Value Microcaps Free-For-All

[alohamart]

My reply to this message on the Value Microcaps board was deleted because MMG doesn't yet have positive earnings: http://www.investorshub.com/boards/replies.asp?msg=14615486

I was told I could repost it here instead, and since I plan on it changing my zip code, I think it's a more appropriate forum, so here it is:


<< M M G G shouldn't even be discussed on this board. It is not a producing mine and likely hasn't gone up for a reason. Besides lots of money and time, a new mine would require a substantial new source of water to run it and they haven't been able to find one. >>

It's MMG now, with the Amex listing effective this week.

It has gone up (over 100% since releasing that water news), though like other preproduction juniors, it's still well below its May highs and still is extremely undervalued compared to BWR, HBM, and every zinc stock out there considering its late stage in its feasibility study and its world-class size. Just look at the proven zinc resources per market cap numbers (http://www.investorshub.com/boards/read_msg.asp?message_id=14615486 ). Sure, you have to discount for the cost to go to production, the risk they won't be economically feasible, and the time value of money, but the current discount is ridiculous.

With more proven zinc than HBM or BWR (at a tiny fraction of their market caps) they have the largest late-stage preproduction zinc project in the world that majors will be able to buy out. When they complete the feasibility study next year, removing all the feasibility risks, I think they'll have multiple cash-rich bidders looking to extend their zinc reserves. Zinifex said just today that they're looking to invest in "junior explorers in areas such as Mexico and South America this year to help it increase production in the longer term": http://www.smh.com.au/news/business/zinifex-casts-an-eye-overseas-for-growth/2006/11/08/116266175545....

They did find a substantial new source of water, as announced last month, but they have to confirm it with testing:
"Our first round of exploratory drilling indicates an area, about 20 kilometers east of the
district mines, where a relatively shallow, high quality water supply may be developed.
Our next round of exploration drilling will be in this area. We have obtained leases for
surface access well sites and pipeline construction in areas where we will be drilling.

The flow rates of exploration borings cannot be accurately evaluated until the holes are
completed as wells, a pump is installed and a lengthy series of pump tests are
performed. We will determine which holes we will complete after we have completed the
exploration drilling. We will not announce any flow rates until the rates are confirmed in
accordance with good engineering practices."

I think the Skorpion precedent shows that piping water over a long distance isn't a showstopper for a mine. Skorpion in Namibia, Africa, is the first and only oxide zinc mine in the world (owned by Anglo American), and it has a lot of similarities to MMG's Sierra Mojada (oxide zinc, same SXEW processing planned, similar tonnage and grade, similar flat, open areas in a warm, sunny climate in an area with fairly cheap and plentiful labor, though Skorpion didn't have as much infrastructure and had to build a power plant and sulphuric acid plant). You can see more on Skorpion here: http://www.metalin.com/skorpion.html (check out the photo of the warehouse full of zinc bars at the bottom).

Green Team International (GTI) did the feasibility study for Skorpion and moved them to production in 2003, when zinc was at about $.35/lb. GTI is the group doing MMG's feasibility study right now. From the GTI site, I found that Skorpion actually pumped water from 45 km away:
http://www.gti.co.za/projects.htm
"water supply from the Orange river, 45 km away."

Since Skorpion was able to be economically feasible at $.35 zinc (now over $2.00), despite having far less infrastructure than Sierra Mojada has and having to pump water 45km, I have no doubt Sierra Mojada will be shown to be economically feasible now by the same GTI team. MMG was able to find water 20km away in their first round of exploratory drilling (http://www.metalin.com/10-04-06.pdf ). If they confirm this source is sufficient, their water piping costs should be less than Skorpion's.

Even if the water they found is a dud, and they can't find enough water within hundreds of miles, they can locate the refinery plant near water, either within Mexico or elsewhere. Since there's only one oxide zinc refinery in the world (Skorpion's), part of MMG's project is to build their own oxide zinc refinery. That's why they had to prove up such a huge zinc deposit, enough to justify the building of a refinery, before commencing the feasibility study. Their earlier testing showed that they can easily produce a concentrate from the ore which they can ship anywhere in the world for refining, meaning they can locate the refinery wherever it makes the most sense from a tax incentive, power, labor, etc. standpoint. This flexibility gives them negotiating power with Mexico and other countries to get the best all-around deal for the refinery.

Bottom line is there is water nearby. They need to confirm it's enough for the mine and refinery, but if not, they'll locate the refinery elsewhere (they may anyway if they get a better deal somewhere else). Until they confirm the water source, refinery location, and do everything else needed to complete the feasibility study, there will be risk of MMG not being economically feasible. However, I think the risk priced into the company's tiny market cap for the size and stage of its 100%-owned proven zinc deposit, are much lower than people think, presenting investors with a great long-term zinc/silver value opportunity.