Profiting From History: These Pioneers Turn Crisis Into Opportunity

Dear Reader,

BIG GOLD editor Jeff Clark is so keen on the new company recommendation made in this month’s issue, he wanted to let everyone in on the pick right away. The people in question have a very Doug Casey-esque flair for finding opportunity in times and places in transition, if not flat-out crisis.

We can’t give away what BIG GOLD subscribers have paid for, of course, but the unabashed account below explains why Jeff wants to be sure everyone has a chance to buy shares in this company before it achieves the major milestones planned for this year.

In completely noncommercial news, there are new Casey Phyles forming in Panama City, Panama; and Singapore. Anyone interested should email [email protected] for details.

And now, on to the main event.

Happy investing,

Louis James
 

 

“So what other companies do you like?” I asked a fellow analyst on a mine tour.

He didn’t hesitate. He named an emerging producer and said it was his top gold stock pick. It had his highest rating.

That caught my attention, but what made me really perk up was the gleam in his eye when describing the company and the people behind it. He was really passionate about this one.

The interesting thing was that I was actually quite familiar with the company. My colleague Louis James and I had both been watching this budding producer for several years. We had even drafted a write-up to recommend it to subscribers, but in the end passed due to our concerns about the higher political risk in the play.

However, the company stayed on our watch list, and over the next couple of years we observed how management continued to successfully navigate several mining jurisdictions others viewed as too troublesome to bother with. It became increasingly clear this team was extremely skilled at working in “frontier” territories.

Ultimately, we decided to take the plunge, convinced by what is doubtless the most important P in Doug Casey’s “Eight Ps of Resource Stock Evaluation”… People.

Doug made his fortune in large part by betting on the right people—serial mine finders who could be counted on to repeat their successes.

People just like the management team of the “pioneer pick” we just recommended to BIG GOLD readers.

It’s a team of geologists, engineers, and financial executives who have been together for 25 years, and who did amazing things with their last junior company before it was taken over by a major producer for a whopping $3.5 billion.

Here are a few snippets from their previous success story that should give you a good idea of why we’re buying this stock…

Investing in a Changing Chile

In 1988, the team entered Chile to explore for precious metals. Many in the industry considered this a bold move, because the government back then was a dictatorship under a military junta presided over by General Augusto Pinochet.

Pinochet advocated a free-market economy and had already begun to move in that direction. In the years from 1984 to 1990, Chile's gross domestic product grew by an annual average of 5.9%, the fastest on the continent, which resulted in the country becoming one of the richest in South America.

That’s the kind of opportunity the CEO of our “pioneer pick” watches for. He told me in an interview: “We’re always on the lookout for countries in political and/or economic transition… if you can catch a country in that transition period and get in early, you can beat the crowd.”

It was hard to raise money for exploration in that turbulent environment, and it was a risk, but the team nailed it. During their work in Chile, they discovered a high-grade gold mine they later sold to Kinross, and another large gold deposit that Barrick snapped up.

Ice Road Truckers

True to its mission, the company went to Russia in the early 1990s, shortly after the collapse of the Soviet Union.

Again, some in the industry scratched their heads—after the crash, the newly emerged Russian economy was still shaky and no one knew what the near future would bring. On top of that, gold was trading below $400 an ounce.

Despite the challenges, management were attracted to the vast, untapped mineral potential in Russia and thought they could successfully deal with the Russian leadership. They bought an asset that had seen some drilling and had proven mineralization—but the original owners couldn’t raise the money to advance the deposit and didn’t have the technical expertise to build a mine.

The team raised the money and put a high-grade gold and silver deposit into production. It later sold for big money.

The first project in Russia worked out so well that they went for a second. They found a project in Chukotka, located in the country’s far east—so far, in fact, you could almost see Alaska across the Bering Sea. The CEO said in our interview, “You know when Sara Palin said she could see Russia from her house? Well, it was probably our mine she could see.”

The team negotiated a deal with the government of Chukotka, whose governor, Roman Abramovich, was one of the wealthiest men in the world. During his time as governor of this godforsaken place above the Arctic Circle, Abramovich spent over US$1 billion—some of it his own money—to develop infrastructure and revitalize the region.

The CEO met with Abramovich and negotiated a deal: “If the deposit contained economic gold, we’d share the profits.” The partnership was a good deal for both parties, because Abramovich was interested in attracting investors for natural-resource exploration to the impoverished area.

The deposit turned out to be one of the richest gold and silver discoveries of the last 30 years.

“It was so exciting,” the CEO said, “that we started to ship equipment from Vancouver up the Bering Sea and over to Russia, when you had to get the ships in and out before the ocean freezes. We built 440 kilometers of ice roads every January to take all of the equipment in, and we only had a short time to do it because the road disappeared in May. We had 187 trucks on the road 24/7. They still do today.”

The bottom line is that they successfully navigated all the peculiarities and risks of Mother Russia. Twice.

Eventually, the team sold the company for $3.5 billion—a company that had started as a junior gold explorer with a tiny market cap.

And They’re Ready to Do It Again

Today, this same team has built a new company that is well on the path to more great successes. Our “pioneer pick” is a growing mid-tier producer that:

• Bought mining assets at the bottom of the market in 2009 that are now in production and highly profitable;

• Is sitting on a quarter-billion dollars in cash;

• Had no write-downs last year (unlike many other producers);

• Has a big jump in production just around the corner;

• Best of all, the company’s stock has demonstrated high leverage to the price of gold.

A large part of our bet is that this team will continue to be successful in the frontier locations where its mines are today. These guys are mining cowboys who aren’t afraid to go where others fear to tread.

This is not our lowest-risk investment, and the stock is more volatile than most others in our producer-focused portfolio, but if their success continues and the political climate of the host countries remains reasonably stable, the stock is poised to be a high performer. In fact…