Your Best Chance to Make 1,000% Gains in 2008
By Matt Badiali
February 01 , 2008
In 2005, Esperanza Silver, a tiny "prospect generator," was exploring a promising precious minerals find, called San Luis, in central Peru.
Late that summer, Esperanza workers picked up a few rock samples that turned out to be packed with gold and silver. When the company announced the discovery, it threw the switch on a ride that would send Esperanza shares soaring from 38¢ to $4.25 in just 18 months...
Esperanza now has a partner in place to develop a mine at San Luis. The company will end up with 20% of the project, which currently has a resource of 400,000 ounces. But even if a mine never develops, Esperanza – and its investors – can't lose. The partner has assumed all the costs (and risks) for developing the mine. Esperanza won't spend another dime there.
And Esperanza will take the money it made in the deal and go looking for the next big deposit.
As I've explained in these pages before, that's the power of the prospect-generator model... These tiny exploration companies are the "bird dogs" of the natural resource business. They simply scour the world looking for promising mineral deposits. They're not interested in mine building or hauling ore away with giant trucks. These are the guys who literally draw the treasure maps.
And the potential gains prospect generators offer – like Esperanza's 1,018% return – are attracting some of the sector's most successful investors...
Take Rick Rule of Global Resource Investments, for example...
Rick's resource investment firm is one of the few that weathered the sector's 20-year bear market. Rick knows all the important resource executives because during that bear market, Rick was the only person in the world who could raise money for them.
In 2000, Rick created a fund called Exploration Partners 2000 with $7.6 million. That fund invested the majority of its capital in prospect generators. Since inception, the fund has paid out $25 million in distributions, and it now has a liquidation value of $190 million.
Now consider Lukas Lundin, scion to one of the most successful families in the mining world. Lukas and his father, legendary resource explorer Adolf Lundin, discovered the 11.4 million-ounce Veladero gold deposit in Argentina, which Barrick Gold bought in 2001 for $2.3 billion.
Lundin currently serves as the chairman of his family's company, the $2.7 billion Lundin Mining. He does the same for numerous well-established mining companies, including Red Back Mining, Denison Mines, and Canadian Gold Hunter.
Through the Lundin Family Trust, Lukas recently took positions in several prospect generators, including joining their boards of directors. Not only is he intending to grow the trust's wealth, he's hoping to tap the prospect generators' exploration intelligence...
If all the prospect generators working today were a single company, its combined global exploration budget would approach Rio Tinto's (Rio is the world's third-largest miner). In addition, these tiny companies employ some of the industry's brightest explorers.
You see, investing in prospect generators is different from other kinds of stock picking. The best opportunities – the ones that rocket to 1,000% gains – never pop up on a stock screener. Retail investors never see them. These companies don't have your typical earnings... and if you don't have an "E," you can't have a P/E ratio. That in itself puts off most investors.
So successful investors in this sector must find companies with smart backers and a strong management team. Tiny exploration companies are only as good as their management and technical personnel. Without a solid team, these companies are just furnaces that burn money.
One of the first stages of research on any natural resource explorer is to get to know management. Often, you'll find these serial value creators are backed by smart investors like Rick Rule and the Lundins.
If you can find the right team, these companies can offer outrageous gains nearly overnight.
Good investing,
Matt
