Mines Management Comparisons

(Ticker: MGN)

Silver Stock Report

by Jason Hommel, February 21, 2014



Mines Management. I own shares. The company has not paid me to write this article.

The rally in Mines Management stock is not nearly over, and could run from $1.20/share to over $3/share in the next week or month, even with silver prices remaining flat.

Silver has rallied 10% in the last three weeks, from under $20 to nearly $22. Here's a few resulting silver stock price movements.

In the last three weeks, from Jan 30 to Feb 21, the following silver stocks have made the following moves, from low to high, as I see from glancing at their 30 day charts.

These are listed by market cap, largest first.

Silver Wheaton up from $21.5 to $26, up 21%.
SLW, market cap: $9.2 billion

Pan American Silver up from $12.40 to $14.90, up 20%.
PAAS, market cap: $2.3 billion

First Majestic Silver up from $10.25 to $12.25, up 19%.
AG, market cap: $1.4 billion

Silver Standard up from $7.5 to $10.8, up 44%.
SSRI, market cap: $845 million

Endeavour Silver up from $4.35 to $5.60, up 29%.
EXK, market cap: $576 million

Silvercorp Metals up from $2.5 to $3.3, up 32%
SVM, market cap: $474 million

Silvercrest Mines up from $1.85 to $2.65, up 43%.
SVLC, market cap: $260 million

Wildcat Silver up from $.43 to $.66, up 53%.
WS.TO market cap: $93 million

Avino Silver up from $1.4 to $2.8, up 100%.
ASM, market cap: $63 million

I don't own any of those silver stocks. The general trend that I can see is that the higher the market cap, the lower the gain, or said another way, the lower the market cap, the bigger the gain.

Finally, the stock I picked and own. (Mines Management has not paid me in any way, neither in stock or cash to write about their stock.)

Mines Management up from $.65 to $1.20, up 84%.
MGN, market cap: $33 million

I see that the gains in Mines Management are less than Avino, especially considering Avino has a higher market cap twice as high.

When compared to other industry stocks, Mines Management is rationally seen as being expected to go up as it did.

Some people have asked me if I will now sell Mines Management stock and perhaps diversify. I reply and ask myself, "for what"? What's better? I don't know yet. I don't see much.

Wildcat Silver makes an interesting comparison to Mines Management, which was pointed out by one very sharp reader, Jason Hamlin in his article:
http://www.goldstockbull.com/articles/mines-management-jason-hommel/

I very much like Jason Hamlin's comparison.

But Hamlin said that the Market Cap to NPV comparison ratio is not a valid way to measure the value of a stock. Huh?!

I don't really understand that sentiment. There is no other rational way to value a stock. There is the price you pay (the market cap) and there is what you get (the NPV of the projects). There really is no other rational way to value anything you buy. You compare what you pay compared to what you get. You can always pay more than what you get, that's called a rip off. If you pay less than what you get, that's called a wise investment, right?

I do understand Hamlin's point that Mines Management was not the only undervalued stock in the sector, and that a lot of stocks have market caps well under the NPV of their projects. Wildcat silver was one such example that he listed. But Mines Management had the widest gap between their market cap, and the NPV, of any of Hamlin's comparisons, which showcased Mines Management as the best.

Hamlin listed another silver stock with a lower NPV, and a higher market cap than Mines Management. And so, I see that as another endorsement for Mines Management.

Hamlin listed a gold stock with a much lower NPV, and a similar market cap as Mines Management. And again, I see that as another good endorsement for Mines Management.

So, while Hamlin appeared to be correcting me, I saw it as the greatest of compliments, because I still saw Mines Management as the best one.

But let's compare the projects of Wildcat vs. Mines Management further, or Hermosa vs. Montanore.

http://www.wildcatsilver.com/hermosa-project/overview/default.aspx

http://www.wildcatsilver.com/files/WS%20Fact%20Sheet%20December%202013%20VFINAL_v001_x3uvws.pdf

Hermosa has a NPV of $830 million, and needs to raise $835 million.
Montanore has a NPV of $700 million, and needs to raise $550 million.

Mantanore's silver grades: 1.98oz/tonne.
http://www.minesmanagement.com/images/pdfs/2013/mmi%20presentation%202013-10-1-final.pdf page 9.

Hermosa's silver grades: range from 1.29 to 2.43. But the bulk of Hermosa's silver grades, are 1.11 to 1.02, in the indicated and inferred categories.
http://www.wildcatsilver.com/hermosa-project/overview/default.aspx Those might not be economic grades.

Wildcat "expects to complete a feasibility study in the second half of 2014."

Mines Management expects mining costs of $22.50 per tonne. Silver is $22/oz. One ounce per tonne is barely economic. Two ounce of silver per metric tonne obviously works.

Hermosa project mining costs might be as low as $10/tonne. Still, Hermosa, I see, is barely economic by comparison to Mantanore.

So, Hermosa costs more to start mining $835 million vs $550, has lower grades, and parts of their project, such as the part at the beginning of their open pit, which is crucial, might not even be economic until higher silver prices.

Hermosa does have higher manganese grades than mines management has copper grades. But manganese is $1/lb., and copper is $3/lb.

I'm estimating that about 1/4 of the value of Hermosa is in their silver, and 3/4 is in their manganese. In contrast, about half the value of Montanore is in their silver, and half in their copper. All at present prices, of course.

I'm thinking that Mines Management's market cap could exceed the market cap of Wildcat silver, simply because I think the Montanore project is superior.

But sometimes, investors get lured into the newer projects more than the better older projects, simply due to better marketing, or human nature going for the new stuff.

If I'm right, that Montanore is better than Hermosa, or more attractive to the big money that invests and develops such projects, and/or more attractive to the junior silver market investors, then Mines Management stock might rise as follows, just for starters:

$93 million market cap for Wildcat divided by
$33 million market cap for Mines Management
times the share price of Mines Management of $1.2/share = target price of $3.38/share for Mines Management for a basic and quick basic industry comparison evaluation.

Oh, and Wildcat only owns 80% of their project, and Mines Management owns 100% of their project. So, maybe Mines Management stock could rise 20% more to about $4/share.

Even if silver prices go back down to $20, and even if all the stocks above lose all of their gains, I can see that Mines Management's stock could still go up and double from here, just to be comparable.

And in the long run, even with stable silver prices at $20/oz, Mines Management stock could run higer than $20/share, as I showed in my last article that calculated stock price projections in a wide variety of ways.

http://silverstockreport.com/2014/minesmanagement.html

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