AMAZING DD!!!
Supernova Gold’
How this mysterious metal from outer space
could make you 3,000% or more
It involves a tiny island off the coast of Australia. Few people know this island exists… and most who
do, live on it.
The native language on this island is called “Anindilyakwa.” Reports suggest less than 3,000 people in
the world speak it.
This island is located about 30 miles off the coast of Australia. .
The place I’m talking about is called “Groote Eylandt.”
Groote Eylandt is known for two things: It’s home to some of the best sport fishing in the world. But
more important for us… It has one of the largest and richest deposits of a metal we call “Supernova
Gold”… which makes it one of the most valuable pieces of land in the world (on a per-acre basis).
“Supernova Gold” is a metaphor for the little-known element manganese. Scientists believe the element
is synthesized in the cores of large stars before they experience supernova explosions. It’s also believed that
meteorites containing manganese slammed into Earth millions of years ago… and scattered deposits of
manganese to a handful of hot spots around the world.
Groote Eylandt is one of those hot spots.
Manganese has similar qualities to gold. It’s a “transition metal” – meaning it easily combines with other
elements. In modern times, it was also used as currency. This is why we’ve nicknamed it “Supernova Gold.”
Mining titans BHP Billiton and Anglo American are raking in billions of dollars each year from mining
the manganese on Groote Eylandt. The ores there are incredibly rich… And its location near China makes
it easy to export to the world’s most voracious manganese consumer. Under a joint venture called GEMCO,
BHP, and Anglo have been the exclusive companies to mine manganese around Groote Eylandt for the past
40 years. It’s been a license to print money.
But in a move that went unnoticed by even the mining press, a tiny company has staked a claim to
the huge resource on Groote Eylandt. Its licenses are located immediately next to BHP and Anglo’s
1
‘Supernova Gold’
How this mysterious metal from outer space
could make you 3,000% or more
December 2010
Phase 1 Investor Vol. 5, Issue 2 5, October 2010
huge producing mines.
As you’ll see in just a moment, this company has pulled a fast one on two of the largest and most powerful
companies in the world… which could hand us a 3,000% gain in the coming years. Here’s the story…
The Greatest Pile of ‘Supernova Gold’ in the World
This month’s Phase 1 recommendation is a penny stock called Groote Resources (GOT.AX). The
stock trades on the Australian Stock Exchange.
Four months ago, this small company was granted four exploration licenses covering more than 1,000
miles of shallow marine tenements. As I mentioned, these licenses are located immediately next to BHP and
Anglo’s mines.
I know what you are thinking… Not another story about a penny stock buying up properties right next to
huge producing areas owned by an ExxonMobil or Chevron. In the end, many of these companies turn out to
be pure hype. I’ve seen a thousand of them. But Groote’s story is different…
After Groote Resources received these licenses, BHP and Anglo did a remarkable thing. They bought
up the thousands of miles of the surrounding areas of Groote Eylandt… Less than 24 hours after Groote
Resources received its licenses.
This situation is going to result in a tremendous stock gain for Groote. A 3,000% gain here is possible.
But before we get into the risks and rewards, it’s important to cover the basics of the manganese market. It’s
the only reason why Groote Resources has such enormous upside.
How Manganese Became One of the World’s Most Valuable Resources
Few people have heard of manganese. Its cousins – iron, aluminum, and copper – get all the headlines.
However, this metal is essential to myriad industries.
Chances are, you come into indirect contact with the metal every day. You’ll find manganese in things
like stainless steel, batteries, aluminum cans, and even some fertilizers.
The critical moment for manganese happened back in the 1850s, when English engineer Henry
Bessemer was perfecting his famous steelmaking process. After patenting his method, Bessemer began
Vol. 5, Issue 5, October 2010 3 Phase 1 Imvestor
licensing the technology to steelmakers. However,
the steel still had too much oxygen in it, causing itto crack when the steelmakers tried to work with it.
It took another Brit named Robert Mushet to
fix the problem. He figured out adding manganese
at the end of the process removed the
pesky oxygen. This made steel “workable.” His discovery
launched the commercial steelmaking industry,
creating instant demand for the metal.
Today, around 90% of all manganese mined ends
up being used by the steel market. No substitute has
been found for it in the steel-making process.
The second-biggest market for manganese was
born around the same time. In 1866, a French engineer
named Georges Leclanché patented a new kind
of battery that included manganese dioxide.
Leclanché’s batteries powered the telegraph industry
for decades.
Battery technology is entering a new era. Today,
dozens of different types of batteries combine lithium, zinc, nickel, and other elements. For example, cars
use lead-acid batteries because they’re cheap and reliable.
But more than a century after first appearing in batteries, manganese is still used in the most efficient
rechargeable batteries. One of the most common types is lithium-ion. (There’s a good chance you’ve bought
or used these.)
We’re on the verge of seeing more uses for high-tech batteries than ever before…
Electric cars made by companies like GM and Tesla are using lithium-ion batteries. According to an
article published by the Massachusetts Institute of Technology, manganese can be manipulated to help create
batteries that could last 50 years or more.
“Imagine a cell phone battery that recharges in a few seconds and that you would never have to
replace,” writes Prachi Patel-Predd, a Princeton-educated engineer and tech writer.
It’s no wonder BHP Billiton and Anglo American snatched up the remaining tenements surrounding
Groote Eylandt. But they missed a huge one…
How Groote Eylandt Produces Billions of Dollars in Profits
BHP Billiton is the world’s largest producer of manganese. It employs thousands of workers spread
across five key areas in Australia and South Africa. By far, Groote Eylandt is its most profitable manganese
operation.
Since 1965, GEMCO (a BHP and Anglo joint venture) mined more than 50 million tons of manganese
from Groote Eylandt. That’s enough to supply the entire planet for the next five years.
Beyond Steel
Today, steel production and batteries make
up the bulk of current demand for manganese.
However, scientists are experimenting with the
mineral in a variety of futuristic applications…
and the potential is amazing.
MIT scientists have blended manganese and
silicone to create a water-repelling substance that
could be a huge advance in the technology of
cleaning oil spills. And researchers at a Florida
university are using manganese to create a super
computer chip that retains data, even when the
computer is turned off.
For now, these high-tech applications only
represent a small fraction of the market for manganese.
But long-term, they underscore the
remarkable potential of the metal.
Phase 1 Investor Vol. 5, Issue 4 5, October 2010
Accordingto studies, Groote Eylandt holds at least 60 million more tons of manganese in reserve. Based
on these numbers, more than 25% of the world’s production of manganese will be produced on Groote Eylandt.
Not only does the island hold huge reserves of a metal that’s in short supply, but its ore is incredibly
high grade. For example, Australia has four major manganese mines. The average grade of the ore is less than
30%. On Groote Eylandt, ore grades average between 40% and 60%, according to Groote Resources.
To put this in perspective, BHP’s profits totaled $1.1 billion in 2009 from mining only 2.3 million
tons of manganese on Groote Eylandt. Based on these numbers, this area is more than seven times as
profitable (per-ton) as any of BHP’s iron ore mines.
Looking at the
data, I can’t tell you
why BHP or Anglo
did not secure the
areas around some of
their most profitable
mines. I believe it’s a
corporate oversight.
Groote’s management
agrees with me. After
all, studies show the
shallow waters also
have high concentrations
of manganese.
To get a better
understating of the
tenement licenses
secured by Groote
Resources, look at
this map.
• The red area west of the Groote Eylandt is where BHP and Anglo have been mining manganese for
40 years.
• The green area is the 1,000-plus square miles of licenses Groote Resources secured on July 30.
• The light purple areas are the licenses BHP and Anglo filed for – less than 24 hours after Groote
Resources received its licenses.
The map highlights a couple other key points. The first is how close the largest manganese mines in
the world (in red) are to Groote Resources’ properties (in green). BHP and Groote’s properties nearly touch
each other at the southern most point.
Another takeaway is how the largest mining company in the world with a market cap of more than
$230 billion completely dropped the ball. After all, BHP could have used just a fraction of its $12 billion
cash hoard to secure the areas surrounding one of its most profitable minesBHP’s carelessness is our gain.
Vol. 5, Issue 5, October 2010 5 Phase 1 Imvestor
Over the next 30 days, Groote Resources will conduct a scoping study of exploration licenses. The
study will evaluate mining, processing, and shipping options for the project. It will include environmental
impacts since the mining will be in shallow water.
More important, the study will determine capital and operating expenses for mining more than 3 million
tons per year for more than 15 years. Then, the company will determine where the infrastructure and
plants will be built.
Groote will have a one of the best manganese experts in the world helping with the analysis. His name
is Barrie Bolton.
In August, Barrie was appointed to the board of directors for Groote Resources. This was big news for
the company. Barrie’s been studying manganese for more than 30 years. In fact, he was BHP’s top manganese
expert for 18 years. Of those 18, he specifically advised and managed BHP’s exploration program
on Groote Eylandt for 10 years. Now, he’s on Groote Resources’ team. It’s as if Bill Gates joined the
board of some little $100 million tech firm.
Following the scoping study, Groote Resources laid out an intense six-month drilling program – which
will commence early 2011. This will include geological mapping, surveys, sampling, and drilling. During
this process, the company may look to take on a partner to lower costs in the early stages of development.
High Risk… Sky High Reward
Groote Resources is a tiny company. Its market cap is around $40 million. This is less than 1% of the
size of BHP. The company has $5 million in cash to fund its growth initiatives. It has no debt.
If this were a gold or silver company, $5 million wouldn’t amount to much. Gold and silver are expensive
to mine. However, the cost to mine manganese on Groote Eylandt is less than $50 a ton. The current
market price for high-quality manganese is well over $500 a ton.
Groote Resources (GOT.AX)
Market Cap $38M Cash $5M
Enterprise Value $32.2M Debt zero
Shares Outs 83M 52-week low $0.38
Avg Vol 275k 52-week high $1.20
The reason why it’s so cheap to mine compared to every other metal can be explained in the pictures
that follow…
The black stuff you see lying on the
shore is manganese. In many places, it sits
right at the surface.
Even offshore, the mining process is
simple and inexpensive. Groote Resources
plans to mine the manganese by first using
a cutter/suction dredge (pictured at right).
That’s a device commonly used for scraping
and sucking the seabed in shallow waters.
Phase 1 Investor Vol. 5, Issue 6 5, October 2010
Vol. 5, Issue 5, October 2010 7 Phase 1 Imvestor
The dredging will take place in water between five and 10 meters deep.
The loosely cemented manganese will be extracted on a jack-up platform where it will then be loaded
onto a barge. The harder manganese will be broken up using a large jackhammer before loading. The barge
will transport the unprocessed manganese to the mainland for crushing, screening, and washing. Finally, the
product will be shipped to market.
When you combine the ease of mining with the incredibly high grade of Groote Eylandt, you can
understand why BHP’s failure to lock up the surrounding areas may be one of the biggest blunders in the
mining industry.
Turning to fundamentals, Groote Resources is in the earliest stages of development. It’s almost as if you
discovered oil under your house. Sure, the payoff will be huge. But the time it would take you to extract the
stuff and put cash in your pocket could be three to five years.
The best way to put numbers behind Groote Resources’ licenses is by comparing its properties to
GEMCO’s. As I mentioned earlier, GEMCO generated more than $1 billion in profits in 12 months, mining
just 2.3 million tons of manganese…
Groote projects it could mine more than 3 million tons a year. At grading between 35% and 50%, management
said it could generate between $1 billion and $1.5 billion in revenue. These are lofty expectations.
My analysis paints a different picture. Mining in shallow water will cost the company more than $50 a
ton. Also, environmental permitting, infrastructure, and drilling could be costly.
Let’s assume the company can mine 750,000 tons of manganese a year, or 75% less than the company
forecasts. Let’s also assume Groote sells the manganese on the open market for $250 a ton (50% discount to
the market). That would generate roughly $187 million in revenue.
As you can see from the chart below, I provided these figures on the top line under “conservative case.”
I also added an average case scenario and the company’s projections.
Annual Production Price per
(Mn /tons) Grade ton (Mn) Revenue
Conserv. Case 750K 45% to 60% $250 $187M
Average Case 1.5M 45% to 60% $300 $450M
Company Proj. 3M 45% to 60% $400 $1.2B
The average mining company trades at roughly four times sales, according to financial database Capital
IQ. Using this multiple and our conservative case, Groote Resources would have a market cap of $720
million. That’s more than 20 times the company’s current market cap using conservative numbers.
These numbers don’t include hedges, future debt, or dilution of shares if Groote raises money on the
open market. They do not include any partnerships. Again, the company is in its earliest stages of production.
We will get a clearer picture on production and costs in January, after the scoping study is completed.
However, based on the company’s enormous upside potential, you can see why I am so excited about
Groote Resources. That’s the only reason I would suggest buying a company trading on the Australian
Exchange. I know many investors are leery of buying foreign stocks.
Phase 1 Investor Vol. 5, Issue 8 5, October 2010
However, before you buy this stock, there are some
risks you need to know about…
Groote Resources may never be allowed to drill on its
properties despite holding licenses. On November 17, the
Groote Eylandt health minister said the marine environment in
the area was “far too precious” for undersea mining operations.
Groote Resources fell 20% on the news.
The company responded by saying its plans would have
almost no physical impact on the shallow-water environment.
Also, the health minister does not have the authority to stop the
company from drilling. These licenses were obtained legally and
are in “good standing” with the Northern Territory government.
If Groote Resources is not allowed to drill on these lands,
the company could fall to less than 5¢ a share – less than the
company’s cash balance. That would be a substantial loss. But
management is nearly 100% certain the government will allow
drilling to commence.
The project is in its earliest stages. It could take up to three
years to get infrastructure in place. During this time, manganese
prices could collapse. Also, the company could have difficulty
raising capital to support its long-term growth plans. If
this is the case, shares could fall substantially.
Groote Resources is currently not generating profits. In
fact, it’s relying solely on its new licenses to make money for its
shareholders. In other words, mining on its licenses just off of
Groote Eylandt is an “all or nothing” scenario.
It’s important you understand this as an investor. The
reward could be in the thousands of percent. But to achieve
such gains, we are taking on two key risks. The first is, the government
won’t interfere in the company’s plans. The second is
Groote Resources will have success mining the manganese in
shallow water.
Another risk could be possible dilution. Groote has $5 million
in cash but may need more to fund its drilling program.
Since it generates no revenue, the company may have to tap the
equity market for cash. In doing so, the company will issue
more shares diluting existing shareholders.
Finally, the company is competing with some of the heavyweights
of the mining industry. These giants are on great terms
with the government of the Northern Territory – since they
employ a lot of people and generate money for the island.
Buying Australian Stocks
Groote Resources trades on the
Australian Stock Exchange (ASX). The
ASX ranks in the 10 largest exchanges
in the world. It’s a safe, highly liquid
exchange that hosts some of the
biggest mining stocks, including BHP
Billiton and Rio Tinto.
The difficulty with buying stocks
on the ASX is many discount brokerages
don’t provide access to this source
of high-growth stocks. E*Trade, TD
Ameritrade, and Scottrade cannot
complete orders for stocks that trade
only on the ASX.
I realize this means some subscribers
may have difficulty buying a stock on
the ASX. Understand, I’m recommending
Groote because the stock offers the
biggest potential upside of any stock I’ve
seen in my 15 years of investing.
Our mission at Phase 1 is to bring
our readers the best stocks that we
find. I traveled to Asia to find companies
with huge upside no one is talking
about. Groote was head-andshoulders
above the rest.
The easiest way to buy shares of
Groote Resources is through a fullservice
broker. A good broker will
have access to stocks on the Australian
Stock Exchange and should be able to
handle a basic buy order.
For readers who are considering
using a full-service broker, many of our
subscribers have successfully worked
with the three companies in the past:
• Jeff Winn at International Assets
Advisory (800-432-4402;
www.iaac.com)
Continued on page 9...
Vol. 5, Issue 7, December 2010 9 Phase 1 Imvestor
When push comes to shove, the government could make life
difficult for Groote Resources if the company becomes a threat
to BHP’s operations there.
Sure, the risks are huge. Seldom do you see a stock with
more than 1,000% upside that does not carry such a high
degree of risk. But I believe the reward is well worth it.
If Groote Resources is able to successfully mine the surrounding
areas of Groote Eylandt, the stock will skyrocket.
Shares could swell to more than $5 a share if my conservative
revenue targets are met.
Longer-term, the sky’s the limit. Based on reserves,
Groote Resources could be the No. 1 supplier of manganese
in the world.
Action to take: Buy Groote Resources (GOT.AX) up to
A$0.70 a share. As I write this in mid-December, the price is
trading around this price. Don't worry about missing out on
this stock if it's slightly above A$0.70. It's an incredibly
volatile security. Its price can move 10% to 20% in a single
day. Be patient. It will move under the buy-up-to price. After
your purchase, put a 50% trailing stop loss. Expect to hold the
stock for more than a year… And expect to make a lot of
money on the position.‘
