TPS Trade Alert – January 8, 2013
January 8, 2013
Recommendation:
Buy Mines Management (AMEX: MGN) up to $1.25 per share.
Trade Rationale:
It’s often challenging to find good, small mining companies to invest in. It’s not that there isn’t a big selection, there’s actually a huge pool to choose from.
It’s just that there are so many factors than can derail the success of small players in the mining industry.
Mining is expensive, so any major mistakes can mean the difference between success and failure. Not to mention, there are nearly always unforeseen delays when building out a mine due to regulations and the uncertain nature of digging for minerals.
And don’t forget about commodity prices. It’s basically impossible to tell what the price of a given commodity is going to be by the time a mine is ready for production.
It’s just another risk mining companies have to contend with.
So why invest in small mining companies? Well, the most obvious reason is the upside can be huge. Moreover, there isn’t nearly as much risk to the investor if they invest in the right mining company.
Fortunately, not only do we at The Penny Speculator know how to find the most promising small miners – we also just found a perfect candidate for investment.
Introducing Mines Management (AMEX: MGN).
MGN is a mineral exploration and development company engaged in the acquisition, exploration, and development of silver-dominant mineral projects. The company’s primary focus is on developing the Montanore Silver-Copper Deposit.
Mines Management owns 100% of Montanore, a 355-acre property in northwestern Montana. The company is also involved in a gold-silver project in Peru called La Estrealla.
Here’s the thing…
Montanore could truly be the silver-copper mother lode. It’s one of the largest mines of its kind in the world. In fact, the mine is possibly one of the top ten largest silver mines on the planet.
The mine is expected to produce 8 million ounces of silver and 60 million pounds of copper per year when it’s operating at capacity. Make no mistake, those are huge numbers.
So why is MGN trading for just around $1 per share if it owns this amazing property?
Keep in mind, as I said earlier, mining has its risks. And, Montanore is not yet producing anything. It’s still in the permitting and drilling evaluation stage.
That means, there are still risks it either won’t be as valuable as expected, or it takes much longer to get to production than anticipated.
Here are some reasons I’m not worried…
After a long and arduous permitting process, MGN is nearly at the end. They’re in the ninth out of eleven steps – and the current step is nearly successfully completed.
What’s more, the company has over $13 million in cash and no debt. Liquidity should not be a concern as the final steps of the permitting process are completed.
Plus, MGN also has a stake in the La Estrella project in Peru. The initial exploration activities were better than expected. And, the company has extended the gold-silver zone.
This project could also pay off in a big way and help support the cash flow needs of the company while Montanore is being developed.
Speaking of cash flow, it’s a good time to mention that we aren’t investing in MGN for the financials. This company basically has no revenues and no profits.
As I mentioned before, it does have plenty of cash for the time being and no debt. But otherwise, this investment is all about potential and the prospects of the Montanore and La Estrella projects.
It’s important to note that neither project is likely to produce actual revenue in the near term.
So why now? Why invest in MGN when the prospects of revenue and profits are still uncertain?
Because now’s when the stock is cheap.
You see, permitting and evaluation milestones could both give the shares regular boosts in the coming weeks. And, we don’t want to wait for the stock to become expensive as it gets closer and closer to production.
Not to mention, MGN is trading at a bargain basement price right now.
At the time of this writing, the shares are trading for $1.05. But, $0.46 is entirely due to the company’s cash holdings. That means the market is valuing the earnings potential of MGN’s mines at under $0.60 per share, or roughly $18 million.
Get this – at Montanore’s expected full production levels, the company would pull in $18 million in just over two weeks! And that doesn’t even include La Estrella.
Without a doubt, MGN is dirt cheap. And despite mining production not starting in the immediate future, the prospects for the company are off the charts.
Now’s your chance to add MGN to your portfolio while it’s an absolute steal.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Mines Management |
| Ticker: | MGN |
| Recent Price: | $1.05 |
| Market Cap: | $30.5 million |
| Avg. Daily Volume: | 55,259 shares |
Chart:
Category: TPS Trade Alert
