Mines Management Opportunity
Silver Stock Report
by Jason Hommel, February 26, 2014
Some people think Mines Management is "too good to be true".
I know there is a lot of bad sentiment in the sector. Many people seem to be experiencing fear, doubt, anger at the losses over the last three years of a bear market in the gold and silver sector. These feelings are typical of market bottoms, because no good money has been made in silver stocks in quite some time.
This goes to show that it is a perfect time to buy, despite the quick gains across the silver stock sector last month.
I think the opportunity in Mines Management exists due to several bigger picture trends and events, company events, and things related to my own situation.
So, why does this great investment opportunity in MGN exist?
Mines Management's Montanore project was not economic back when silver prices were $5/oz., and their major partner Noranda walked away from the project. Their ore contained $10 of silver per metric tonne, and about $10-15 of copper. But with processing costs at $20/tonne, the project was big, but not viable.
This left a tiny market cap, (but publicly trading) company in full 100% ownership of a major silver project.
This created an unusual opportunity for investors. The public could actually buy into a piece of the action, if they believed that silver prices would go up.
Sometimes, these great silver projects are owned by majors, such as BHP Billiton, a $188 billion dollar company, or they are owned by private corporations or individuals, which means that an investment chance like this would never exist.
But when silver prices began to move up from 2003, then things got exciting.
So, investors jumped into Mines Management, driving the stock price up from under $1/share to $6-9/share between 2004 to 2006.
By 2008, there was a market crash in silver from $20 back down to $9 and the collapse of brokerage houses led to a loss of faith in the entire financial system by precious metals investors who are more sensitive to, and aware of, impending bankruptcies than typical investors. So the stock collapsed along with nearly all other silver stocks.
This led Mines Management stock to drop to $1.40 by 2009.
Mines Management stock peaked again up to $4.18/share in 2011 when silver flirted with the $50/oz. mark. But I was running my coin shops, and I did not participate either in investing or promoting silver stocks at that time. I was too busy. And perhaps too sour on my own investing experience, as I lost a lot of money in the 2008 crash.
Since 2011, silver has been in a bear market, losing value for nearly three years now. And Mines Management stock has dropped along with that decline.
And investors lose patience, and count opportunity costs, and get discouraged, and chase the latest trends, and forget things.
I think they forgot that silver at $20/oz. today is not like silver at $5/oz.!
And it seems silver stock investors forgot that what was once barely economic and barely profitable at $5/oz. is now wildly profitable and wildly economic with silver at $20.
Also, over the last ten years, copper prices have dramatically increased from about $1/lb. to over $3/lb.
Another key reason that Mines Management looks great today is that Mines Management did not excessively sell shares like a lot of other companies did in the last ten years. Excessive share selling can hurt a stock because it increases the market capitalization too much and puts too much cash into company pockets that is not always needed right away to move a project forward.
Some complain that Mines Management must be a fraudulent company, perhaps because the project is taking too long. But it is normal for projects to take a long time in the mining industry, especially when prices for the things they produce are not very stable. Mines Management is projected to have a 30 year mine life. It is important to not get into production too soon.
Other silver companies made this mistake of going into production too soon, notably Apex Silver and Sterling Silver, and they both went bankrupt.
If silver prices are headed back to $5/oz., then Mines Management's project is dead. (And that's not going to happen!) If $20/oz. is the new base and the new low for another massive move up to $50 to $100/oz., then those who invest in Mines Management stock today will be in a much better position than those who bought MGN stock at $1.25/share back in 2003, who then saw the stock rise to $6-9 share in one to four years.
Instead, people who buy MGN today at $1.20/share will likely see the stock rise to $5 to $10/share quite quickly. Or, at least, more quickly than it moved last time in the 2003-2004 time frame.
What I really like about MGN today is that silver prices don't need to move to make the company wildly profitable. $20 is just fine.
I also like that company insiders hold so much stock. This tells me that they believe in the company.
Glenn Dobbs holds over 1.7 million shares as of Nov 20, 2013. This means that his interests are mostly likely going to be aligned with shareholders.
I also like the Institutional Holders listed. I like Sprott Inc, and Cambridge Investment Research Advisors--they both promote mining companies!
It seems that it's either silver industry insiders, or big money outsiders are among the top ten institutional holders. Many of the big money outsiders are multi billion dollar funds. Any one of them could step up and provide the funding, either in part or in whole, to finance the company's mine construction needs going forward.
AQR Capital Management, LLC has $92 billion under management.
Northern Trust has assets of $97 billion, and manages $807 billion.
Calpers manages $257 billion
Vanguard Group, Inc. (The) manages $2 trillion.
Bank of New York Mellon Corporation has $1.4 trillion in assets under management and $27 trillion in assets under custody and administration.
See the list of major holders here: http://finance.yahoo.com/q/mh?s=MGN+Major+Holders
For such a tiny market cap company of $33 million, to have come to the attention of all of these large funds, enough for them to actually buy stock, is impressive and noteworthy. I can imagine a newsletter writer starting out with a headline, "Find out which tiny market cap silver mining stock 5 different multi billion dollar funds must own."