OK, this is probably a dumb idea. I’m going to tell you about a stock that I shouldn’t be publicizing — and I’m only going to let you read further if you pinky-swear that you won’t rush out and buy the stock just because I mentioned it.
It’s not that the stock is dumb, necessarily — though odds are not so great for such a wee minnow — what’s dumb is the very notion that I’m going to share the name of the stock with you, or that Bob Czeschin would use it as a lure to tempt subscribers.
Now, in some partial justification (for him, not me) I should mention that Czeschin isn’t promoting this as a pick of his newsletter, or maybe even widely teasing it to get new subscribers — from the text of the ad I saw, he’s offering this as the subject of a “special report” that he’s giving to subscribers who renew to his Oil Options Hotline service ($2,950 a year). I’ve gotten questions about this from a handful of readers, but I don’t know how many folks he has actually sent it to.
Of course, he’s not exactly trying to “cool the jets” — he does reiterate a couple times that this investment has the potential to turn $1,000 into $110,000… which is about enough to make any of us do something stupid.
I’m always conflicted about these kinds of ads — the stock is so tiny that I really shouldn’t write about it, not to the relatively large Stock Gumshoe audience where thousands of folks might read the article. Even the smaller group of Irregulars is far, far too large for a stock like this — a stock that really can’t handle more than a handful of new investors a month (and they’d better be small investors — a $100,000 position would make you the owner of 5% of the company). So anyone who writes about these kinds of stocks has to know that their attention can send the shares soaring (or crashing when they sell) … even if only a dozen people trade the shares because of this attention.
So while I probably shouldn’t be writing about this one, I’m going to anyway — we’ve had several questions from readers, the Thinkolator has a good, near-certain answer (there’s one “not quite” match for the clues), and, well, we’re all adults here and my mission is to reveal and discuss these “secret” stocks and let you think for yourselves. So let’s do it.
And I’m even going to share it with the whole Gumshoe readership, since it’s not Friday (Fridays are when I write just for the Irregulars), and since, well, this one’s so tiny it doesn’t really matter whether it’s 20,000 people reading about it or 1,000 — this stock is too small for any group that won’t fit in your bathroom. Maybe we can kill this temptation with openness, and talk each other out of doing something silly.
Here’s the beginning of Czeschin’s pitch:
“I don’t usually write to you about gold, but recently I’ve come across an opportunity so extraordinary that I would be totally remiss if I didn’t break with tradition.
“I’m buying 30,000 shares in a US gold mining company for about $1,000. It’s a $2 million company with up to $2.2 billion of gold.
“It has already found 1.15 million ounces of gold on its Idaho properties. It’s chomping at the bit to begin producing the gold, but the stiff-necked, bureaucratic US Forest Service has been holding them up.”
I hope your eye fell first to that one critical number — not $2.2 billion, or 1.15 million, but $2 million.
That’s why I keep harping on the fact that it’s probably a bad idea for me to mention the name, and definitely a bad idea for Czeschin to tease it. We get so used to thinking in an abstract way about stocks that we think of even small caps as large, impersonal corporations and small stocks as just trading chips that will always have buyers and sellers — but this is not a small cap, it’s a nanocap, a teensy-weensycap. There are probably fast food restaurants within a few miles of your home that are worth more than this mining company… and if you live in a town of more than 10,000 people, probably the smallest new car dealer in your town could get a line of credit large enough to buy out this company with one phone call to their bank.
So why is it a small, independent, publicly traded company? Why isn’t it a little project owned by a larger miner? Or just a private company? Is it because their mining projects aren’t nearly as good as they think they are? Just because the market is so weak for miners that they’ve been beaten down with the group? Or is it that contrarian gem that is hiding from the “blood in the streets” buyers because it’s just so damn small they haven’t seen it yet? I have no idea, but let me get into the details.
(And yes, real private companies seem somewhat rare in the junior exploration space, where “other peoples’ money” fuels everything — probably because it’s generally such a terrible business. People can only run through their life savings prospecting for gold once, after you’ve blown it all you’ve got to get other people to fund your continued exploration… and, he says somewhat snarkily, that’s what the venture exchange in Canada is for.)
Here are the other clues…
“To do the drilling, this company has to bring in heavy equipment. And to bring in heavy equipment, they have to build a road. Even though the road is a puny 3/4 of a mile, and isn’t exactly going to be a super highway, the US Forest Service has been saying no, no, no, no. Well, they finally said yes.
“So, the company’s racing to build the access road and start drilling on 16 high-probability sites.”
OK, so they’ve got a permit to build a road so they can do more exploratory drilling. And they have 16 targets. What else?
“Tiny exploration companies on the verge of starting production are usually valued at approximately 1/10th the value of the gold in the ground.
“That would give this $2 million company a $220 million market value. Every $100 you invest could turn into $11,000.
“This reminds me of the gold market back in the `70s. That was 40 years ago, so my memory gets a little hazy. But as I recall, Coeur d’Alene was then an unknown selling for a few pennies. A few years later it went to $21. Work it out: a $200 investment could have risen to $210,000.”
I don’t know what Czeschin means by “on the verge,” but presumably if they’re just now building a road to do some drilling they’re a long way from actually building a mine. But there you have it, the ridiculous “$100 to $11,000” promise that will make even the most steely-eyed expert investor become a wild speculator.
So who is it? Thinkolator sez this is Otis Gold (OOO on the Venture Exchange in Canada, OGLDF OTC in the US). I just checked to see what my brokers think, and Fidelity doesn’t want me to trade it OTC without calling first (so they can remind me, presumably, that it’s a crapshoot). And I wasn’t exaggerating the lack of liquidity — so far in June, about 300,000 shares have changed hands. At four cents a share, that’s about $12,000. And on about a third of the trading days this month, no shares were traded at all.
Otis Gold does indeed have some properties in Idaho that have been explored, off and on, by a few mining companies over decades. They are a $2 million market cap company. They did just get approval fairly recently (in January) to build 1,200 meters of access roads on Forest Service land, and drill at an expected 16 sites (and yes, 1,200 meters is almost exactly 3/4 of a mile, per the teaser).
Do they really have 1.15 million ounces of gold? Maybe. They have two properties with historically explored “indicated” or “inferred” resources, their lead “advanced exploration” Kilgore project which has 500,000 ounces indicated and 320,000 ounces inferred, and the partnered Oakley project which has 235,000 ounces inferred (not NI 43-101 compliant). That’s not 1.15 million, but it’s pretty close at 1.055 million. So maybe there’s some room for this to be some other Idaho explorer that recently got a 3/4 mile road building and 16-target drilling permit that’s valued at $2 million… but I kinda doubt it.
This is extremely low-grade gold, from what I can tell — I should be clear about saying that I’m not a mining expert, but I don’t think I’ve ever seen a discovery teased because they found gold at less than one gram per tonne like they’ve got here — those resource numbers are based on cutoff grades with numbers between 0.4 and 0.6 grams/tonne, meaning you have to crush and process two tonnes of rock (once you’ve gotten to the good part of the deposit) to get about a gram of gold. At current prices, that’s something like $15 of revenue per tonne of ore processed — that may well end up working if they use new, more efficient mining methods and if it’s a cheap mine to build and operate, but that’s not a rich seam of gold. The deposits are apparently pretty shallow, and perhaps they might eventually be economic for open pit mining, we won’t have much of an idea until they actually try to book reserves (reserves, as opposed to resources, is when you start considering what can be profitably produced … not just what probably exists underground), but that leaves me with the impression that they really need to make this deposit a lot bigger if they’re going to make it worthwhile for someone to invest in building a mine. And it leaves me not terribly surprised that no one has snapped up this little mining company.
Let’s continue the charade and pretend that this is a company that you could actually invest in (good exercise, right?) That means, among other things, checking out their “burn rate” — how much cash they blow through, and how long before they need to raise more money.
Their latest (unaudited) financials from March show they have about $30,000 in cash, and they have been spending at a pace of about $700,000 a year (that’s without doing any drilling, mostly office and overhead costs… though they have had “professional fees,” presumably for their permitting work).
Since that report, they’ve raised another $650,000 in a private placement (at five cents, though they got 2-year 15 cent warrants two). So that seems like it would cover them for about year of operations at the pace they’ve been working over the last twelve months… but this is a company just about to start doing actual work, they think. Their own investor presentation indicates that they need $2 million this year and $5 million next year to do all that early exploration stuff — drilling, permitting, environmental assessments, creating a preliminary economic assessment. Maybe Czeschin bought in that private placement, I have no idea — they do say in their presentation that insiders and “close hands” own 35% of the company — but jeez, that’s only $700,000… I’d hope they have at least that kind of “skin in the game.” There hasn’t been any insider trading that I’ve seen, but I’m not even sure what the Canadian rules are for disclosure with companies this tiny.
So my guess is that they’re hoping the $650,000 gets them far enough to generate a little more news, maybe even a drilling rig on site, and that will give them some boost to let them raise more money without the share price falling too far (or maybe the gold price will go up a bit by then and help a little). I don’t know if they can get their 3/4 mile road built, and a drilling rig on site, for less than $500,000 (they still have overhead beyond that), but maybe they can make some progress.
But, of course, it’s not a company you can really invest in. It’s a $2 million market cap stock, the very picture of a penny stock… which you wouldn’t buy, right? And there are probably a meaningful number of folks reading this article who could buy the entire company without even using their whole 401(k).
So… there you have it. Not a company I can take seriously as an investment, not one that a newsletter could recommend, and probably not a company I should be writing about for the Gumshoe audience… but, well, I’m pretty sure this is the stock Bob Czeschin is teasing, and hopefully it at least gives you an idea of the things even a non-mining guy like me can look at when checking out a mining tease: how much cash do they have (not much), when are they going to need to raise more (this year), is the deposit exciting in size or grade (not to me), etc. Let us know if you’ve got an opinion on this whole magilla… I feel kinda dirty now.
And remember what I said about promising not to buy it. If you do decide you’re excited about Otis Gold, make sure you give yourself a week or two to get that “$100 to “$11,000” fantasy out of your head first.