Changing Gears: Canadian Gold Stocks

By Mark B

I thought I’d share a few investment ideas with you.  I’ve done well so far so I hope this isn’t the “Sports Illustrated Cover Jinx” redux!!!

Please do your own due diligence; I’m not an investment adviser,  just a goldbug with a lot of free time (retired!)

Today I’m going to focus on two stocks, related in land holdings but not price.

Pretium Resources (PXZRF) is a new issue that was carved out of Silver Standard’s (SSRI) portfolio of properties which went public in December of 2010.  Snowfield and Brucejack are the two very exciting properties that SSRI sold to the newly created Pretium Resources.

The funds for the property were raised by the sale of Pretium at $6..   SSRI received cash from Pretium and still retains 42.3% of the shares in PVG (Canada’s stock symbol for PXZRF.)

It gets interesting; stay with me.

The CEO of Pretium is none other than the former CEO of Silver Standard, Robert Quartermain, who retired about a year ago.  Mr. Quartermain took SSRI from $2 million in capitalization to $2 billion!!!  (You can look it up!)   More importantly, he changed Silver Standard from strictly an exploration company to a miner or producing company, opening the Perquitas silver mine in Argentina.   The man gets things done!

Snowfield-Brucejack has been explored for years by Silver Standard so, clearly, Robert Quartermain was intimately familiar with the properties when he retired from SSRI last year.

Note that generally what exploration companies do is drill for a season X amount of meters.  They then ship the sample cores to independent labs for assay.  The report comes back and shows so many grams per ton taken from several holes.  A qualified geologist under Canadian law then reviews the samples, does some calculations and comes up with three classifications of gold… Measured, Indicated and Inferred…each, in descending order, strongest estimate to weakest.  As they keep adding to the totals, they are hoping — generally — to be “taken over” by a large mining company, because the costs of mining are huge, compared to exploration alone.

After years of exploration of Snowfield, SSRI stepped onto the ice (literally) of Brucejack and found a boatload of gold to add to their already rich boatload from Snowfield.  How big???  BIGGGG.  (Note that henceforth these assets are Pretium’s.)

Try these numbers out…55.7 million ounces of gold in the three categories (definitely go to www.pretivm.com to check this out in more detail.  All the numbers are there.)   And these numbers are growing because they are far from finishing exploration and each year has added MORE gold, silver and copper to their resources.

Snowfield-Brucejack contains hundreds of millions of ounces of silver; three billion pounds of copper; there’s moly and rhenium too… So why hasn’t anyone mined this stuff?  Read on.

First, until recently, the gold has been low grade; nothing wrong with low grade; it means the gold is there at levels of, say, 8 gpt.  But there are so many billions of tons of gold bearing “stuff,” it doesn’t matter.  But some miners would rather get the low-hanging fruit of high grade; that is, before gold went parabolic in price…

The location of this gold is remote, to say the least.  It’s in the boonies, in a cold, hostile place with limited access, as opposed to a mine in say, Nevada, off the highway with a Burger King, a superhighway and a gas station nearby.  But things, they are a changin’ and they are a changin’ quickly.

First:  The price of gold and silver has risen exponentially, making the expensive buildout of roads and infrastructure worth the billions it will cost.  And before you say “Who can afford that?”…think about the recent 39 billion dollar offer for Potash Corporation by (I think it was) Rio Tinto.

The British Columbian government recently approved a $404,000,000, 287  kilowatt hydroelectric power line to run through this area…GAME CHANGER!!  This will be built over a period of three years.  Mining is POWER HUNGRY.  And the power will bring infrastructure to this remote area of the world.  (And I mean “partially receding glacier” remote.)

Last year in the Brucejack  Galena Zone, High Grade gold was found…kilos per ton, not grams.  This is where Pretium will focus its attention this summer and much of its 60,000 METER 2011 drill program will focus on those holes with a view toward finding  out just how big this puppy is (high grade zone.)  This stock can be huge one day.  Huge.  My 1-2 year target is $30 because I think we compare favorably to next door neighbor Seabridge Gold, which I talk about later, for context only.

Pretium is $12 CAD, about $12.25 USD ..(shocking, I know…we’ve been printing quite a bit since the Canadian Dollar was about $.80 a few short years ago.)   There are less than 90 million shares outstanding, fully diluted.  Get this:

42.4% are in the hands of Silver Standard

40.9% are in the hands of  institutions (sneaky devils, huh?)

Only 12.7% of the shares are in the hands of RETAIL customers* (*Schnooks like you and me.)

I know that leaves a few percent; I think the pie chart showed they were held by Asian investors.  It’s on their site.

Note:  If you don’t use the link, the “u” in Pretium is a “v” on the website…they are trying to be clever.  Again,www.pretivm.com

The float of this company compares favorably to the comparable Nova Gold, another 12 dollar stock, partially owned by our friend George Soros.  This one is much better.   Full disclosure, I have a position in PXZRF.

And for you two-dollar bettors, the second stock is the one I have a large position in.  I’m embarassed to tell you the price; it’s about 64 cents as of this writing.   The stock is Teuton Resources; American Symbol TEUTF.  I’ll use the Canadian symbol of  TUO because it’s shorter!  Their website is www.teuton.com and they will be updating and revamping it in the next thirty days or so as some of their info is a bit stale.

When you go to the site, be sure to click on “High Property Presentation.”  Narrated by President Dino Cremonese, it talks about — you guessed it — the High Property!!!!  And why am I so excited about this so called “High Property”??  BECAUSE IT’S RIGHT NEXT DOOR TO BRUCEJACK…TOUCHING IT, IN FACT.  Sorry for shouting…I thought you weren’t paying attention.

Back to that in a minute.

Teuton Resources is a property accumulator.  They have been acquiring property in the Golden Triangle since the early 80s.  Their business model is to option out a property to another company; the other company spends the agreed upon amount of money to drill and explore.  For their efforts, they get half or 60 percent or whatever the deal is.  Teuton rarely drills on its own.

To put this geographic puzzle together, Pretium’s other neighbor is the giant Seabridge Gold (SA), which has even more gold, copper and silver than Pretium and is part of this happy family of interconnected grounds (Teuton having the most land but not a bunch of cash and, as of yet, no mindblowing numbers –YET.)  I must mention Seabridge because Teuton’s Treaty Creek property is 800 meters away from Seabridge’s Iron Cap Zone which has 8.5 million oz. of au and lots of copper.

Our Treaty Creek property was drilled by our optionee partner, American Creek Resources,  and they found .8gpt gold over 241 meters, the same grade as neighboring Seabridge.

Unfortunately, that company did not follow up, having run out of cash.

Teuton, no matter what, will always own 50%, but TUO is suing American Creek, claiming they did not spend the required $5,000,000 to drill; our president is an attorney and I believe his case may succeed.  If he proves they didn’t spend the money, American Creek will lose their share or perhaps more likely, settle for a smaller percentage while relinquishing control back to Teuton… it’s speculation on my part; it’s up the the courts but a suit has been filed and discovery is underway.

Teuton has 300,000 acres of property in the Golden Triangle, making them the largest landholder there.  I started buying the stock in 2007 when it was 61 cents or so…and during the crash, bought a lot more all the way down to a nickle!!!  I look at it almost like a real estate play.  Gold all around, up the ying yang and even up the old wazoo!!!

Teuton has plans to drill their High property this year.  The drilling season is short, due to the cold arse weather and mega feet of snow they get there.  I won’t lie to you; it’s ugly weather.

Teuton has many other exciting properties I won’t rattle off here.  Like I say, I have a position in the company.  You need to do your due diligence.

The hope is that by drilling our gossan (area of mineralized multi-colored oxidized rock) this year, we discover our own “Galena.”  We are right on top of their Bridge Zone, which also has millions of ounces of gold.  When you look at the Teuton presentation re the High property, you can see just how close “we” are.  If we find big ounces this year, in the words of Jackie Gleason, it’s “To the moon, Alice.”  Bear in mind, Teuton only has 40,000,000 shares outstanding.

Listed Canadian stocks trade in the US on the OTC bulletin board.  Even prime Toronto Stock Exchange companies trade that way.  Limit orders are best because stocks like Pretium and Teuton are thinly traded and can have big gaps between the bid and the offer.

Another good resource is www.stockhouse.com You can read the message boards on each and/or get reasonably accurate quotes.  For Teuton it’s TUO and Pretium PVG.   Check the “bullboard” circle…for the Teuton board type: V.TUO; for the Pretium board it’s T.PVG.  (“V” is the TSX Venture and “T” is the TSX, the former usually being a tad more speculative of an exchange.)

I got interested in gold and silver years ago when I saw that the supply of paper money was outstripping the relatively stagnant gold and silver supplies.  Obama and his friends have found a way to SUPERCHARGE the printing presses… I needn’t drone on about money printing, “stimulus,” etcetera.

Lastly, on the stockhouse site, I write under the name of Redrum180, so you can view my content there, as well as look at my stock selection record which has been pretty good.

Please don’t take my word for any of this stuff.  It’s all accurate to the best of my ability but I’m capable of making a mistake.  (I made one in 1957 and 1963.)   Don’t close out your 401Ks and bet the farm.

Mark B

A great piece written by our friend and contributing writer Mark B taken from his own blog

http://libertylog.org/?p=2407

As always please consult an investment professional before making any investment decision