Dave Lashmet is sending around an ad for his Stansberry Venture service that he says highlights an investment that is “Three Times Better Than Any Opportunity I’ve Ever Found.”
So that sounds pretty good, right? One nice thing about being an investment chatterer is that you can have a short memory — each idea that hits your brainpan can be the “best opportunity ever!”
Here’s a bit from the ad:
“The best part is this is — by far — the lowest-risk chance to triple or even quadruple your money that I’ve ever found.
“If you asked me to pick one stock, today, to put a sizable amount of money into…
“This would be it. Hands down.”
Most of the stocks we’ve seen teased by Lashmet have been biotech stocks, and he makes that point as well — in declaring that this new idea is not as risky as those biotech plays he has focused on in the past:
“I’ve written about companies with a legitimate chance to end cancer… heart disease… and Alzheimer’s — opportunities that could return 500% or more.
“But even so, these opportunities are not suitable for most investors.
“By their very nature, they entail a significant amount of risk….Are you getting our free Daily Update
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“This situation today is very different.
“You see, this business doesn’t own any patents or intellectual property…
“It won’t ever cure any disease…
“It won’t ever dazzle the tech world as a guy on stage unveils its newest gadget.
“And it’s not promising to “disrupt” some ordinary activity like how you shop for groceries.
“Yet the world’s biggest and most powerful banks and hedge funds are circling… looking to buy out this venture while it’s still cheap and relatively unknown.”
OK… so what is it? This is, Lashmet says, the first time he has “discovered a Venture opportunity in precious metals.”
And he describes this as unusual for him, despite the fact that he’s bullish on gold:
“In Stansberry Venture, we recommend one-of-a-kind businesses that we can acquire while they’re still small enough to offer venture capital-like returns….
“The ideal number of competitors is zero.
“Usually that means that our target companies have a verifiable monopoly on a world-class technology, asset, or idea….
“But that’s basically impossible to find in precious metals….
“No one owns the patent on gold.
“But this is the closest thing to it that you’ll ever find.
“And that’s why this is probably the single best opportunity I’ve ever uncovered.”
Well, now color me intrigued — the closest thing to a patent on gold? Are we talking alchemy here?
He says this one has upside of around 300%, and “long term downside” of around 10%. Which is pretty remarkable, if you happen to agree with his assessment. Though he does also say that “if you think precious metals will somehow be worth less in five or 10 years, this opportunity is not for you.”
What if you think precious metals might be worth less? I would assume that’s where any rational investor would come down — anyone who’s certain about where the price of anything will be in five or ten years is probably taking much larger risks than they believe they’re taking. But sure, my bias would be to assume that precious metals prices will rise over the next decade.
But we need to get to the point, right? You want to know the name of the company? Let’s put the Thinkolator on the case… here are our clues:
“This company — which I will only refer to as Company X — is a functional monopoly. It’s the only business of its kind in the United States….
“… sits atop one of the richest pieces of real estate in the world… 20 miles off a remote stretch of interstate…
“This site, which I call the “Summit” property, has intrigued explorers for over a century.
“But it never amounted to much.
“In the 1880s… a handful of miners thought they could produce nickel and copper there.
“But the ore they found wasn’t even worth the effort to produce.”
OK, there are a few possible “monopolies” when it comes to US commodity production… which one is this? We get a few other clues, including the fact that this project was really launched by “H.C.,” who apparently was looking for materials for a roofing company. His company put some effort into exploring the “Summit” property, apparently… more from the ad:
“His company nearly walked away after the first summer of digging.
“But one sample intrigued them.
“It showed traces of two minerals that had never been mined before… anywhere in the United States.
“So they kept digging… still finding nothing… for six more years…
“Until… more than a decade after H.C.’s initial ‘hunch’…
“They discovered something no one ever imagined could exist in the United States.
“It was — and remains — the single richest deposit of its kind… ever discovered, anywhere in the world.”
This, incidentally, is a good reminder of why mining is such a lousy, terrible, no good business — it’s glorious that you get to produce valuable minerals out of “free” dirt and rock, and the huge winners will always keep investors coming back with more gambling money and keep prospectors heading out into uncharted lands with rucksacks full of hope and bluster, but the amount of time and expense that goes into discovering and understanding underground deposits of minerals, let alone the absurd cost of building mines for the rare discovery that actually gets turned into a productive mine, is enough to drive any MBA out of the business.
So what was it that “H.C.” discovered?
“H.C. had hit gold. And silver.
“But what he uncovered wasn’t just another gold mine.
“The deposit contained much rarer minerals. One of them was worth four times the price of gold… which was still officially set by the government back then….
“… they contained rich concentrations of precious metals found nowhere else in the United States.
“Whoever controlled the ‘Summit discovery’ would control the entire U.S. supply of these metals — 100%.”
OK, so that gets us down to a pretty short list of possibilities… if you’re talking about precious metals aside from gold and silver, for most folks that means you’re talking about the platinum group metals, particularly platinum and palladium. So is that really what Lashmet is talking about? And does one company really control 100% of the U.S. supply of these kinds of resources?
Let’s keep sifting the info from the ad.
“One of these rare metals is currently experiencing a global shortfall of nearly 500,000 ounces… which I expect to grow a lot bigger in the years ahead.
“Another mineral… a shortage of nearly 1 million ounces.
“Industrial demand for these minerals has risen in four of the last five years… including a whopping 10% jump in 2016.
“And the European Union is moving toward passing several laws that will likely create even more demand.
“As one expert recently put it: ‘The deficits seem to be getting tighter and investors are starting to react.'”
Do we get any other specific clues? There are a few, here are some of them:
“… monopoly backed by at least 20 million ounces of precious metals… with millions more about to come ‘online’ in the coming years.”
“It’s already fully operational…”
“A foreign mogul (worth $8 billion) grabbed control for several years… and walked away after more than tripling his investment.
“But today this discovery is controlled 100% by Company X…
“And — at least for now — there is a way for regular investors to claim an ownership stake in it through the public markets…”
So who is it? Thinkolator sez this is our old friend Stillwater Mining (SWC), which is the only company that’s currently mining platinum and palladium in the US.
And I should throw in my conflict of interest note here: I sometimes speculate on SWC shares as a way go get levered exposure to platinum or palladium, and I do have some call options on SWC right now. I promise not to sell them this week, just in case our attention drives the shares any higher…. but it probably won’t, this is a decent-sized $1.5 billion company, the shares are quite volatile but it’s nothing like the friskier little gold juniors who can jump 20% if just a handful of investors all get excited about the stock on the same day.
Stillwater is the owner of the only US mine that produces palladium and platinum, and it has been in production for decades — it was originally developed as a partnership between Johns-Manville (the building materials company) and Chevron and started production about 30 years ago, then went public about 20 years ago and both Chevron and Johns-Manville gradually cashed out. It had a majority owner in Norilsk Nickel (the giant Russian mining group) for a while back in the early 2000s, but I think the company has been independent of any controlling shareholder for almost a decade now.
Their major asset is in Montana, consisting of the Stillwater and East Boulder palladium mines on the J-M Reef, as well as a refining and recycling operation in Columbus, Montana that recycles old catalyst material to extract the platinum group metals (PGMs). They also own the Marathon PGM project in Ontario, which is essentially on mothballs (they’re doing some minor exploration) because it’s clear that investing in expanding the Stillwater Complex on the J-M Reef has much better economics, and they own the Altar gold-copper exploration prospect in Argentina but are likewise spending a pretty limited amount on exploratory drilling there.
The focus for Stillwater of late has been on cutting costs and expanding production of palladium — they believe that the large Russian stockpile of palladium is running low, and that recycling will be unable to meet the continuing demand, so the prospects should be strong, but they’ve also been cutting expenses and trying to become much more efficient because current palladium and platinum prices are still quite weak.
The major end market is catalytic converters, for both gasoline and diesel engines, so the demand story is about automotive sales and increasing pollution controls around the world.
You can get a pretty good overview of the company from their investor relations materials, including this August presentation that goes into some detail on their cost cutting and expansion projects.
Lashmet’s order form pushes more on this “low risk” aspect — though they are, at least, clear about saying that all investments involve risk:
“Company X is by far the lowest-risk opportunity Dave has ever featured. We believe it is suitable for nearly any portfolio… and that it is the best opportunity – anywhere – to make 200%-300% or more with minimal downside. But it is not a risk-free opportunity; all investments involve risk.”
I don’t know how risky this will end up being — they are primarily a one-product company, but they are also one of the few producers of that product in the world… and there should be some value in the fact that they are a strategic asset in the US (the other primary platinum/palladium mines are all in South Africa and Russia), but they are certainly very much dependent on palladium prices and, to a lesser extent, platinum (platinum is about 20% of their production, and platinum and palladium prices tend to move together, partly because catalytic converters can be made with either so ingredients can shift if one or the other metal gets far out of its normal pricing range compared to the other).
I personally did some speculating on Stillwater mostly because it’s unusual to see platinum stay this much cheaper than gold for an extended period of time — particularly when demand is strong on the industrial side because of high auto production numbers. So my speculation was that platinum should rise to “catch up” with gold over time, and that this would benefit both platinum and palladium, and therefore improve earnings at Stillwater… but it’s a small bet for me — one of the fairly silly little things I do to keep myself from making large speculative bets.
Stillwater is increasing production as they move into the Blitz Project area of the Stillwater mine, and cutting costs, so their all-in sustaining costs per ounce are now at $594 per PGM ounce… so you can make an operating business argument for Stillwater as well. That case is bolstered by the recycling operation, which has seen substantially rising volumes lately and which is helping considerably with the profitability of the broader operation.
And the reserves are still huge for the Stillwater Complex, both East Boulder and the Stillwater Mine, with plenty of expansion opportunities if they want to invest in drilling to expand those reserves, so there is no obvious danger that they’re getting near the end of the productive life of this major mining zone.
So if you do want to commit to an investment that’s largely going to succeed or fail based on the palladium price, well, you could do worse — I don’t know that I’d be as confident in Lashmet in predicting that there’s only 10% downside in the long term, partly because I don’t know whether palladium will still be in huge demand as a catalyst in ten years or not, but it’s at a fairly average price right now (the range for palladium has been roughly $450-900 over the past five years), and platinum is at an unusually low price, so, given continued strong auto sales, this looks more likely to be a fairly low-priced buy than it is a “buy at the peak” investment.
The primary risks to Stillwater, as I see them, would be if auto sales fall off a cliff in a global recession, or if a new palladium resource comes online to substantially increase supply — the former is always possible, but I haven’t heard any inklings of the latter. There are other, smaller palladium producers — including North American Palladium in Ontario — and there are other palladium or platinum mines that might be built, but these are massive and expensive projects and I wouldn’t expect to see big, meaningful investments in near-term production when prices are down here in the $650 range. Even Stillwater is just barely earning a profit with prices here — North American Palladium had to get rescued by Brookfield Asset Management recently, and these are big and complex projects so major capital investments may be tough to justify for newcomers.
So the lack of risk, perhaps, is that palladium prices don’t seem inflated right now, and competition is pretty slim… but that’s a judgement call. I’m speculating on platinum and palladium mostly because I think the rising gold market of the first part of this year will pull up platinum prices, which in turn usually pulls up palladium prices, and Stillwater tends to be very levered to platinum and palladium prices so a small speculation could generate a meaningful return if I’m right… but the speculative nature of that trend is why I made it a small buy.
Investing in Stillwater over the long term would be a different strategy, and it might make sense if you agree with Lashmet about the strategic importance of US palladium production and about possible future shortfalls in the metal — I wouldn’t try to talk you out of it, given the company’s success recently in cutting costs and focusing on efficiency, and their relatively strong position in this small mining niche, but that’s your call to make.
Have a thought on platinum or palladium to share, or an opinion on Stillwater or its competitors in the PGM space? let us know with a comment below.