Yesterday I started looking into the latest James Rickards ad, a gold-related spiel for his Strategic Investment newsletter, and today we’re going to close the loop on that and get a couple more names for you.
The full article from yesterday is here, if you’re curious about this whole notion of “Reagan Gold” and the conspiracies Rickards spun, as well as his long story about Reagan’s enthusiasm for the gold standard… but the short version is that Rickards is pitching junior miners as “Reagan Gold” investments, and we’re trying to figure out what they are for you. The first one we looked at yesterday was Pershing Gold (PGLC), and now we move on…. what are the clues for #2?
“In investing, sometimes the smartest thing you can do is follow the lead of someone smarter than you.
“And considering the whopping $55 MILLION investment this second ‘Reagan Gold’ play recently attracted from one of America’s most iconic billionaire gold investors…
“That’s certainly the case here.
“Exceptionally well-capitalized to hunt for gold in the mining-friendly hills of Idaho, this tiny company currently trades for LESS than two bucks a share.
“But considering its new “celebrity shareholder,” it’s a safe bet that prices WON’T stay that way for long.
“With plenty of room for growth—and the sort of ‘tier one’ site portfolio that could potentially lead to a massive acquisition—this is one of those rare investments with both short and long-term payout prospects.”
So what is this “Reagan Gold Play #2?” Thinkolator sez those hints are leading us to Midas Gold (MAX in Toronto, MDRPF OTC in the US).
Midas is indeed a junior gold company with an appealing group of possible gold mines in Idaho that htey call the Stibnite Gold Project, it does trade for less than $2 a share (actually, less than $1 now), and it did pick up a “celebrity shareholder” earlier this year in hedge fund billionaire John Paulson, who did provide $55 million in financing.
Why did they need $55 million? Essentially, to pay for their permitting process and the development of a bankable feasibility study. Paulson didn’t actually invest $55 million, but he promised that much as a “backstop” investor (other shareholders participated, so Paulson’s funds actually only took on about $35 million… this is all in Canadian dollars). The company says that this financing, which is a convertible bond that doesn’t pay a coupon, will be enough to fund the permitting process for the next 3+ years.
Midas has graced the pages of Stock Gumshoe before — notably, Chuck de Castro teased the stock in the Summer of 2015 when it was pretty close to all-time lows below 30 cents (remember, it wasn’t that long ago that all penny gold stocks were in the doghouse — most have bounced sharply this year but are still, like Midas, far, far below the highs they reached in 2011 and 2012).
And, like all miners who are in the mine development process, they have both a pretty high binary risk level (ie, the mine could or could not get financed and built, depending on both permitting and financing), and a pretty high amount of leverage to gold prices. The risk of the permitting process is not something I have a guess at, I don’t know whether they have 50% odds of getting approval to build the Stibnite mine, or whether it’s 20% odds or 90% odds, the permitting process has really barely begun (though they have been collecting baseline data for years), but the leverage to the gold price is a little clearer — they even include some calculations about the net asset value (NAV) sensitivity of the project to gold prices, which note that if you use a 5% discount rate (that’s too low for me when it comes to mining stocks, but other folks use it too), the net present value per share of the mine at $1,200/ounce gold is $1.75; the NPV at $1,500/ounce gold is $3.69.
So that’s where the leverage comes in — at current gold prices it’s worth buying if you think the odds of permitting (and the time it will take to get the mine permitted and built, at least a few years) make it worth your while to pay a dollar for something that should be worth $1.75. At $1,500 gold it gets far more interesting, so that’s how you line up your probabilities and your notions of risk — if gold is lower than $1,200, or permitting or building the mine hits real snags or takes longer than expected, then it would also be tougher to finance mine construction and the bad news kind of snowballs, and Midas could easily fall 75% from here (that’s where it was last Summer, at the lows).
Alternatively, if gold is higher at $1,500 an ounce in a few years, and the permitting and development process proceeds smoothly, then financing for the mine should also be pretty easy and the stock could easily be well over $3 for 200% gains… and if gold is higher they will probably identify more reserves as the drilling continues. You don’t usually find stable and boring in junior gold miners, particularly those who are trying to develop a mine for a relatively large deposit like this one — even beyond the permitting process, which depends on environmental and local concerns, the sensitivity to gold prices can have a huge impact on the share price.
Midas has a presentation on their website here if you’d like an overview of the company and project. What they envision is a relatively low-cost, high-grade open pit mine that’s on the site of historical gold production — so part of the argument in their favor, beyond the local economic boost, is that they will run a much cleaner mine and actually improve the environment in the area that was degraded by previous mining practices.
It’s a pretty compelling potential mine, with a clearly attractive prefeasibility study — I suppose it’s probably mostly a question of permitting, the permitting timeframe (which should be at least a few years, I imagine), and what the price of gold does during the next couple years when they’re publishing more specific feasibility studies and beginning to look for partners or mine development financing. For the next couple years, they’re fine and well-financed for the permitting process — so they’re not going to be in dire straits financially, but that doesn’t mean we can really predict where gold prices will be over a few years or whether there will be substantial permitting concerns from the US Forest Service or the local community in Idaho.
And what’s the other “Reagan Gold” idea? Here are our clues:
“A highly diversified company—run by a battle-proven, fiercely intelligent CEO—this ‘Reagan Gold’ company is digging for treasure in the United States’ other ‘Wild West.’
“And with over $38 million (and nearly 230,000 feet in exploratory drilling) already invested in its premiere Alaskan site…
“My ‘Millionaire Miner’ colleague thinks it could be days away from hitting it BIG.
“Other than that…well, I simply can’t give any more detail.Are you getting our free Daily Update
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