and while most junior miners were at least doubling from March-July or so, but we haven’t heard much from folks who subscribed — if you’ve “bought in”, please click here to let your fellow investors know whether you like the service).
And now, off to the clues… this is how the ad gets us interested:
“It’s a tiny exploration company trading for less than $4 a share.
“It’s sitting on a massive amount of gold… which it acquired at pennies on the dollar… as little as $12 to $14 an ounce.
“It’s backed by some of the most legendary figures in the mining business.
“And at $1,200 gold– it’s sitting on a treasure trove worth north of an estimated $5.5 billion.
“And that doesn’t even count all the gold and silver identified at their 24 other properties.
“Yet, their market cap is more than 20 times smaller… less than $300 million.”
And they show a chart which indicates that the “assets of gold and silver in the ground” exceed its market cap by more than 60% — with the “Goldwater” project alone being worth more than the entire value of the company at current prices (C$485 million vs. a market cap of C$353 million).
And Shaw calls the guy behind this company the “golden goose” — and has apparently been talking with him…
“We think this could be one of the most lucrative speculation in our firm’s 19-year history.
“When I last spoke with the ‘Golden Goose’ – a couple weeks ago in Vancouver…
“He outlined a plausible scenario that could see this tiny company’s shares soar up to five-times higher.
“Not only that – he shared a plan to eventually pay shareholders a dividend. Again, if he pulls it off, I wouldn’t be surprised.”
And it’s not just the “golden goose” name that gets us excited, they also make up a name for the project…
“Because of its unusual location and unusually high gold content… we’re calling this discovery ‘Goldwater.’ ….
“What’s so special about it?
“Well, for starters – all this gold, 4.5 million ounces of it – isn’t buried deep under tons of rock and dirt.
“And chances are, this tiny company won’t have to pay tens of millions of dollars to get it out of the ground.
“Typically a miner has to dig or blast through a thick layer of rock and soil – known as ‘overburden’ before recovering a single ounce.
“But in this case, it’s incredible. All this gold and silver is essentially sitting there, just below the lake’s bottom.
“So all this tiny company has to do is wall off a small corner of the lake… pump out the water… and essentially ‘scoop’ the gold right off the bottom.”
What else do we get by way of clues?
Shaw tells us that the “Golden Goose’s” new company is under $1 a share (as of August 3), and he compares it to Seabridge Gold, which is the all-time best-performing pick from Stansberry (it was a Steve Sjuggerud pick), and he says that they have 24 other properties beyond “Goldwater” and sport a market cap below $300 million.
And that they’re sitting on gold in the ground in all these properties that they bought for low low prices, as low as $12-14 an ounce.
But it’s really this “Goldwater” project that captures our imagination — he says that “This is one of the most incredible gold deposits in the world.” That’s apparently because it’s at shallow depth and high concentration, which leads him to go a bit over the top and say that “it could be the score of the century.”
Let’s remember to get back to that point in a few minutes, after I ID this “Goldwater” for you.
Stansberry and Shaw are clearly bullish on gold, as Porter Stansberry and most of his authors have been much of the time as they fret about the demise of the dollar, and this particular analyst says that this could be the best time to buy gold in 20 years… so that clearly is important to their analysis of this stock: some gold miners are set up to profit from dramatically higher gold prices, some are set up to be profitable today, and your best returns come if you’re right about gold prices and bet accordingly. That’s hard to do, so most folks spread their bets around — some to miners who are actually making money at $1,200 gold, or to (relatively expensive) royalty and streaming companies who don’t require capital and have much lower risk, some to explorers or “land hoarders” who buy up deposits that don’t make much sense at $1,200 gold, but will create windfalls, etc.
These are the four things that Shaw says you’ll “discover” if you pony up $1,750 (no refunds) and join them on their conference call on Wednesday:
“The secret identity of the ‘Golden Goose’ and his most valuable property, we call ‘Goldwater’ – where an estimated $6.8 BILLION of gold and silver is sitting right under the surface of a lake.
“The name – and ticker symbol – of the tiny mining firm I’ve told you about. (If history repeats, it could go down in history as one of the top recommendations of all time.)
“Why the dollar’s collapse (it’s off to the worst start since 1985) could be a HUGE catalyst for gold in 2017.
“A new and intriguing connection between Bitcoin and Bullion. The “Golden Goose” says the technology that has powered bitcoin’s rise could soon send the price of gold soaring higher.”
I don’t know whether the dollar will “collapse” this year, but if it does gold will likely rise (that’s been the relationship for a long time, and it holds true pretty consistently)…
… and I have no idea what this “intriguing connection between Bitcoin and Bullion” might be, other than the fact that there are several cryptocurrencies either available or in development that say they are backed by gold (Zengold, OzcoinGold, OneGram, probably others that don’t immediately come to mind). Those may be fine if you like gold and want to add some risk to your gold holdings, but not so great if you’re actually looking for the ludicrous returns that are currently attracting people to cryptocurrency speculation (gold’s not going to go up by 1,000% in a year, but some altcurrencies already have… of course, gold probably won’t go to zero, either, and most altcurrencies will almost certainly disappear and become worthless eventually)….
But I can tell you, at least, what they’re talking about with this “Golden Goose” and the “Goldwater” deposit… the “Goose” is Keith Neumeyer, “Goldwater” is the Springpole project in Ontario, and the company is his First Mining Finance (FF in Toronto, FFMGF OTC in the US), which I first bought and commended to the Irregulars about two years ago when they were first rolling up their initial portfolio of gold assets and beginning to promote their “mineral bank” strategy. I sold a big chunk of my personal position last Summer, and have taken profits to a smaller degree at other times, but do still hold a meaningful position (about 0.5% of my portfolio) in this speculative gold bank. Here’s what I wrote about them in a gold update for the Irregulars back in June, which still pretty well reflects my sentiment:
“The other stock that occasionally comes up in questions is First Mining Finance (FF.V, FFMGF), which has been pretty quiet of late, and of all the gold-related investments I own this is the one that probably most needs a real gold bull market to succeed… but if that big boost in the price of gold comes and everyone starts to think about $1,500 gold as a reasonable expectation, for example, then First Mining will have a valuable portfolio of attractive exploration and development projects.
“Right now, they probably do not own any large projects that anyone is going to develop anytime soon unless gold prices either hold steady at $1,300 or rise nicely. Their largest asset, by far, is the Springpole project in Ontario, acquired when they rolled up Gold Canyon in one of their early acquisitions… that has five million ounces of gold in the “resources” category (mostly indicated, some inferred), and that deposit is also their most advanced, with a preliminary economic assessment from back in 2013 that gives it a net present value of C$388 million at a 5% discount rate (at $1,300 gold). It’s not a particularly cheap mine, it would cost more than $400 million to build and the all-in cash cost is $860/ounce of gold equivalent — and that assumes silver prices are much higher, at $25 an ounce (production is estimated at 217,000 ounces of gold and 1.2 million ounces of silver per year for 11 years).
“There are a few other relatively large and appealing projects that they’re trying to make more appealing, including Goldlund and Pickle Crow, and which are each expected to contain well over a million ounces of gold, but most of their projects are far smaller and don’t have any booked resources or reserves to speak of. You can see First Mining’s summary of most of the assets in their latest investor presentation here.
“There are some catalysts coming, including an updated PEA for Springpole expected this month and more drilling for Goldlund that could lead to an updated resource estimate perhaps by the end of this year, and drilling at Hopebrook and Cameron, also in Canada, but the business isn’t set up to really spend a lot to make these projects more valuable or to develop those mines — they see themselves as a “mineral bank,” socking away projects that no one really wants when gold prices are quiet, and selling them off to enthusiastic explorers and developers when everyone’s lusting after the chance to increase their reserve base. They want someone else to do the heavy lifting, so the real catalyst will probably be gold prices and expectations that rise enough to get a large miner interested in a joint venture of some kind on one of their more advanced properties.
“That’s going to be determined by the gold market and by mining sentiment, which aren’t really in First Mining’s control, so for now I’m just sitting on this position — I have taken some profits over the past year in what used to be a large First Mining position in my portfolio (it’s now about a 0.5% position for me, it peaked at something like 3-4% last year), and now my shareholding is small enough that I’m willing to be patient with it and not worry too much about how long it might take before we see another real bull market in gold… or whether First Mining’s assets turn out to be appealing when that sentiment change does come.”
So… how about that PEA for Springpole? Did that change things at all?
Uh, not yet. It has been pushed back — the updated PEA was expected in the first half of 2017, which you’ll notice has now passed, but in the latest investor presentation it is now listed as an “upcoming catalyst” with a Q317 release date. So they have about six weeks left in this third quarter if they’re going to meet that expectation, and in the meantime we’re left to wait and see how things look with that additional drilling and analysis (and with current metals prices).
Springpole, that “Goldwater” deposit that Shaw talks about in the teaser pitch, has had an interesting history — it is still the most critical asset in First Mining’s portfolio, followed by Goldlund, where infill drilling has been a big source of news releases so far this year (and which they still say will have a new resource estimate released by the end of the year), but my impression is that five+ years ago hopes were much higher for Springpole. Anticipation of a takeover was hot and heavy in 2014 and 2015 after their drilling results came out, so in some ways it was probably a step backward when Gold Canyon agreed to be bought for shares of First Mining Finance and its lesser projects back in 2015, though they did get a stiff premium and it has worked out reasonably well so far — Springpole immediately became the new foundation for First Mining, and Gold Canyon shareholders became majority shareholders of First Mining at the time (the share count has continued to balloon since then with subsequent acquisitions, almost all of which First Mining makes with stock, so those original Gold Canyon shareholders are no longer in the majority).
There has been a little bit of drilling announced at Springpole, though that was metallurgical drilling early this year, but I don’t really know what the new PEA will look like when they do finally release it — it will very likely be a driver of the stock, since Springpole is by far the most valuable asset First Mining owns if you go by “booked” resources and reserves and published assessments, but First Mining is very much focused on building up their mineral bank and they could easily do more acquisitions that drive the share count ever higher.
But it feels like quite a stretch to assume that Springpole will be “one of the most incredible gold deposits in the world.” It’s fairly big at about 5 million ounces, and it has lower capital costs than many large mines, but the fact that it’s relatively shallow doesn’t mean it’s free to extract the gold — and they do have to build a big dike. The original PEA that was published in March of 2013, years before First Mining merged with Gold Canyon, estimates that they’ll need $440 million in capital to build the mine, with all-in cash costs of $860/oz. That assessment very much leads one to assume it will be a profitable and worthwhile mine that has after-tax returns in the mid-teens and will earn back more than enough to justify the capital costs, and certainly First Mining shares are trading at a discount to the estimated net present value of Springpole if that assessment holds true when they release an update (presumably soon)… but it’s not like finding a golden pyramid in the jungle.
Plenty of other companies could have bought up that “estimated $579 million in pretax NPV” for far less than First Mining paid in 2015 (Gold Canyon was trading at much less than 10% of that amount even after the First Mining takeover was announced, and was much lower before that… and remember, that First Mining takeover came more than two years after that PEA was released) — maybe Keith Neumeyer is a genius and got a bargain because gold was in the doldrums at the time, maybe this was, as Shaw implies, the “score of the century”… or maybe all the other mining executives were uninterested in this project for some good reason.
I say that not to discourage you, or to convince you not to buy the stock — as I said, I own some shares myself — but to remind you that promising companies who own deposits that are expected to produce billions of dollars worth of gold someday are not themselves worth billions of dollars. That’s the top line number, you have to subtract the cost of doing further exploration to define the project, then raising lots of capital and building the mine, then take out the cost of operating the mine, and the cost of waiting for many years until the mine actually gets built and produces something… and you have to adjust for the risk that the mine doesn’t actually get built, or that it will produce less than expected, or cost more or take longer, or that it floods or some workers die during construction, or just that gold will be lower in price by the time they’re ready to sell some.
Having an early development-stage project trade for $20 per expected ounce sounds exciting if you don’t spend a lot of time around gold stocks (Springpole doesn’t yet have any reserves, to be clear, these are still “resources” and there’s been no feasibility study), and that is inexpensive compared to the average, but there are lots of projects that are somewhat similarly priced… even going by First Mining’s own presentations, there are plenty of early stage companies that trade for between $20-60 per ounce and a few higher-end or larger/further along projects that are in the $60-120 range. Being cheaper than average doesn’t mean that you’re necessarily on the verge of a 500% windfall.
My impression, upon holding this stock for most of its life, is that the fact that the company is very self-promotional (including chatting up newsletter folks, as well as paying stock promoters for coverage) has had at least as much impact on the share price as the fundamentals of “ounces in the ground” or acquisitions or, frankly, even the gold price, this stock tends to swing pretty widely based on rising or falling sentiment that’s not connected with any specific fundamental change in their prospects (and it works in both directions — First Mining shares are down almost 40% over the past year, on no real substantial news, while gold is down only about 4%).
That “promotional” mindset is not necessarily a bad thing, being self-promotional is a core competency for gold mining executives. And since the core business of First Mining is acquiring projects for stock they are very much motivated to try to keep their share price inflated enough that they can use it to buy undeveloped gold projects from junior explorers — it’s a bit of arbitrage, if investors are willing to pay more than $20/ounce for the “gold in the ground” that First Mining estimates that it owns across its 25 projects, then Neumeyer and the rest of the management team can use the stock at that valuation to buy up smaller companies that are trading at an effective valuation of perhaps $10 an ounce, and everyone wins… at least for a while.
There are plenty of risks… if gold goes back to $1,000 or below, then no one is going to want to partner with First Mining to develop these projects, and the fundamentals will not look so great so the stock will probably drop… but they might be able, if they can continue to hold a relatively lofty valuation thanks to their self-promotion and the reputation of Keith Neumeyer, to keep buying assets “on the cheap”.
But the optimist reigns when it comes to speculating on gold stocks, and that’s the real idea with First Mining — if gold prices stay at $1,300 or higher or, better yet, move to $1,500 or more and hit a range that gets mining executives more lustful about buying up later-stage exploration assets or partnering for access to resources, then First Mining will start partnering with miners who want to develop Springpole or Goldlund or Pickle Crow or their other “Tier One” assets, presumably with most of the development cash coming from the partner and First Mining staying passive with a royalty or other junior participation in the eventual mine. That’s the dream.
And yes, though he is very promotional and his name leads to investors probably having expectations that are too high, it is true that Keith Neumeyer has built some great companies in the past — he did turn relatively little or undervalued mining projects into billion-dollar companies with both First Majestic Silver and First Quantum Minerals. And the mining industry seems always to be rife with failure, disappointment, mismanagement and fraud, so there are good reasons why resource investors tend to focus on backing the folks who have good reputations and have had success in the past. That’s no guarantee that he’ll be catching the tiger by the tail for a third time with First Mining Finance, we won’t know for a while and that will depend in large part on gold prices, but “past success” is almost certainly better than “past failure” in this particular sector.
First Mining last raised cash about a year ago, and they are not desperate right now — they have about C$22 million in cash, and that should be enough for a while even with drilling ramping up on some of their projects… though if they get the stock price back up it wouldn’t be at all surprising to see them raise cash opportunistically.
And, well, that’s about all I’ve got for you on this one — are you inclined to back Keith Neumeyer in anticipation of gold prices rising and some of their projects getting lucrative partnership deals? See too much risk? Have other gold hopefuls who you prefer? It’s your money, so it’s your call, let us know what you think with a comment below.