Multi-Metal Development Corp. (MLYCF)

[DrBill1]

Compelling risk/reward dynamic



The world needs 300 million pounds of molybdenum in 9 years



Mosquito Consolidated Gold Mines Limited (MQCMF) on the US OTCQX - (TSX Venture: MSQ)



According to a London Times article and reported by Dow Jones, Mosquito's CuMo deposit is the largest untapped open pit molybdenum deposit in the world.

But there’s more to getting a mine off the ground than the size and richness of the resource.

The formula for success in the mining business is: you have to have the project, you have to have the people, you have to have the technical expertise to advance the project, and you have to have the money. Three out of four don't count!

And the “getting the money” part is an ongoing task until the project is production ready. Mosquito certainly has the first three of these requirements for success, and management has clearly demonstrated its financial ability to perform by a) monetizing its noncore assets (other than CuMo) and b) having been vigilant in its money raises by carefully shepherding the number of total shares, i.e. dilution.

But what lies ahead is the ongoing quest for the eventual $billion plus…

Here’s the essence: Mosquito’s CuMo contains one of the world’s largest, strategic, stores of mineral wealth—with perhaps as much as $100 billion in the ground using the 2009 Ausenco and the 2010 Snowden numbers from their NI 43-101 Resource Estimate mine calculations.

Molybdenum mines take a long time to get up and running, and considering that the world will need the equivalent of one to two world class molybdenum mines coming into production during each year for the next 8-9 years, the demand outlook for the “moly” miners, specifically Mosquito’s CuMo, looks excellent. And importantly in the equation: molybdenum is not recyclable.

Ratcheting up the case for molybdenum demand a notch, consider that the government of China has set yearly quotas for “in country” production due to ebbing domestic supply and the increased costs of mining lower grade ores. Last October, China, 1) classified molybdenum as a strategic material and 2) indicated that the country would restrict the mining and export of the metal starting in 2011. They also mentioned that they were considering “stockpiling” the metal.

Crucially, this means that the projected dramatic increase in molybdenum demand predicted by 2020 will need to be met by western producers of the metal. You may already know that China has been on a global natural resource buying spree to fulfill its domestic consumption, and that includes molybdenum producers.

So where is Mosquito’s CuMo in the timeline of actual production?

Recently, (on 5/17/2011) Mosquito won a key environmental ruling: the U.S. Forest Service gave authorization for Mosquito to embark on its expanded exploratory drilling program, planned for this summer. No further environmental hurdles look to be in the way until the final pre-feasibility mine plan, and that’s out in time a couple of years.

Also key in evaluating Mosquito’s CuMo is that the resource is in the very friendly mining state of Idaho, where mining is bread and butter. Mining infrastructure, power, water, major road and rail networks—and a trained mining-industrial workforce—are very easily accessible within 50 miles of the property. Because of these facts and the open-pit characteristics of CuMo, management believes they will be the low-cost producer of molybdenum oxide. (See Corporate Presentation) http://www.mosquitogold.com/i/pdf/Presentation.pdf

Some necessary background info: The Thompson Creek Mine, also in Idaho, is the fourth-largest primary molybdenum mine in the world and the largest mine in the state, and it is located just 60 miles from Mosquito’s CuMo. Conspicuously the Thompson Creek Mine is nearly played out after 30 years of production, and will likely be shut down in 10 years. Because of the issue of Thompson Creek’s “playing out” it is mining as low as 0.01% Mo. Given this fact, the focus of mining there is now on the residual resource that was put aside over the years. Thompson Creek accounts for about 5% of world moly production.

Another important fact to hold in mind: Mosquito’s CuMo has the same grade ore as the Thompson Creek Mine, but is three times the size.

In these days of deep uncertainty, economic stagnation and high unemployment, the development of this major resource will inject a continuum of huge funding to a mining-friendly region in Idaho where unemployment is high and the region’s largest mine, the Thompson Creek Mine, is seeing its last days. Most notably, the massive infusion of money into that poor county in Idaho will occur long before Mosquito will see any output from the mine, as these enormous projects take several years to begin production. The positive economic impact to the region will be immediate, profound, and lasting; indeed, billions of dollars will be spent there. From what I hear, miners from the region and its adjoining states are said to be making plans for a new “forever” job at Mosquito’s CuMo.

Now what’s next for Mosquito’s CuMo—and for that matter, junior miners in general? It’s called getting the money to get into production, and hence the compelling risk/reward dynamic that I referred to.

Getting a mine up and running is all about the quest for money and more money and then more money. The good news is that when you really have it in the ground and it’s big and rich, and if the demand is there and it’s easy to access, then the financing isn’t quite such a slog. But it’s still definitely a process. All the way along as one gets closer to production, the shares of the company generally trend higher. As part of the “building brand” process, add in investment banking relationships, research reports, road shows bringing professional miners and fund managers to the asset, public and investor relations, etc.—and there are always the interested larger companies that may want to partner-up or buy you out. By the time a discovered asset becomes a big mine in production it can easily take more than a billion dollars. As I mentioned above, Mosquito has been watchful in its money raises by carefully shepherding the number of total shares, i.e. dilution.

Global use of molybdenum is increasing and new uses continue to be developed. In 9 years we will need an additional 200 or 300 million lbs—that would equate to 10 Thompson Creek mines. Considering CuMo’s mammoth size, huge intrinsic value, the initial “go ahead” from the US Forest Service over environmental concerns, the low cost to mine per ton, its open pit characteristics that will allow enormous daily production, and its location in mining friendly Idaho, good old USA, the current low price of Mosquito shares and staggering low market-cap of only US$62 million gives investors a compelling opportunity to participate in what is rapidly becoming one of the best—and what could be the most profitable—mineral deposit in the world, of any kind.

Rarely have I ever seen a more optimal or compelling risk/reward dynamic than that presented by the shares of Mosquito Consolidated Gold Mines Limited. I believe that it’s only a matter of a “short time” before the tremendous intrinsic value of the CuMo project is reflected in the market.

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Disclaimer: I have bought shares of Mosquito in the open market.

Dr. John Faessel

ON THE MARKET

Commentary and Insights

Faessel Publishing LLC

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Posted yesterday on the MSQ Stockhouse Board

DrBill