A reader of this blog asked me why I think that Hebei is the dumb money. Let me answer that by explaining Alderon’s paid stock promotion.
Grandich.com and Streetwise Reports
Grandich.com is a shill website run by Peter Grandich. The disclosure page on the site states:
EFFECTIVE DATE 12/16/13:
Alderon Iron Ore Corp – Compensation: $2000 monthly, Options: 225,000 @ $ .30 all exercised
Mr. Grandich was paid by Alderon to promote the stock. The Alderon website itself has a similar disclosure about grandich.com and Streetwise Reports:
DisclosureCompensation is paid to the following third parties for certain media coverage and distribution rights:
The Grandich Letter Blog – $2,000.00 per month paid to Grandich Publications, Inc.; Options – 225,000 @ $0.30 (all exercised)
The Gold Report – $7,000.00 paid quarterly to Streetwise Reports LLC for profile on Gold Report website and occasional articles.
(The reality is that many Canadian mining companies pay for blatant stock promotion from Streetwise Reports. Even senior miners do it.)
There are websites out there that will track the bidding that occurs with Google Adwords. ispionage.com has a lot of interesting information on Alderon’s historical Google Adwords campaigns. (Alderon currently doesn’t seem to be running any Adword campaigns.)
It’s interesting to see the keywords that Alderon bids on. One of the keywords is “tfer stock”. TFER is an OTCBB stock that currently has a market cap of $78K. On Sept. 27, 2013 I estimate that TFER’s market cap was around $20.4M. I have no idea if TFER is a pump and dump. But without having done any research other than looking at where the stock was listed and the price chart on Google Finance, I would be willing to make a pie bet with anybody that TFER is a pump and dump stock.
Now, people who invest in nanocap OTCBB stocks probably aren’t the savviest investors in the world. There was a very brief period in time when Alderon was trying to entice these types of retail investors to invest in Alderon’s stock.
Was Hebei’s investment in Alderon smart?
Would I personally want to invest overseas in a company that pays for blatant stock promotion? No. I think that’s a dumb idea. But that is what Hebei has done.
Secondly, I don’t think that the economics of the Kami project are as good as Alderon is saying. BBA did the feasibility studies for Consolidated Thompson’s Bloom Lake mine (Forbes and Manhattan basically created both Consolidated Thompson and Alderon Iron Ore). In hindsight, the Bloom Lake feasibility study had very little to do with reality and was way, way, way too aggressive. Similarly, I don’t think that BBA’s feasibility study for the Kami project will have anything to do with reality either. To be fair, there may be value in the Kami project and it may very well turn out to be a mine. I have owned Alderon in the past.
Thirdly, it’s more difficult to make money when insiders are needlessly and massively overpaid. Some of Alderon’s board members receive around a million dollars a year in options.
Alderon is an example of the problems in the junior mining space.
Fourthly, Hebei may have overpaid for its stake in the Kami project. I went over the math in my writeup on Altius.
*Um… I actually own Alderon shares
The biggest position in my portfolio is Altius Minerals. Altius is in the prospect generation business and is not very picky about its joint venture partners. This is why Altius is involved with Alderon.
I think Altius fully understands why most mining equities should be avoided. The Altius employees on Alderon’s board have probably figured out that they get paid more for their part-time work for Alderon than their full-time duties for Altius (pretending that the SEDAR management circulars are pricing the options precisely). If the Kami project becomes fully financed, I expect Altius to unload its shares.
A lot of mining companies hire Blender Media to build their website. Presumably Blender has good word of mouth among promotional junior miners.
I’d probably be inclined to short their client list (e.g. CGG.TO and the companies listed on Blender’s website).
*Disclosure: I have a big position in Altius Minerals, which owns shares in Alderon and a royalty on the Kami project. While I have bought and sold Alderon shares in the past, I do not currently have a position in Alderon. I am not shorting Blender Media’s client list, as interesting as that would be.