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I'm guessing that if you wait for the TSXV listing, you'll have to pay much more. A big reason it's still so cheap is because many can't or won't buy it on the CNQ. That won't be the case after the move.
I've accumulated a sizable position in Roxmark and think it will be much higher in a few months on TSXV. Where else are you going to get a moly producer with so much gold this cheap?
New MMGG Article in Silver Stock Report sent out Friday night:
A comparison of two Zinc/Silver stocks: WTZ vs. MMGG
MMGG.html'>http://www.silverstockreport.com/email/WTZ_and_MMGG.html
Silver Stock Report
by Jason Hommel
February 24, 2006
Today, Western Silver (WTZ) moved up in price about 27% because it was announced that Glamis gold is
acquiring WTZ for about $1 billion.
Western Silver to be Acquired By Glamis
http://biz.yahoo.com/bw/060224/20060224005230.html?.v=1
This is exactly the reason why so many of the newsletter writers like myself are telling investors to buy
the juniors: Because they will be acquired by the majors. One of the benefits of the acquisition (in
addition to the obvious, the increased share price) is the increased liquidity in the share price. Note the
volume spike on the chart! Today, many of the smartest and most forward looking WTZ shareholders who were
the bigger risk takers, have already sold WTZ to acquire the next junior silver company. They will be
looking for other silver companies with large potential to attract the attention of a major miner, perhaps
one with defined resources.
The news of this acquisition is the type of thing that we newsletter writers we were saying would happen,
and this is just the start. This is unquestionably and undeniably good for other junior exploration silver
stocks. In 2003, the Juniors were raising money like crazy, as metals prices appeared to have come off
their lows. In 2004-2005, many drilling results were announced. So much, in fact, that it was hard to keep
up, and results came out during a time of low investor interest (which are two good reasons why I stopped
producing my long silver stock report in July, 2005--too much to do, and few cared!) Now, in 2006, with
skyrocketing base metals prices, those juniors who found things will likely be bought up by the majors.
Now, I didn't own WTZ, as I didn't think it was among the most highly leveraged (and cheapest stocks) out
there. When it was about $10/share, it was valued at about $500 million, and today, is now worth $1
billion, which I thought was a bit pricey for us smaller and more nimble investors, but perhaps still cheap
to those desperate majors who need to replenish reserves and resources.
Western Silver used to be named Western Copper, but they could just as easily be called Western Zinc, since
they have more dollars worth of zinc than anything else, as follows:
WTZ has the following metal resources, worth the following:
4.5 billion pounds of zinc x $.97/lb = $4.4 billion
339 million oz. silver x $9.7/oz. = $3.3 billion
673 million pounds of copper x $2.27/lb = $1.5 billion
1.3 billion pounds of lead x .57/lb = $.74 million
WTZ, interestingly enough, has just about the same number of shares as my favorite silver/zinc stock, MMGG.
Both have about 50 million shares out. But MMGG trades at about $2.20/share, one tenth the price.
MMGG.OB (METALLINE MINE) (I own shares)
http://www.metalin.com/site_map.html
metalin@attglobal.net Merlin Bingham 208-665-2002
nearly 50 mil shares fully diluted (Feb 2006?)
@ $2.19/share US
$109 million market cap.
MMGG, has more zinc at higher grades than WTZ.
MMGG has 4.9 billion pounds of zinc, vs. 4.5 billion pounds for WTZ.
MMGG has 8-12% grades of zinc!
But what's the grade of WTZ's zinc? .7%, that's less than one per cent zinc.
MMGG has among the lowest cash costs to produce zinc in the industry at $.25/lb. for zinc, (typically
$.35/lb. or more for others).
And zinc recently traded at $1.10/lb.! And major zinc executives have said that with increasing steel
demand from developing nations such as China, and reducing zinc supply, and long lead times to get new zinc
projects up and running, zinc prices are set to do nothing but rise for the next two years, at the least.
MMGG also has silver. In fact, without the silver, I would not have been interested in buying MMGG as I did
two years ago.
MMGG has zinc and silver in Mexico at Sierra Mojada, which is a Silver District, which produced silver in
grades of over 30 ounces of silver per tonne!
"The Sierra Mojada Property has produced in excess of 10 million tons of high-grade ore that graded in
excess of 30% lead, 20% zinc, 1% copper and 1 kg (31 ounces) silver per ton that was shipped directly to the
smelter. The district has never had a mill to concentrate ore. All of the mining was done selectively for
ore of sufficient grade to direct ship; mill grade ore was left unmined."
(That's 310 million ounces of silver produced historically. Who knows how much silver is left?) That's the
question with an explorer.
MMGG has proved up the zinc, but has not yet focused on the very high grade silver.
MMGG also has a copper property that may have as much, or more, potential as their zinc property!
Here's a 5 year chart of MMGG (Metalline Mining)
http://chart.finance.yahoo.com/c/5y/m/mmgg.ob
Let's go over this 5 year chart of MMGG.
By early to mid 2003, zinc prices had bottomed out at $.35/lb., and silver had bottomed at $4.15/oz.
By the fall of 2003, silver and zinc prices started to increase.
From July 2003 to December 2003, silver stocks were up an average of 314%.
By January, 2004, MMGG was a laggard at only $1.60/share (up only 50%), and was offering a private placement
at $1 (rock bottom), at which time, I and may others bought in as the company raised $8 million.
Over the next year, MMGG spent this money on a drilling program and proved up nearly 5 billion pounds of
zinc. Money well spent. In due time, MMGG's share price caught up to the rest of the pack, and was up to
$3/share.
By January 2005, the $8 million placement came due and was free trading. Since there was little volume, the
share price began to drop from $2/share, as people either locked in profits, or sold out, growing frustrated
as silver prices and silver equities were flat or declining in 2005. Further, MMGG was nearly broke, and
trying to raise more money at $1/share. People sold shares to buy in the private placement again. (I
refrained from hurting the company like that.) This selling, to buy, temporarily drove the price down to
$.80. Recognizing the reasons for the low price, I bought on the open market, and into the private
placement.
By Jan. 2006, I promoted MMGG, for about the 10th time! From a long term perspective, an average, or base
price for MMGG is about $2/share, despite the recent gains. Today, MMGG is no longer a laggard, but appears
to be leading the pack, considering recent gains.
It is not unreasonable to think that MMGG could continue to lead the pack, and rise from $2/share to half
the price of WTZ in short order, which would be about $10/share. And as MMGG proves up some silver and
copper on other properties, and completes a feasibility study, the price could rise well higher, perhaps up
to $20/share.
Finally, look at the historical charts for zinc prices and inventories at
http://www.kitcometals.com/charts/zinc_historical.html
You can see that zinc prices are headed up, as zinc inventories are headed down. It's a very exciting time
for investors in silver companies who happened to be fortunate enough to buy silver zinc companies!
Additional Articles:
Metalline Mining: 4.9 Billion Reasons Why -- by David Zurbuchen, Feb 2006
http://www.silverinscripture.com/MMGG_4_Billion_Reasons.html
Metalline Mining (MMGG) for the long term Jan, 2006
http://greattrades.blogspot.com/2006/01/metalline-mining-mmgg-for-long-term.html
Silver, Zinc, & Metalline Mining -- Hommel & Duncan Hsia, March 19th, 2005
http://www.silverstockreport.com/email/silver_zinc_metalline_mining.html
--one correction for the article. The word "reserves" should be "resources".
MMGG messageboard
http://www.stockhouse.com/bullboards/forum.asp?symbol=MMGG&table=LIST
Disclaimer: I own shares of MMGG, and nobody has paid me to write up this report (except the natural free
market incentive).
cc to Glamis, who is acquiring WTZ, via:
info@glamis.com
jeffw@glamis.com
joed@glamis.com
I think ORCT will rally nicely on its next customer announcement. After more than doubling since before the last earnings report, a sell-the-news reaction today shouldn't be too much of a surprise.
LOL -- BIDU reports 2005 total revenue of $39.6 million and EPS of .18 and rallies up over $58 (PE of 322): http://biz.yahoo.com/ap/060221/earns_baidu.html?.v=3
Meanwhile, CNTF reiterated guidance last week to 2005 total revenue of $91 million and EPS of $1.01 (well over 100% growth), and the stock drops down to $13 (PE of 13): http://biz.yahoo.com/prnews/060216/lnth012.html?.v=1
With more than double the revenue and more than 5 times the earnings, and with comparable growth, you'd think CNTF would be the one with the much higher share price and market cap than BIDU. I think over time it will have the higher market cap, but for some reason BIDU is the darling and CNTF is the red-headed stepchild for now.
Looking at the numbers, CNTF is a screaming buy...
Yes, CNTF is one of the few Chinese companies with real earnings. They just reiterated guidance for more than $1 GAAP EPS for 2005 (earnings out soon) on 2/16, so IMO it's a steal here at a PE of 13 and 100%+ growth.
I think some shorts have attacked it since they couldn't get borrows on some of the other Chinese flying crap (e.g., CTDC, CHNR), and it broke its 50DMA, triggering some stops and panic selling. It's now well below its lower Bollinger Band and near support, so it should get a nice rebound. Once earnings come out, it should fly when people look at the staggering numbers.
I sold a bunch on the rally over 30, but bought some back the last couple of days, lightening up on trading shares today. I still like it long term, but don't like the recent technical action with this Nasdaq selloff. I think the earnings should overcome the recent poor technicals, just like they did last time. The stock should react well when they announce new customers.
You're welcome.
From what I've seen, MMGG is the best zinc junior around. They have one of the few large zinc deposits in the world ready to come into production in the coming few years, and they'll likely be the industry low cost producer. They're well into their feasibility study, and when they complete that within a year or so, the majors will be bidding against each other trying to buy them out much higher. They'll probably go it alone to make the huge returns, though. They also have some high-grade silver that they're developing.
MMGG should be part of everyone's portfolio for zinc exposure. Buying anywhere around $2 and on any dips should pay off nicely in the long term. It was over $3 16 months ago when they weren't nearly as far along and zinc was under .50/pound. Now, zinc's over $1.08 and looks headed much higher.
Metalline Mining (MMGG) for the long term
http://greattrades.blogspot.com/2006/01/metalline-mining-mmgg-for-long-term.html
Zinc Overview
From the Metalline Mining Web site (http://www.metalin.com/zinc_solvent.html) :
“Zinc is one of the most useful and essential metals. Zinc's primary use is corrosion protection in the galvanized steel industry. The recycle life of galvanized steel can be up to 100 years and the added cost is justified by decreased maintenance cost over ungalvanized steel.
The largest use of galvanized steel is in the automobile industry and in commercial and residential construction. Construction is zinc's fastest growing sector where it is used, for Structural support, as galvanized electric power, microwave, cellular and other towers, steel beams, floor joists, studs and trusses and it is used in ductwork, roofing and decorative interior and exterior covering.
Die cast zinc parts are used in automobiles, appliances, tools and computers.
Zinc alloys with copper, tin, lead, aluminum and magnesium are used in the construction, automotive, electrical and consumer products industries. Other zinc uses are in batteries, tires, rubber goods, paint pigments, ceramic glazes, cosmetics, pharmaceuticals and chemicals.
Zinc is an essential nutrient for all life, plant and animal and is used in the food industries, nutritional supplements, animal feed and fertilizers.
Zinc consumption has grown dramatically over the past 30 years and continues to increase and new uses for zinc are being developed. Zinc fuel cells are under development for generating electricity and could create significant new demand.”
Zinc Supply Gap
Following several decades of ample zinc supply, a major supply gap is developing in the zinc markets that will likely have a profound impact on future zinc exploration and mine development (from http://www.yukonzinc.com/zincMarkets.htm):
China has been a main driver behind the supply gap, as they’ve gone from a major exporter of refined zinc to a major net importer in 2005.
As you can see from the below chart, the London Mercantile Exchange Zinc Warehouse Stocks Level decreased by over 37.5% in 2005, indicating the zinc shortage is getting worse quickly (live zinc charts at http://www.kitcometals.com/charts/ZINC_historical.html):
As the zinc supply shortfall worsens and inventories continue to decline, the price of zinc increases. You can see from the below chart that the price of zinc has more than doubled in the last 18 months:
Unlike other commodities, there are few giant zinc deposits in inventory to fill the gap due to depletion of reserves during the past several years of low zinc prices. While old reserves get depleted, no new large zinc mines are set to come into production in the next two years.
Metalline Mining Zinc
The Skorpion mine in Namibia, Africa, is the 8th largest zinc mine in the world. In 2003, the Skorpion mine became the first mine to use the Solvent Extraction Electro-Winning (SXEW) to produce refined zinc from oxide zinc. The cost of producing refined zinc by SXEW is $0.25 per pound, a 30% advantage over the rest of the zinc industry, which produces zinc from a sulfide concentrate through the smelter process at a cost of $0.35 per pound. This new technological advance has made Skorpion the world low cost zinc producer.
Using the same SXEW process as the Skorpion mine, Metalline Mining’s Sierra Mojada mine in Mexico could be one of the world’s 10 largest zinc mines and one of the lowest cost producers (and possibly the lowest cost producer). With a similar cost to Skorpion’s $0.25 per pound, Metalline would have a margin of over $0.60 per pound at the current zinc price of over $0.85 per pound ($0.85-$0.25=$0.60). With the price of zinc likely headed much higher given the aforementioned supply gap situation, the profit potential for Metalline’s zinc reserve is enormous.
Feasibility Study
After discovering mineralization and doing extensive drilling to show the presence of enough marketable metals to move forward, mining companies go through a feasibility study, a process to define the metals reserve (metallurgy), define the costs and profitability, get regulatory approvals, and design the mine (and refinery/extraction plant in cases where that step is included). The feasibility study provides the extensive proof that the mine will make money, and is used for financing to go into production. Typically, this financing comes from a takeover by a major mining company, a joint venture with such a company, or a combination of bank debt financing and equity financing.
Metalline Mining began the feasibility study process about a year ago, proving they had over $4 billion of Zinc earlier this year in the metallurgy portion. The feasibility study has stalled in recent months because of a lack of funding, which Metalline is addressing with the current private placement. Once the financing is complete (likely in the next couple of weeks), the feasibility study should be complete within 9 months to a year. The cost of building a mine and extraction plant is likely to be in the $250 million to $400 million range.
To conduct the feasibility study, Metalline selected Green Team International (GTI), the same company that conducted the feasibility study on the Skorpion mine. GTI designed, supervised the construction, and operated the Skorpion mine and extraction plant through initial production and until the mine and plant were at 90% capacity. Given Metalline's plan to use the same efficient, cost-saving process as Skorpion, GTI was the perfect choice.
Once the company raises the money required to complete the feasibility study, most of the risk for MMGG will be gone. The remaining part of the feasibility study is mostly defining the costs and profitability. Once that’s complete, virtually all the risk will be gone, and MMGG will likely have several takeover bids to fall back on as the worst-case scenario, with the most lucrative path to move to production with debt and equity financing (at a much higher stock price). Skorpion was bought out by Anglo American (AAUK) at the completion of their feasibility study, resulting in a huge profit for Reunion Mining shareholders even though the price of zinc was near a bottom, much lower than current prices. Anglo American is one likely bidder for MMGG at the completion of the feasibility study.
Valuation Based on Zinc Alone
With nearly 5 billion pounds of zinc, a $0.60 per pound margin would mean nearly $3 billion of gross profits for Metalline Mining. Even if the initial costs are in the $400 million range for the mine and extraction plant and you discount heavily for the approx. 3-year wait to get into production and the profits coming over 10-12 years, MMGG is still extremely undervalued at its current market cap under $30 million. Earnings per year once in production should be several times the current market cap. Metalline's zinc reserve alone is worth over 100 times its current market cap.
Company insiders, recognizing the long-term value, have bought MMGG shares between $1 and $1.66 over the last few years, and none of the current management has sold.
Any way you look at it, MMGG is severely undervalued based on the zinc opportunity.
Private Placements Depress Share Price
Metalline Mining initiated a private placement at $1/share over 2 years ago to raise capital for the reserve definition and feasibility study. Many of those private placement investors sold their shares as the lockup expired beginning in late 2004, pressuring the stock price over the last 15 months. Despite the fundamentals improving dramatically since then, with the price of zinc nearly doubling along with the successful completion of the metallurgy portion of the feasibility study, the stock price has lost most of its value from over $3 in October 2004 because of this selling.
Early in 2005, Metalline Mining attempted to finance the rest of the feasibility study with a private placement at $1.50 per share. However, the aforementioned profit-taking investors and big investors who wanted to get private placement shares cheaper sold, pressuring the stock down to $1.50 after starting the year at $2. Metalline was forced to lower the private placement price to $1.125, after which the stock again sold down to the private placement price. Big investors insisted on a still lower price for the private placement, so the placement price was lowered to .80, with a $1.25 warrant. Yet again, the stock sold down to the new private placement price, as investors sold their old shares to get the new shares and the warrant. Now that the private placement is coming to a close, this selling pressure along with tax-loss selling has decreased. This private placement should get them through the rest of the feasibility study.
Rally Last Week on Big Volume – Buy Signals
With zinc hitting a 16-year high, other zinc exploration stocks like Canadian Zinc and Yukon Zinc have run up over 75% in recent weeks on big volume. MMGG had been lagging because of the aforementioned reasons, but finally began to join the zinc stock rally last week. MMGG rallied 22.5% last week from a 6-year low on the highest volume since it hit $3.28 on October 1, 2004, even though it was a holiday-shortened week and some investors must have been tax-loss selling into the rally.
Last week’s rally triggered some technical buy signals on the MMGG weekly chart:
With the volume increase and accompanying price increase, an On Balance Volume (OBV) buy signal was triggered last week. You can find out more about OBV here: http://stockcharts.com/education/IndicatorAnalysis/indic-obv.htm.
After months of bullish divergence between MACD and the stock price, with the MACD increasing from its summer low while the price continued lower, MMGG also finally broke out of its 15-month downtrend channel last week. This break from the channel triggered a Parabolic SAR buy signal. You can find out more about Parabolic SAR here: http://stockcharts.com/education/IndicatorAnalysis/indic_ParaSAR.htm.
These technical analysis buy signals indicate that MMGG has seen its bottom and is likely to continue higher in coming weeks and months.
Metalline Mining Silver/Copper
In addition to the zinc reserve currently in the feasibility stage, Metalline Mining also has high-grade silver and copper mineralization on the North side of its Sierra Mojada property. Metalline’s Sierra Mojada property has very unusual geology (http://www.metalin.com/geology.html), with 2 distinct mineral systems: high zinc mineralization on the South side of the Sierra Mojada fault and high silver and copper mineralization on the North side. Over 5000 samples had been collected from the North side through 1999, indicating very high grade silver and copper mineralization. In 1999, with the positive feasibility study from Skorpion, Metalline shifted its focus to the enormous potential of its zinc mineralization, putting the silver/copper exploration on hold.
With GTI hired to do the feasibility study, Metalline staff has been able to again give the silver/copper mineralization some attention. Over 2000 new samples have been collected, the results of which should be available shortly. If the results continue to be good, the silver/copper side of MMGG could have as much or more potential than the zinc side. Up to this point, Metalline had not actively promoted the silver/copper side of their property.
Future Plans
Metalline management recognizes that there are two areas that need improvement. First, as a bulletin board stock, they’ve had difficulties attracting big investors, many of whom won’t invest in bulletin board stocks. Look for them to pursue a Toronto or Amex listing, which would give them more credibility and open up doors to a high number of large investors. Secondly, look for them to significantly increase the marketing and PR efforts, possibly hiring a PR firm or two to help them in that area. The lack of news and promotion combined with the private placement sellers hurt the stock last year.
Conclusion
Given the extremely low valuation versus the enormous zinc opportunity, MMGG, trading at less than 1% of the proven value of their zinc reserve, should be several times higher after they complete the feasibility study. If the results from their recent silver/copper sampling continue to be positive, that will also help the stock move significantly higher. At the current level under $1, MMGG looks like a steal, and anything under $2 also looks like a great value with huge upside for the long term.
MMGG: Here’s why you will make a fortune on zinc.
http://silverstockreport.com/email/MMGG_fortune.html
Silver Stock Report
by Jason Hommel
January 28th, 2006
I’m so excited! I’ve had a revelation! An epiphany! A Eureka moment! I looked at the zinc leverage of MMGG, especially in light of expectations of higher zinc prices, and I tried to quantify that, and oh what a revelation!
<>Metalline Mining (MMGG.OB)
http://www.metalin.com/site_map.html
19.8 million shares fully diluted
(plus a $4-8 million financing just completed, not sure how many more shares.)
(I’ll estimate 15 million more shares fully diluted)
I’m guessing: 35 million shares fully diluted.
@ $1.77/share
I’m guessing: $62 million Market Cap
4.9 billion pounds of zinc resource
To produce annually: 398 million pounds of zinc.<>
(MMGG needs to raise about $300 million to build the mine.)<>
$62 million Market Cap / 4900 million pounds of zinc = $.0126/pound
You get 82 pounds of zinc in the ground for 1 pound of zinc’s worth of shares.
That’s way more leverage than we get in most silver stocks! The best silver stocks provide about a 30 to one leverage. Why is the zinc in the ground so much cheaper? Because there are gold bulls, and there are silver bulls, but I don’t think there are very many zinc bulls! Who runs a “zinc stock report”? I realized that these other metals were badly neglected by investors and analysts and newsletter writers when I did a full analysis of my moly stock, IGMI.
Sure, the mining gurus are generally bullish on commodities, as am I, but I’ve not seen anyone do the following type of analysis, as I’m going to share with you.
Now, the SEC forbids mining companies from making projections on assuming higher commodity prices. It’s insane that they prevent the mining companies from showing you basic seventh grade math, but you and I can do it legally, just fine.
Yesterday, I quoted several executives of major mining companies, one from the number two zinc producer in the world, who predicted that zinc prices will rise for the next 2-3 years, since no new major zinc mines can come online and become operational in that time frame, and many existing mines are closing. Sounds logical and realistic, and I agree. But what does that mean? Unless we quantify it, and “count the cost”, that’s just fuzzy thinking. So, what price may zinc rise to? Will zinc rise from $1.04/pound today to $1.50/pound next year? Or are we talking much higher here?
Here’s my thinking: I believe it’s possible for zinc prices to increase well beyond $2/pound--even up to $3.50/pound. Here’s why & what that will mean:
Zinc is a minor ingredient in galvanized steel (3% by weight on average), used to prevent rust, and is absolutely necessary in many, or most applications. Absolutely necessary. And a minor cost. Let those two concepts sink in: necessary & cheap.
It’s like silver, or uranium. Silver is used in tiny quantities in industrial applications in electronics because silver is the greatest conductor of electricity, and thus, absolutely necessary! Furthermore, a significant rise in silver’s price will not reduce demand, because the end product is so very much more expensive than the silver used. And uranium is absolutely necessary to fuel a multi billion dollar nuclear reactor, and those people who run it will buy all the needed uranium, regardless of cost.
Here’s an analogy. Steel is somewhat like a cookie recipe. It may cost $10 to make a batch of cookies. But one vital ingredient may cost $.20, such as the salt, or baking soda, which is like the zinc. Who cares if the price of that tiny, but vital, ingredient rises 10 fold, to $2--you are still going to use it to make the batch of cookies. But cookies are not as necessary as steel!
Likewise, regardless of the price of zinc, it will be used to make stainless steel that does not rust that is needed for things like cars, kitchen knives, and who knows what else.
Think about this: the world could sustain oil prices going from $10/barrel to $70/barrel. Hey, the inflation adjusted high of $43/barrel from 1980 is a whopping $240/barrel! And oil is the largest commodity there is in terms of its cost. For every $100 spent on commodities, probably $35 is spent on oil. Surely, the wheels of the world economy will not fall apart if tiny little zinc rises ten fold from the low of $.35 to $3.50/pound.
And if oil can rise nearly 20 fold, zinc can rise 40 fold, but let’s not go there.
Here’s another key point: Several other minerals needed in steel have risen about ten fold already, such as molybdenum and cobalt. I know of only two other commodities that have risen as much, selenium and iridium. So, 2 out of those 4 are used in steel. Pause, and let that sink in.
Zinc is clearly headed up next, due to China’s increasing demand for steel—and this all helps to explain the parabolic price curve in zinc that we are now witnessing.
And I’m sure there may be short covering of futures contracts, too, just like there will be in silver!
So, what does that mean for little zinc explorer/developers like MMGG, that are highly leveraged to rises in the zinc price? Oh boy, this is what had my head spinning. Are you ready for this?
MMGG can produce 398 million pounds of zinc per year, at $.25/pound, which is the lowest cost in the industry due to the new zinc/oxide electrowinnowing process.
Imagine a profit of, say, a conservative $2/pound, times nearly 400 million pounds produced each year. That’s $800 million profit per year. MMGG could have a market cap of nearly $8 billion (or more), up from under $80 million today. MMGG is a stock that could rise nearly 100 times in price!
The world is geared to overlook such opportunities, partly because of laws that prevent companies from showing you such math, but also because so few people truly understand the ramifications of hyperinflation taking place right at the beginning of a major commodity boom. Hyperinflations always cause major price distortions at the edges of an economy in those “essential and overlooked things”.
Furthermore, zinc is not glamorous like gold or silver. But great fortunes were made in commodities during our industrial age, in steel and oil. And this industrial age is bigger than any before ever in history!
But just like little silver is geared to outperform gold, little zinc is geared to outperform iron.
The best part is that God saw fit to put silver and zinc together in many deposits on earth.
Since silver prices are too low, that means that less zinc is produced as a byproduct of silver mining, and this is helping to create the opportunity that exists today.
So, what are the drawbacks and dangers that may prevent us from reaping 100 fold gains? I think the biggest danger is hedging. If a company, such as MMGG, decides to hedge, or pre-sell, the zinc production, at, say $1.50/pound, to borrow money to finance a mine, but hyperinflation takes zinc prices up to $3/pound or well beyond as dollars become worthless, then bankruptcy is a real risk. If you own stock in MMGG, I strongly urge you to contact Merlin, the president, and urge him to avoid hedging at all costs! It will be easier to convince a man now, than later down the road.
Any hedging during hyperinflation is like giving away your birthright for a bowl of soup.
Industrias Penoles recently hedged zinc at $1000/ton, and zinc is now over $2,000/tonne! Oops, they just destroyed shareholder value!
Another thing that might prevent MMGG from rising 100 fold, ironically, is higher silver prices! What? Yes, because as silver prices rise, more silver mines will go into production, and since zinc is a natural byproduct of many silver deposits, more zinc will be produced. But this is a wonderful problem for the zinc/silver companies like MMGG to have! As one man once said to me, “You mean this danger can actually make me more money? Great!”
I do not know which will continue to go up in price further and faster, silver or zinc. Currently, zinc is outpacing silver, and both still need to catch up to oil’s gains. When I heard the zinc story in the past, I always ignored it. I thought, sure, zinc is necessary, but so is silver, but silver will have monetary demand, and nobody will buy zinc to use it as money. But that does not matter, because I’m not advocating the purchase of physical zinc! The beauty of zinc is that zinc is overlooked by the equity investors, and that means that with zinc exploration companies, the leverage is that much greater, even for modest price rises in zinc. I’ll never stockpile zinc, but I will make a pile of money from my silver/zinc stocks—and if things go as I expect, I’ll use the profits to add to my stockpile of silver!
Currently, I think Metalline is the best zinc/silver company that I know of at current share prices. To find other silver/zinc companies, search for “zinc” in my last silver stock report, #57, from July 2005, at the archives at my web site.
Final Disclaimer: I currently own Metalline, and nobody has paid me to write this.
Sincerely,
<>Jason Hommel
silverstockreport.com
bibleprophesy.org
Thanks for your nice, well-reasoned fundamental argument for why REDF's earnings weren't horrible. REDF should be a single-digit stock, if not a penny stock, based on its fundamentals.
What was nice about those earnings? They look horrible to me, for a stock trading at a 500 PE. How can they only grow registered users by 18% in a year in the growing India market?
REDF should be trading down hard after those earnings. The only reason it's up is because it's on traders' watch lists after the Cramer pump last week.
Thanks. No, if I reshort it, it will be based on the technicals and fundamentals at the time (if anything changes). That may be the 34/36 area, even higher if it gets momo again, or even lower if the technicals look bad and it's not as oversold as now.
Covered my Bu$$ short this am from 35 area. You think the Bu$$ is scary on the long side for scalping? Try shorting it when everyone thinks it's going to the moon...
This article gives a good overview of the zinc situation and why I've been so bullish on MMGG, which has one of maybe 3 large zinc mine projects at a late stage and ready to come into production in the next few years. Given the situation, MMGG should be sitting pretty in about a year when they're done with the feasibility study. They should have lots of interest from major mining companies wanting to buy them out...
ZINC Sets a Record as Supply Drops, and Heads for Higher Prices
2006-01-29 19:32 (New York)
By Simon Casey
Jan. 30 (Bloomberg) -- ZINC prices have risen so fast that
Robin Bhar, a metals analyst for 22 years, is about to raise his
forecast for the second time in two months.
``We've all been left behind,'' said Bhar, 46, who follows
the market in London for UBS AG, Europe's biggest bank by assets.
``It's just phenomenal. No-one in their wildest imagination
thought it would get to these levels.''
ZINC has almost doubled since July 15 to $2,250 a metric ton
on the London Metal Exchange, where it traded at record levels
for 11 straight days this month. Little relief is in sight, as
mining companies restrain investment in expanding production and
China stops exports and begins imports of the metal.
``There is a global shortage,'' Greig Gailey, chief
executive officer of Melbourne-based Zinifex Ltd., the world's
second-largest ZINC supplier, said last week in an interview.
``New mine development is a lengthy process and it's difficult to
see new mines coming on stream in the short to medium term.'' His
company has no new mines planned until 2008 at the earliest.
Driving the market is China, whose economy grew 9.9 percent
in 2005, stoking demand for ZINC, used as a rust-resistant
coating for steel in buildings, cars and appliances. Rising
prices have increased profit for companies such as Xstrata Plc of
Switzerland and Vancouver-based Teck Cominco Ltd., the world's
biggest ZINC miner.
The jump has boosted raw material costs for steelmakers
including Mittal Steel Co. and Arcelor SA. Mittal last week made
a hostile $22.7 billion bid for Arcelor, seeking to cut $1
billion of annual costs.
`Shift in Buyers'
Pension funds and speculators are joining the rally in ZINC
and metals including copper, aluminum and gold, seeking an
alternative to stocks and bonds. The Reuters Jefferies CRB Index,
which tracks commodity futures, gained 17 percent last year,
compared with a 3 percent increase in the Standard & Poor's 500
Index of U.S. companies.
Money held by funds tracking commodity-linked indexes will
rise 38 percent this year to $110 billion in 2005, according to
Barclays Capital. Hermes Pensions Management Ltd., which oversees
the U.K.'s largest pension fund, said Jan. 18 it will invest 1
billion pounds ($1.8 billion) of London-based BT Group Plc's
retirement plan in commodities including metals.
``Two, three, four, five years ago, we would have seen that
with the hedge funds, but not the big state pension funds,'' said
Bob Diamond, chief executive officer of Barclays Capital, in an
interview last week. ``We are seeing an asset class shift.''
Legacy
The shortage of ZINC is a legacy of lower prices in the past
and a lack of investment by the industry. Prices dropped to a
record low of $742 a metric ton in August 2002, prompting mine
closures and leaving producers such as France's Metaleurop SA
bankrupt. London-based Anglo American and Xstrata are now
struggling to meet the world's ZINC needs.
Labor disputes this month at Mexico's Industrias Penoles SA
and mines run by Peru's Volcan Cia. Minera SA have added to
concern that ZINC production will lag behind demand this year.
Inventories will drop this year as demand outpaces supply
from the world's mines. Nick Hatch, an analyst at Investec
Securities in London, estimates ZINC use will exceed global
production this year by 310,000 metric tons.
The stockpiles monitored by the LME have declined by 40
percent in the past month to 375,750 tons.
``There is a dearth of new projects as a consequence of a
lack of exploration,'' said Alan Heap, Citibank Inc.'s Sydney-
based director of commodity analysis. ``Deficits are set to
persist.''
Heap, who said in 2005 that metal markets were entering a
``super cycle'' jump in prices, last week raised Citibank's
first-half average ZINC price forecast 44 percent to 97.5 cents a
pound, or $2,150 a ton. Morgan Stanley this month raised its 2006
ZINC forecast 12 percent to 95 cents a pound, or $2,094 a ton.
`Price Peak'
ZINC is already up 17 percent this year. The price was
forecast to rise 21 percent for the whole of 2006, averaging
$1,666 a ton, according to the median estimate of 24 analysts
surveyed by Bloomberg in December and January. ZINC will rise
further than any other metal on the LME, according to the survey.
``We expect the deficit to persist into 2007, implying a
price peak may be over a year away,'' said Simon Toyne, an
analyst in London at Dresdner Kleinwort Wasserstein.
China became a net importer of ZINC in 2004 as its economy
boomed, according to Canada's Teck Cominco. The nation's ZINC
demand jumped 16 percent to 2.7 million tons in the first 11
months of 2005. Consumption in the West demand by 4.6 percent as
steel production slowed, according to data from the Lisbon-based
International Lead and ZINC Study Group.
--With reporting by Francine Lacqua in Davos, Switzerland.
Editor: Carrigan (tjc).
Here’s why you will make a fortune on zinc.
Silver Stock Report
by Jason Hommel
January 28th, 2006
I’m so excited! I’ve had a revelation! An epiphany! A Eureka moment! I looked at the zinc leverage of MMGG, especially in light of expectations of higher zinc prices, and I tried to quantify that, and oh what a revelation!
Metalline Mining (MMGG.OB)
http://www.metalin.com/site_map.html
19.8 million shares fully diluted
(plus a $4-8 million financing just completed, not sure how many more shares.)
(I’ll estimate 15 million more shares fully diluted)
I’m guessing: 35 million shares fully diluted.
@ $1.77/share
I’m guessing: $62 million Market Cap
4.9 billion pounds of zinc resource
To produce annually: 398 million pounds of zinc.
(MMGG needs to raise about $300 million to build the mine.)
$62 million Market Cap / 4900 million pounds of zinc = $.0126/pound
You get 82 pounds of zinc in the ground for 1 pound of zinc’s worth of shares.
That’s way more leverage than we get in most silver stocks! The best silver stocks provide about a 30 to one leverage. Why is the zinc in the ground so much cheaper? Because there are gold bulls, and there are silver bulls, but I don’t think there are very many zinc bulls! Who runs a “zinc stock report”? I realized that these other metals were badly neglected by investors and analysts and newsletter writers when I did a full analysis of my moly stock, IGMI.
Sure, the mining gurus are generally bullish on commodities, as am I, but I’ve not seen anyone do the following type of analysis, as I’m going to share with you.
Now, the SEC forbids mining companies from making projections on assuming higher commodity prices. It’s insane that they prevent the mining companies from showing you basic seventh grade math, but you and I can do it legally, just fine.
Yesterday, I quoted several executives of major mining companies, one from the number two zinc producer in the world, who predicted that zinc prices will rise for the next 2-3 years, since no new major zinc mines can come online and become operational in that time frame, and many existing mines are closing. Sounds logical and realistic, and I agree. But what does that mean? Unless we quantify it, and “count the cost”, that’s just fuzzy thinking. So, what price may zinc rise to? Will zinc rise from $1.04/pound today to $1.50/pound next year? Or are we talking much higher here?
Here’s my thinking: I believe it’s possible for zinc prices to increase well beyond $2/pound--even up to $3.50/pound. Here’s why & what that will mean:
Zinc is a minor ingredient in galvanized steel (3% by weight on average), used to prevent rust, and is absolutely necessary in many, or most applications. Absolutely necessary. And a minor cost. Let those two concepts sink in: necessary & cheap.
It’s like silver, or uranium. Silver is used in tiny quantities in industrial applications in electronics because silver is the greatest conductor of electricity, and thus, absolutely necessary! Furthermore, a significant rise in silver’s price will not reduce demand, because the end product is so very much more expensive than the silver used. And uranium is absolutely necessary to fuel a multi billion dollar nuclear reactor, and those people who run it will buy all the needed uranium, regardless of cost.
Here’s an analogy. Steel is somewhat like a cookie recipe. It may cost $10 to make a batch of cookies. But one vital ingredient may cost $.20, such as the salt, or baking soda, which is like the zinc. Who cares if the price of that tiny, but vital, ingredient rises 10 fold, to $2--you are still going to use it to make the batch of cookies. But cookies are not as necessary as steel!
Likewise, regardless of the price of zinc, it will be used to make stainless steel that does not rust that is needed for things like cars, kitchen knives, and who knows what else.
Think about this: the world could sustain oil prices going from $10/barrel to $70/barrel. Hey, the inflation adjusted high of $43/barrel from 1980 is a whopping $240/barrel! And oil is the largest commodity there is in terms of its cost. For every $100 spent on commodities, probably $35 is spent on oil. Surely, the wheels of the world economy will not fall apart if tiny little zinc rises ten fold from the low of $.35 to $3.50/pound.
And if oil can rise nearly 20 fold, zinc can rise 40 fold, but let’s not go there.
Here’s another key point: Several other minerals needed in steel have risen about ten fold already, such as molybdenum and cobalt. I know of only two other commodities that have risen as much, selenium and iridium. So, 2 out of those 4 are used in steel. Pause, and let that sink in.
Zinc is clearly headed up next, due to China’s increasing demand for steel—and this all helps to explain the parabolic price curve in zinc that we are now witnessing.
And I’m sure there may be short covering of futures contracts, too, just like there will be in silver!
So, what does that mean for little zinc explorer/developers like MMGG, that are highly leveraged to rises in the zinc price? Oh boy, this is what had my head spinning. Are you ready for this?
MMGG can produce 398 million pounds of zinc per year, at $.25/pound, which is the lowest cost in the industry due to the new zinc/oxide electrowinnowing process.
Imagine a profit of, say, a conservative $2/pound, times nearly 400 million pounds produced each year. That’s $800 million profit per year. MMGG could have a market cap of nearly $8 billion (or more), up from under $80 million today. MMGG is a stock that could rise nearly 100 times in price!
The world is geared to overlook such opportunities, partly because of laws that prevent companies from showing you such math, but also because so few people truly understand the ramifications of hyperinflation taking place right at the beginning of a major commodity boom. Hyperinflations always cause major price distortions at the edges of an economy in those “essential and overlooked things”.
Furthermore, zinc is not glamorous like gold or silver. But great fortunes were made in commodities during our industrial age, in steel and oil. And this industrial age is bigger than any before ever in history!
But just like little silver is geared to outperform gold, little zinc is geared to outperform iron.
The best part is that God saw fit to put silver and zinc together in many deposits on earth.
Since silver prices are too low, that means that less zinc is produced as a byproduct of silver mining, and this is helping to create the opportunity that exists today.
So, what are the drawbacks and dangers that may prevent us from reaping 100 fold gains? I think the biggest danger is hedging. If a company, such as MMGG, decides to hedge, or pre-sell, the zinc production, at, say $1.50/pound, to borrow money to finance a mine, but hyperinflation takes zinc prices up to $3/pound or well beyond as dollars become worthless, then bankruptcy is a real risk. If you own stock in MMGG, I strongly urge you to contact Merlin, the president, and urge him to avoid hedging at all costs! It will be easier to convince a man now, than later down the road.
Any hedging during hyperinflation is like giving away your birthright for a bowl of soup.
Industrias Penoles recently hedged zinc at $1000/ton, and zinc is now over $2,000/tonne! Oops, they just destroyed shareholder value!
Another thing that might prevent MMGG from rising 100 fold, ironically, is higher silver prices! What? Yes, because as silver prices rise, more silver mines will go into production, and since zinc is a natural byproduct of many silver deposits, more zinc will be produced. But this is a wonderful problem for the zinc/silver companies like MMGG to have! As one man once said to me, “You mean this danger can actually make me more money? Great!”
I do not know which will continue to go up in price further and faster, silver or zinc. Currently, zinc is outpacing silver, and both still need to catch up to oil’s gains. When I heard the zinc story in the past, I always ignored it. I thought, sure, zinc is necessary, but so is silver, but silver will have monetary demand, and nobody will buy zinc to use it as money. But that does not matter, because I’m not advocating the purchase of physical zinc! The beauty of zinc is that zinc is overlooked by the equity investors, and that means that with zinc exploration companies, the leverage is that much greater, even for modest price rises in zinc. I’ll never stockpile zinc, but I will make a pile of money from my silver/zinc stocks—and if things go as I expect, I’ll use the profits to add to my stockpile of silver!
Currently, I think Metalline is the best zinc/silver company that I know of at current share prices. To find other silver/zinc companies, search for “zinc” in my last silver stock report, #57, from July 2005, at the archives at my web site.
Final Disclaimer: I currently own Metalline, and nobody has paid me to write this.
Sincerely,
Jason Hommel
silverstockreport.com
bibleprophesy.org
Looks like MMGG will get bought out much higher once their feasibility study's done, with AAUK one likely bidder: http://greattrades.blogspot.com/2006/01/why-we-think-anglo-american-aauk-will.html
http://biz.yahoo.com/prnews/060126/flth025.html?.v=27
China Natural Resources, Inc. Acquires 100% Equity Interest in Feishang Mining Holdings Ltd., a Mining Enterprise
Thursday January 26, 3:22 pm ET
HONG KONG, Jan. 26 /PRNewswire-FirstCall/ -- China Natural Resources, Inc. (Nasdaq: CHNR - News), a company based in the People's Republic of China (PRC), today announced that, on January 24, 2006, China Natural Resources entered into an Acquisition Agreement with Feishang Mining Holdings Limited ("Feishang") and Feishang Group Limited (the "Feishang Shareholder") pursuant to which China Natural Resources will acquire 100% of the issued and outstanding capital stock of Feishang from the Feishang Shareholder. As consideration, at the closing of the acquisition, China Natural Resources will issue to the Feishang Shareholder common shares of China Natural Resources representing approximately 86.4% of its issued and outstanding common shares, and will issue to the Feishang Shareholder warrants to purchase an additional 4,500,000 common shares. Closing of the acquisition is expected to take place on or prior to February 3, 2006.
ADVERTISEMENT
Feishang, through its wholly owned subsidiary, Wuhu Feishang Mining Development Co., Ltd. ("Wuhu"), a company established under the laws of the People's Republic of China ("PRC"), owns the mining rights to two mines in the PRC, containing iron and zinc minerals. For the year ended December 31, 2004, Wuhu reported net sales revenue of RMB77.9 million (US$9.4 million) and net income of RMB42.0 million (US$5.1 million), based on the exchange rate of US$1.00=RMB8.28 as at December 31, 2004.
China Natural Resources, Inc. has offices in Hong Kong and the Hainan Province of the PRC. Currently, the Company's active business operations consist of its advertising, promotion and public relations business.
This press release includes forward-looking statements within the meaning of Federal securities laws. These forward-looking statements involve risks and uncertainties that may cause actual results of operations to differ materially from the forward-looking statements. Among the risks and uncertainties that could cause our actual results to differ from our forward- looking statements are our intent, belief and current expectations as to business operations and operating results of the Company, uncertainties regarding the governmental, economic and political circumstances in the People's Republic of China and other risks detailed from time to time in the Company's Securities and Exchange Commission filings. Although the Company's management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.
FYI, here's a valuation analysis on MMGG that shows 3 different methods showing MMGG should be several times higher once the feasibility study's done in about a year: http://www.greattrades.blogspot.com/
One way to tell is by looking at the hubris of the longs on message boards. The rambulls have been incredible, with ridiculous calls based on faulty analysis. Also, seeing that the analyst upgrade had ridiculous assumptions helps.
The technicals I cited are great indicators that the sentiment is extreme and the stock is due for a pullback.
RMBS broke 32 support and headed lower...
Apparently the RMBS CFO agrees, having exercised various options that don't expire for over 5 years and selling at least 140,000 shares the last few days: http://investor.rambus.com/edgar.cfm
He had only filed to sell 10,000 shares in all of 2005. Other insiders are also taking advantage of this windfall and selling chunks to the retail buyers.
Gotta love the stock market...
RMBS is just a huge short squeeze on a ridiculous upgrade. Lots of momentum players and shorts from lower have run it up, along with cult longs. When they're done, the stock's going to sell hard, and that should be very soon.
5-week RSI at 98, 5-day RSI at 99, weekly upper Bollinger Band at 25.69. Optimistically, stock worth $10.80 + litigation value of $9 per the analyst upgrade if they win everything and get paid this year. For some reason he put a 3x sales multiple on all the cases that they'll supposedly win this year to come up with the 38 target.
Even if he's completely right with his analysis, why would you buy now around $34 when his year-end target is $38 and the first trial doesn't even start until March? What if he's wrong and they don't win every single case AND get paid this year AND get a 3x multiple on what they win?
I think they have less than $9 worth of litigation value, and they won't get paid on all the cases this year even if they win them all this year. I think anyone who buys near here and holds will be very sorry.
RMBS will be much lower next week.
The bu$$ short's working out quite fine :). I think it's a great hedge against my long exposure, just in case the market ever has a down day this year... :) Lots of momentum players underwater on the it now. Stuck on a bu$$ under water is not a pleasant place to be. The bu$$ has stalled...
Yes, ORCT's doing great. Been trying to tell everyone over the last couple of months that it was heading higher...
I agree it's very overvalued. It's getting ridiculous here. I'm shorting it, as I don't think it should be at $34 based on an analyst upgrade that assumes everything goes right and still is too frothy in valuing it. Even if he's right, why buy at $34 in January when the year-end target is $34, given all that has to go right to get there?
The technicals show it's extremely overbought, with out-of-this-world RSI of 99 on 5-day and near 98 on 8-day RSI.
He mea iki -- You're welcome.
With the price up to $1.45 now, financing, which was their biggest risk, won't be an issue for MMGG now. With the stock languishing at .80, they were having trouble closing their private placement, but not any more.
If anyone's an accredited investor and likes this one, PM me.
Yep, the big sellers were done and now the buyers are returning. 4 out of 5 up days after being so weak most of December. CNTF looking great now, still way undervalued...
Thanks, Dan. It's nice to see that EZM, like other zinc stocks, has rallied recently with the new high in the price of zinc, which is over .88 today. EZM has more than doubled since July, but should continue higher given the zinc supply gap situation.
With all these other zinc stocks doubling or so recently, that bodes well for MMGG, which is only about 25% up from its 6-year low.
Here's an extensive writeup on MMGG: http://www.greattrades.blogspot.com/
The stock took a big hit in recent months as investors from the previous private placement sold and the company had to lower the price for its new placement to complete the feasibility study down to .80. Now that the second placement is closing, the selling pressure is abating and the stock is starting to rebound, joining other zinc stocks which have been rallying on the new 16-year high price of zinc: http://www.kitcometals.com/charts/ZINC_historical.html
The price of zinc has doubled in the past year and a half and looks headed much higher given the supply/demand situation. MMGG trading at less than 1/3 what it was when zinc was half the current price (and before the feasibility study had started and the metallurgy was proven) is a steal, particularly if they can get listed (most likely in Canada). MMGG should at least return to above the $3 it traded at in 2004 once the feasibility study is completed.
Joined on ELOS. Looks like it should at least get a bounce soon, and the fundamentals look good even with the CIBC reduced estimates of $2.04 EPS for 2006. Even if they're right, a PE of 15 for 25%+ growth is still a great value.
Looks like CNTF is ready now. Instead of stopping at the 50% retrace, it went down to the 61.8% fib retrace level and the 12.5 support area before today's rally back on strong volume. Today was the first rally of more than .07 in 18 straight sessions after rallying at least .90 in 6 of the previous 11 sessions. The big sellers who had pressured the stock the last few weeks look to be done.
I found the transcript of the CNTF earnings call from last month (http://chinastockblog.com/article/4507) and the Q&A session (http://chinastockblog.com/article/4508).
The thing I found the most interesting is that the President, Bob Huo, in answering a question during the Q&A session, said they were targeting 100% revenue growth for 2006:
And for revenue, 2006, we hope we can have 100% increase.
Leticia Yu
100% increase year-on-year in sales?
Bob Huo
Yes. Year-on-year, 100% increase.
I was pretty sure I had heard this on the conference call, but wasn't absolutely sure, as that just seems crazy for a stock currently trading at a 15 PE. After the 208% Net Income growth reported last quarter (.26 per ADS for Q3, .93 guidance for all of 2005) on 94% year-over-year revenue growth, the current price seems absurdly low. It's still below the $16 IPO price from May.
After rallying from under 9 to almost 19, CNTF has done about a 50% retrace to the 14's. I think this pullback and any further weakness is an incredible buying opportunity for the long term. If CNTF comes anywhere close to the targeted 100% revenue growth next year, the stock should be an easy multi-bagger.
Another breakout for ORCT today. As I keep saying, ORCT is headed much higher and the technicals are confirming it. The stock belongs much higher based on the fundamentals.
I don't think so. No new Japanese customers are priced in at all. Not even the unannounced new U.S. customer is priced in, as ORCT is still well below where it was in July when there was only the one customer. The guidance for 35% growth and 1.50+ EPS is based only on existing customers. Any new customers are additional to that.
I think it only means don't expect new Japanese customers right away, as the sales cycle could be extended. I think the next customer will be in Korea, as they just opened an office there.
Orckit Shares Advance on Analyst Report
Monday December 5, 1:41 pm ET
Orckit Communications Shares Climb After Analyst Notes Coming Business Opportunities in Japan
NEW YORK (AP) -- Shares of Orckit Communications Ltd. jumped Monday after an analyst noted coming business opportunities in Japan for the communications networking equipment maker.
The Tel-Aviv, Israel-based company's shares rose $1.75, or 8 percent, to $23.90 in midday trading on the Nasdaq. In the past 52 weeks, the stock has fluctuated between a low of $7.18 and a high of $29.55.
RBC Capital Markets analyst Daniel Meron, who rates the company at "Outperform" with a $34 target price, wrote in a client note that recent changes in the Japanese market may mean more business opportunities for the company in 2006.
Specifically, planned network and service convergence by Nippon Telegraph and Telephone Corp. "plays to the strength of Orckit's offering," he wrote.
Ensuing competition, market dynamics and regulation may "further expedite carrier shift to convergence" in Japan, leading to more opportunities for Orckit and other companies, the analyst added
Meron said some of the opportunities may materialize next year, but added it is not clear "when deployments will commence and on what scale."
Orckit's products, he wrote, were evaluated by several Japanese carriers for many months. The analyst cautioned clients that "sales cycles may stretch and test investor patience."
Besides opportunities in Japan, Meron added he also sees potential in Europe and Korea for the company as carrier competition grows.
09:45 ORCT Orckit Comms: Checks indicate recent changes in Japanese market may provide opportunities for ORCT - RBC (24.32 +2.17)
RBC says their industry checks indicate recent changes in the Japanese market may provide opportunities for ORCT to win additional business in 2006. Specifically, the planned NTT network and service convergence starting late-2006 for wireless unit NTT-DoCoMo and regional units NTT-East and NTT-West plays to the strength of ORCT's offering. Also, firm says ensuing competition, mkt dynamics, and regulation may further expedite carrier shift to convergence, opening more opportunities for ORCT and other vendors. (Briefing.com note: This comment was out pre-mkt.)
ORCT trading at 23+ in premarket, breaking out from the long consolidation.
ORCT doesn't really need to "take on the big guys." They specialize in "Triple Play" communications gear, which allows a service provider (i.e., telecomm or cable) to offer voice, data, and video together across networks. Here's a Businessweek article discussing how the "Triple Play" is the big trend in the industry: http://yahoo.businessweek.com/investor/content/nov2005/pi2005114_7121_pi044.htm
ORCT's market cap is about 1/4 of 1% of CSCO's, so they're really a small niche player. Up until the current quarter, they've only had 1 main customer, KDDI in Japan. On the conference call, they mentioned they had begun shipments to a U.S. telecom carrier, though no revenues were included in the Q3 report and there has been no formal announcement of this customer yet, by the customer's request. They also hinted at several potential new customers, particularly in Asia.
ORCT's forecasted 35% EPS growth for next year is only based on the customers they already have, so yes they can continue growing even without adding any new customers as their existing customers deploy their products. New customers will add to this growth. They are only now moving to profitability, with 3 profitable quarters in the books and guidance to .41 EPS in Q4 vs. a sizable loss in last year's Q4.
It's really early in the game for ORCT, and they're making all the right moves so far and seem to be in the right place at the right time for the "Triple Play" trend.
Nice close on ORCT yesterday -- a new high close since their earnings blowout and the ensuing consolidation. This breakout likely clears the way for a run to a new high.
Now that ORCT has a second broker covering them, as well as the Oberweiss newsletter this week, all with a buy recommendation, there are lots of buyers interested in getting in on ORCT on any pullbacks. Even at $30, the PE will only be 20, with 35% EPS growth guidance for next year and upside if they add any new customers. As more brokers and institutions discover ORCT, it should continue higher.
From their 10/31 Q3 earnings announcement:
http://biz.yahoo.com/prnews/051031/nym145.html?.v=27
-- Initial commercial shipments to a U.S. telecom carrier commenced. It is expected that product deliveries to this customer will increase in 2006.
-- Interest from telecom carriers in Corrigent's CM-100 product line continued. This interest came primarily from emerging carriers in Asia, seeking to provide both Ethernet and TDM services over a single unified network. Triple Play, being the most demanding application, is one of the fundamental drivers for these metro network expansion plans.
The revenue from this new U.S. customer wasn't included in their Q3 numbers, and no additional new customers were included in the guidance of $1.50 for next year's EPS. Given that they just opened an office in Korea, there's likely to be a new Asian customer soon.
Now that ORCT has a second broker covering them, as well as the Oberweiss newsletter this week, all with a buy recommendation, there are lots of buyers interested in getting in on ORCT on any pullbacks. The breakout yesterday to a new high close post-earnings blowout likely clears the way for a run to a new high. Even at $30, the PE will only be 20, with 35% EPS growth guidance for next year and upside if they add any new customers. As more brokers and institutions discover ORCT, it should continue higher.
I think Greenberg's panning of OVTI is one reason it will move much higher over time, and maybe from here today. There are over 20 million shares short, and maybe more after this gap and Greenberg's panning. OVTI just broke the 52-week high and has a P&F target of $42.50, nearly double the current price:
http://stockcharts.com/def/servlet/SC.pnf?chart=ovti,PLTADANRBO[PA][D20051202][F1!3!!!2!20]&pref...
Regardless what it does today, I think OVTI's a great hold for mugh higher levels given the awesome report and guidance, very cheap valuation, technical breakout, and gigantic short interes.