“Nevada’s #1 Gold Stock … Gold Mining Changes Forever”

by Travis Johnson, Stock Gumshoe | September 14, 2010 12:44 pm

If there’s one asset class that attracts individual investors like lemmings every time it hits a new high, it’s gold.

And if there’s one thing that newsletter publishers know, it’s to sell the people what they want … whether they know they want it or not.

So today we’ve got a new high in the gold price (a nominal high, at least, in US dollar terms) … which means I have to write about a gold teaser today, or risk a horde of angry villagers with pitchforks and torches descending on Castle Gumshoe.

And what do you know, I just happen to have about a zillion copies of a Luke Burgess gold teaser filling my inbox right now, it’s for a new service he’s launching called Underground Profits — oddly enough, Burgess is better known to Gumshoe readers as the guy behind Hard Money Millionaire, which carries a retail price tag of $995, and unlike most newsletter editors who try to make their name and their mailing list with a low-cost newsletter and then sell folks up to the more profitable and exlusive letter, he’s going in reverse, Underground Profits is a $49 letter. There’s been a bit of this going around lately, with established editors starting new low-cost letters, perhaps there’s a new marketing strategy in place with the publishing cabal, or maybe they’re responding to economic weakness and having a hard time buying subscribers to the premium letters.

But the tease remains the same whether it’s a $5,000 or a $50 letter — they provide the hints and get the drool flowing, you sign up for your subscription and learn about the stock that has their editor in a lather.

Or, being a smarty pants, you come on over to Stock Gumshoe and find out about the stock for yourself. So let’s do that, shall we?

The latest teaser here is built on the contention that gold will keep going up, of course, and that small mining stocks — if you pick the right one — will provide dramatically leveraged returns that make the expected 100-400% increase in the gold price (over the next 2-1/2 years) look paltry.

The basic gold boom argument is familiar, and you probably either buy in or you don’t — it’s that gold has already had the fundamental price rise thanks to inflation and dollar devaluation over the last decade or so, and that the next stage is a mania of investment demand driven by new investors and, importantly, by Chinese government and individual saver demand. I hold some bullion and some gold mining stocks as well, though I’ve been trying to focus on gold mining stocks that carry less mining risk for my own portfolio (royalty and prospect generator-type firms, by and large) and I certainly wouldn’t bet the house on $5,000 gold by 2013.

I’m no mining expert, to be clear, but I can at least find out which stock he’s jazzed about.

So, this is a microcap Nevada gold company that Burgess says is following in the footsteps of Rochester Resources, a company that apparently skipped the expensive and time-consuming step of exploratory drilling and went straight into developing a mine … here’s how he describes it:

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“You see back in 2005, a tiny gold company by the name of Rochester Resources Ltd. adopted a mining doctrine that’s unusual, to say the least…

“… in the 21 months after Rochester initiated the program, the company’s stock went from $.03 to $2.75.

“It skipped the Exploration Stage and moved from the directly into Development.

“This move was dubbed reckless by competing firms, as this hit-or-miss practice had been virtually unheard of since the initiation of modern exploration.

“But Rochester had a methodology that was anything but hit-or-miss…

“And based on painstaking geological and earth-penetrating radar analysis, the company was confident that it could skip the costly and time-consuming exploration drilling.”

I don’t know anything about Rochester Resources, but the chart backs that up — though it also says that Rochester had been well above $30 a share back around 2000 or so, collapsed to a few cents in 2005, then bounced back up to roughly $2.75 in 2006, and again fell back in 2008 to where it is now, roughly ten cents a share. That may involve a big change in the company, since they say on their website that “inception” was in 2006, and they do say that they followed an aggressive strategy of rapid mine development initially, though they are now doing what they say is their first exploratory drilling. So the story makes sense, at least, though I have no idea whether or not it’s really a unique tale or is applicable to the teased stock.

So let’s see what clues we get about this specific stock Burgess is teasing, and you can make up your own mind. Hints, please!

“Right now, a new mining-exploration company is getting ready to trump Rochester’s history-making 2006 run.

“This mining outfit is located in Nevada, dead center within a cluster of some of the most active gold mining sites on the planet.

“But with at least $345 million in assets, this tiny $9.3 million company is on the very brink of becoming one of the big players in the gold game.”

We also learn that the stock is currently priced (as of September 10, at least) at about 22 cents. I’d assume that’s Canadian, since the lion’s share of junior miners are listed North of the border, though it doesn’t make a big difference at this point.

Some more clues?

“Thanks to studies performed by a previous owner, this company expects an annual gold production of about 36,000 ounces.

“That means that with a projected $450/ounce price of production for gold, it has already shown the intention to deliver current stockholders 150% profits — each year — over at least the next eight years.”

And Burgess lists some of the mine’s neighbors, as part of his argument that the company is probably low-balling their estimates and will produce far more:

“Chimney Creek Mine – annual gold production: 222,500 ounces
Crofoot Mine – annual gold production: 82,000 ounces
Sleeper Mine – annual gold production: 256,000 ounces
Fortitude Complex – annual gold production: 254,500 ounces
McCoy/Cove Mine – annual gold production: 214,000 ounces
Barrick Goldstrike – annual gold production: 207,000 ounces
Newmont Gold Operations – annual gold production: 1,467,800 ounces”

And he includes assumptions of a big ramp up in the gold price to $3,000 to go along with expected production gains from this company, which adds up to his assessment that the stock could return 2,700% in the next two years.

He also includes a chart of the stock’s movement this year, and implies that the boost it got to 60 cents or so in the Spring was a result of their “exploration” announcements, that they’re currently in the “development” soft spot of the chart where they’ve plateaued around 20 cents for a few months, and that the shares should soon boom because they’ll hit the “production” phase where the stock climbs almost parabolically. He uses the chart of Goldcorp to make this point, showing a similar shape by comparison, and I’ve seen several other mining analysts theorize about the predictability of this kind of curve for mining stocks … but Burgess doesn’t exactly emphasize the fact that he’s comparing a one-year chart to a ten-year chart.

But anyway, we’ve got enough clues salted into that mix to feed it into the mighty, mighty Thinkolator — and after churning for a few minutes, we see the answer come out plain as day:

Ely Gold and Minerals (ELY in Canada, ELYGF on the pink sheets)

The stock was around 20 cents in late August and did at least briefly trade around 22 cents last week, and has moved up a bit over the last couple weeks to about 25 cents (Canadian) as I type. This is indeed a teensy, teensy stock — it’s trading at above average volume lately, thanks probably to Burgess, but that still means it’s only trading perhaps $30,000 per day, so if even a couple of you rush out to buy some shares, you’ll drive the stock higher (be careful out there).

And yes, it is a bit odd to see a newsletter that plans to have a low price and a mass subscriber list start out by touting a stock with a market cap of just $10 million (there are roughly 42 million shares outstanding, though that may not count the 3 million they just sold in a private placement — more on that in a sec — so at .25 that’s a $10.5 million market cap, teensy even for a junior miner) — if Burgess gets even a few thousand subscribers (heck, even a few hundred) right off the bat and many of them buy the stock, you would expect it to climb pretty dramatically, at least for a while. I’d stop far short of guaranteeing that this will happen — sometimes the expected bump doesn’t materialize, or dissipates much faster than I would have guessed, and this ad has been around for a few days already so I would expect to have seen more of a spike already (assuming the Thinkolator did its job correctly with this one).

But still, a relatively big push like this behind a teensy stock can cause some wild moves — and it makes me a little suspicious that this is part of the rationale, that they might claim credit for huge performance that is caused, in large part, by their own recommendation as a way to make a “splash” for a new letter … that’s just a surmise, of course, I know nothing of what’s going on behind the scenes at Angel Publishing. And if that does happen to be the case that they’re trying to boost the shares so they can claim credit for that spike, I would be part of the problem as well for sharing this idea with a few thousand of my closest friends (that’s you) … but that can’t be helped, and I’ll just have to assume that you’re all rational beings and will look at the stock on its merits, whatever they might be.

So what should we know about the company? Well, I hope I’ve made it clear that I’m not a mining expert, but despite the lack of exploratory drilling they do have a Mineral Resource Statement (not reserves, but resources) that does indeed include assessments of 36,500 ounces per year of gold production, at an operating cost of $450 per ounce and an eight year mine life. That’s for the Centennial Gold Deposit, which was explored by a petroleum company between 1960 and 1980, it’s on what they call the Mount Hamilton Property, which is 3,900 acres at the southern end of the Battle Mountain Trend, west of Ely, NV. So that’s all a match for Burgess, as is the stock price and chart, which makes me quite confident that the Thinkolator is right this time (as usual, naturally). All this, including an investor presentation, is on their website here[1].

When it comes to their “shortest possible timeline” plan for developing this resource, they do say that their goal is to have permitting in place in 2012 and begin production in 2013, which would be pretty quick. They have also just recently signed a deal to possibly bring on a partner for this mine, which would cut their costs considerably but also take away a big chunk of the upside of additional gold production. The partnership has been launched by a private placement, and gives their buyer, Solitario Exploration and Royalty (XPL in NY, SLR in Canada — also tiny, though quite a bit bigger than Ely), the right to earn an 80% interest in the project through further investment in development, prepayment of royalties, and completion of a bankable feasibility study and, perhaps, a project financing deal. The details are here if you’re interested[2].

As I alluded to above, this kind of deal, whereby Ely sheds some of the development cost and risk in exchange for junior interest and royalties, generally appeals to me, though it’s quite early and Solitario could certainly back out after doing their due diligence — and I haven’t looked at the details and might not understand them if I did, so I have no idea whether this particular partnership is a good idea. But I do like the concept, though of course I wouldn’t buy before my three day window expires (and I generally try not to get in the way of highly-touted microcaps if I can help myself — I also did notice that this stock has apparently been touted by at least one penny stock promoter in the past, which usually turns me off even if the company had nothing to do with the promotion).

What do you think? Interested in a little stock that looks like it’s going to get a mess of attention for an unpredictable period of time, and may have an interesting little mine in a few years? Or is it too small or scary? Sick of gold miners? Let us know with a comment below.

  1. on their website here: http://www.elygoldandminerals.com/
  2. details are here if you’re interested: http://finance.yahoo.com/news/Solitario-Makes-Private-bw-968647287.html?x=0&.v=2

Source URL: https://www.stockgumshoe.com/reviews/underground-profits/nevadas-1-gold-stock-gold-mining-changes-forever/

  1. Avatar
    Sep 14 2010, 01:55:02 pm

    Dear Gumshoe, Greg Mc Coach mentioned Ely Gold in The Mining Speculator march 2010 so this teaser looks more like a copy/paste within Angel Pub. I personally like Greg McCoach as quite a serious journalist and would recommend reading his lectures on economy and investing in jr mining stocksl, while some of his recommendations help you generously in gaining back the cost of a subscription. Always keep the faith!

  2. Avatar
    Myron Martin
    Sep 14 2010, 02:15:15 pm

    Travis: When you get down into the low end penny like this one it is really a crapshoot. That being said, IF you allocate just your "play money" and realize it is pure speculation, you may sometimes get lucky and get a quick double or triple, but don't stay in them too long as you are right that enough hype can push the price up to levels that are unsustainable by the fundamentals. I watch the Toronto Venture exchange like a hawk and get daily reports on any stocks making new volume or percentage highs and this one has so far not shown up, in fact I had never heard of the stock and I have lists of HUNDREDS I am trying to get into a data base, so if it is that far off the radar screen I would be wary of being to get out at a profit if it trades at very low volumes.

  3. Avatar
    Sep 14 2010, 06:56:49 pm

    If my memory serves me correctly, Luke Burgess previously recommended Premium Exploration, Inc. (PMMEF on the pink sheets)when it was around 40 cents, and currently it is trading around 52 cents.

  4. Avatar
    Sep 14 2010, 09:15:53 pm

    I can't believe anyone gives this any credibility. It has a strong smell of pump and dump. here's why:
    1) Like Gumshoe says, this stock can take off on any increase in volume, classic pump and dump.
    2) A mineral resource statement is worthless. It would be difficult to make these kinds of cost, production, timetable, and investment projections with a NI 43-101. Generally a feasibility study is required.
    3) Skipping the exploration step is so absurd it does merit further comment.
    I haven't looked into the details but I wouldn't touch ELY or Burgess with a 10 foot pole. BEWARE!
    p.s. I'm an exploration geologist.

  5. Avatar
    Sep 15 2010, 03:08:24 pm

    The latest report on ELYGF shows that both Tranches of the investment by Solitario (XPL) have been approved implying the basic due diligence is done(deadline was Aug 31) and the initial $500,000 commitment has been made. Now Solitario is committed to $1 Million in exploration and feasibility work. Hope this helps in the evaluation. Data from tmx.quotemedia.com. Type ELY under "get quotes". Then look at latest news.

  6. Avatar
    Sep 19 2010, 11:13:36 am

    pump or dump this is mostly IRRELEVENT ! fact is most likely when a stock hits the bottom of the rsi indicator – relative strength indicator – on stockcharts.com it most likely will go up -more often then not… beginning of july this hit the bottom around 15 cents then by july 19 hit 32 cents … before that beginning of june around 22 cents – stock hit bottom of rsi indicator and then right before june 14 it hit over 32 cents … it really doesnt matter if its a good company or not … its if people are buying it or selling it – making it oversold or overbought.. real game is not trying to figure out if it is a good company /stock but to know when to get in and then out to make a profit ! get real people !

  7. Avatar
    Naive again..
    Sep 20 2010, 05:06:36 pm

    Did anyone notice the two ad's right in the middle of this article? One is plugging penny stocks and the other 5 thousand dollar gold prices. It seems ironic. I doubt they get meny clicks from this article. 🙂 Just an observation.

  8. Avatar
    Sep 20 2010, 05:30:22 pm

    I’m learning about the stock market, I subscribed to a few free newsletters and read them often, one of them, you guessed it, is wealth daily. I haven’t done any investing but I want to. I’ve read Jim Cramers book but he has his own touting and pump and dump allegations looming around him as well. Being an Investor virgin I did find his book helpful, now I can atleast understand what the hell the analysts are talking about on msnbc. I’m very thankful that you did all this research and shared your experience with me. I didn’t buy in but I found his article compelling (well I guess thats Burgess’ real job). What do you recommend I read/do to become a successful investor (with as few bumps as possible).

  9. Avatar
    Bruce M., Tampa
    Sep 23 2010, 12:30:47 am

    Stock Gumshoe has saved me alot of cash chasing subscriptions to pumped up
    stocks. Maybe read The Gold Report, 321Gold, Jim Sinclair. I get alot of great stocks off 321gold and The Gold Report. All the sites I mentioned are free.

  10. Avatar
    Dec 17 2010, 07:38:12 pm

    I bought a small qty in Nov at .30, based on some hype from a Mining Speculator news letter. Haven't had a chance to dump it yet as it never came back up to my buy. so anybody out there that wants some, i'll let it go for .31.

  11. Avatar
    Dec 17 2010, 10:47:22 pm

    i buy gold mine stocks based on the end production cost
    so far the lowest price is 190 dollars per produced ounce
    so this is how i equate what the stocks worth

  12. Avatar
    Dec 19 2010, 02:37:43 pm

    Ely is trying nothing new. They acquired a Au resource previously drilled by seveal other reputable companies including Westmont and Rea Gold in the 1990's at a time when the Au price was not favorable. Augusta Resources also held the property until 2007 when they sold it. So the property and resource have been kicked around for a long time. Since I knew many of the technical people in Westmont at the time they worked on the property and they were and are competent, reliable professionals, the historically stated resources are, in my opinion, highly reliable regardless of the fact that they are not NI43-101 compliant. Consequently, going straight to production given the fact that Westmont prevuously produced a BFS is hardly a new approach and is not transferable to any other exploration property.

  13. Avatar
    Dec 19 2010, 02:38:37 pm

    I am Au exploration geologist and was on the property in 1988 before Westmont's explorastion drilling (a little green behind the ears at the time). The details of the property's history are availabe in SRK's 43-101 report on the property. at the following website: http://www.elygoldandminerals.com/Presentations/E…. The history recounted in the report is accurate. Although I know little about the details of the Au deposit, what little I do know suggests there is some exploratsion upside beyond the currently known Au resource of about 500,000 ounces, but probably not much over 1 million ounces and definely not as high ast the 3-5 Moz range nedded to make the property an acquisition target of one of the major Au mining companies. Also, interesting to me is the fact that that Ely's property also hosta an historical Mo-W-Cu resource that could also be developed.

  14. Avatar
    Feb 25 2011, 11:37:43 pm

    Permit is expected to be approved next month. When that is announced, then the stock will head towards $1.10 or so. That is not such a bad risk to take. They have been announcing drill results and they have 5 more holes to announce any day. Speculative… Yes. better than 50/50 to the upside.

  15. Avatar
    May 13 2011, 03:03:30 am

    much thanks magmahombre & guest for your posting.
    If you don't really know how to analyze explorers and juniors, the advice from Bruce M., Tampa is good advice. There are many other resources you'll need before your ready to
    judge the nuances of the team, their projects, the current and prospective asset value and so on. See where these sites lead you.
    Personally I still read far too many newsletter pitches – Most story stocks are based on imagining the final success, which is years away, (rarely mentioned) and a reason to believe the company has the goods and the ability to succeed (even though they don't right now). oil, mining, biotech, IT, mobile, green, alternative, spray on solar, ,,, it doesn't matter. My suggestion is be cynical, but if you want to take a shot now and then, bet 100 bucks in your first tranche, and just see where it goes. Travis regularly reminds you to wait until the hype is gone and the price settles back.
    Its's also a high risk time to be buying unless you know what your doing.

    Even better advice is to not bother with stories, and find writers who are seriously knowledgeable in the field.
    In this case, I found that knowledge in the comments!

    Raise your bet as you learn what you should be looking for, and as your winner grows its value, and de-risks the project. Don't sell if it goes down some , or goes nowhere, unless you have a reason other than not liking to hold a losing position. Thats why 100 bucks, or what ever your threshold is.This market is volatile, and this discipline is necessary at times like now. If the play goes up( after the hype is long gone) in a rising market, bet some more ( not in this falling market. The other side is selling half of a winning position on the way up,( A common recommendation among experts for the last 6 weeks). That way you have winners and cash to ride out times like now, and buy more at good discounts before they start to run again.
    If you buy the hype up and sell the correction, you'll lose quick in these markets.
    Doing what Willi does takes a different focus and effort but if it suits you, that's certainly lucrative too.

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