Sniffing out the answer to the latest Gold Stock Analyst teaser

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Weve written about John Doody a few times over the years, largely because the Stansberry folks have been promoting his newsletter and therefore spreading the gospel of this former Econ professor turned gold newsletter guru and mining stock millionaire. The letter is called Gold Stock Analyst. though a couple years ago they started to offer a dumbed down version called just GSA Top Ten. which gives you his top ten stocks and writeup on a few of them each month without the very detailed backup material that he also generates on dozens of other stocks (that brought the price of entry down to about $500, just FYI, the pro version with full data is more like $1,500).

And since Doody does have his results audited, and he has a lot of well-respected fans, I presume hes still doing well I dont know if hell repeat the incredible performance his Top ten stocks had over the last decade or so, since I have no idea what gold will do and there are a lot more analysts following gold stocks now than there were ten years ago, but he certainly seems to have beaten the index with his methodology so far. (His letter is also the second-favorite mining-focused newsletter among Gumshoe readers right now.)

Of course, that doesnt mean his ads arent irritating most of them are full of the braggadocio of the worst teaser ads, all the chatter about his hot young wife and his fabulous yacht and his sparkly Ferrari, and part of the selling spiel of the Stansberry copywriters in many past ads has basically been, this guys a jerk, but he can make you rich.

Still, weve seen plenty of profitable picks touted by Doody in the past, like Minefinders (MFN) and Royal Gold (RGLD) and Golden Queen Mining (GQM.TO), so lets see what hes picking now, shall we?

In short, a very small mining outfit is about to start paying dividends in real gold bullion.

No other mining firm in the history of the stock market has ever agreed to pay a real gold dividend before.

Almost no one in the investment world is paying attention to this development Which is why today you have the opportunity to get in, well before this story becomes mainstream news.

And as youre about to see, the companys unprecedented announcement will undoubtedly shake up the gold markets

I honestly believe that a stake in this firm could help you make hundreds, if not thousands of percent over the next few years.

Which might make you say, hey, that sounds familiar! And well it should, as youll see in a moment. Heres the rest of our littany of clues:

Theyre sitting on about 1.7 million ounces of gold worth almost $3 billion – much more than TWICE this companys current market cap. (And theyre still drilling for more gold.) .

The average gold mine has about 1.5 grams of gold per ton of ore.The highlighted sample in the picture you just saw has 22.8 grams of gold (and even some silver) per ton of ore. Thats 15 TIMES the average gold mines grade.

And this high grade gold is just the beginning

When I returned from my trip I begin to do further in-depth analysis on this gold stock.

I found that since going public in 2006, this firm has returned an average of more than 83% PER YEAR to shareholders Turning every $1,000 invested into more than $23,800.

They also have ZERO debt, and control a highly coveted 34 mile stretch of property that could potentially lead to the development of several more mines.

Its no wonder that a well-known South American mining company invested over $60 million into this small stock early on and have seen their money grow to over $350 million.

And why a highly respected gold mutual fund quietly purchased over 8% of the shares in this company.

And he describes the physical gold dividend some for us as well, even mentioning that he has held the beautiful coins theyre minting in his hands:

You can get dividends in gold, whose price is likely to continue to rise with inflation.

So how is this company able to pay out dividends in real gold bullion?

You see, the truly incredible thing about this company is that they already pay out a HUGE portion of their mining profits in dividends every year – more than 33%.

I have never, ever, heard of a gold company paying out that much money before.

To put that into perspective, the average gold miner pays no dividend, and of those that do its 10% at most. Barrick Gold, the worlds largest gold miner, pays only 6%.

Even the royalty companies – Franco-Nevada and Royal Gold – which made investors a fortune, pay out just 20% of their profits.

Whats more, by the year 2014 the amount of money this gold dividend company pays out could more than double based on mine production. (Production was 66,000 ounces in 2011 and is estimated to be over 200,000 ounces by 2014). That means the amount of gold dividends you receive from this company could double in less than two years.

So what is this mysterious stock in his Top Ten that he thinks will rise by hundreds of percent or more?

Well, youre right, its the same stock we looked at back on Thursday of last week in a teaser for a different letter. Gold Resource Corp (GORO)

Though Doody throws in an X-factor catalyst that wasnt mentioned by the Lombardi folks he said that he thinks theyll get a listing in Toronto as well in the next year or so, which could have considerable impact. Normally its the other way around, stocks that have a Canadian listing and get a listing in the US can experience a boost when exposed to a new crop of investors but this time the boost would come both from the fact that Toronto has more specific and stringent requirements for listed mining companies, and from the fact that most of the investment analysts who follow mining are Toronto-centric. So thats a possible boost.

I shared pretty much all the thoughts I have on Gold Resource Corp last week, which you can see in that prior article, and I dont own the shares myself, but Id just add that having John Doody put them in his top ten is probably a stronger recommendation than the fact that the Lombardi folks have been flacking the pick for two years though its a little bit of an outlier for him as well, since he tends to pick established companies with solid reserves and Gold Resource Corp has just barely started to invest in building a reserve base (ie, doing more exploratory drilling and filing the required Canadian NI 43-101 forms to provide backup assessments of their reserves). I imagine their history of production and their dividend policy and their new focus on joining their peers in filing resource and reserves reports probably tipped the balance in their favor as far as hes concerned, but thats just a guess on my part.

If you dont know the company at all yet, you can get a quick overview with their latest presentation (from April) here.

I think the physical gold dividend is a little bit silly at this point if you think theyre a growing company and will be rising by several hundred percent then youd almost certainly do better by reinvesting dividends into additional shares than you would by getting silver coins (most of us wouldnt have large enough holdings for our monthly dividend to translate into an ounce of gold, and they dont seem to have smaller sizes), and really, its pretty simple to buy your own gold unless youre particularly enamored of the coins Gold Resource Corp will be producing (incidentally, if this works to get GORO more attention from investors I bet well see a lot more of it theyre basically outsourcing the gold coin dividend program to Gold Bullion International, and GORO is their first client that Ive heard of, but I bet lots of other emerging producers are getting calls about setting up similar programs).

The reason I would invest in gold mining companies instead of in physical gold is that miners can actually generate income, make a profit, compound their returns, and make investors wealthier if they operate efficiently and intelligently (and with a bit of luck, perhaps), even if gold prices dont go up dramatically. I do hold some physical gold and, through a streaming/royalty company, interests in some mines, but I dont necessarily want to mix the two up or give up any potential earnings compounding in my gold company (and the company itself, Sandstorm Gold, also doesnt do this they dont take their gold streaming payments from their miners and hold them in gold, they cash them in and use the cash to grow by buying more streams). Theres nothing magical about what kind of dividend you get, but there is something magical about compounding dividends.

So what do you think? Does having a second newsletter get on board with teasing GORO make you want to pick up shares? Anything else you forgot to mention about GORO when we discussed them last week? Let us know with a comment below.

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