Silver Stock Report: Mines Management Opportunity

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Mines Management Opportunity

(Ticker: MGN)

Silver Stock Report

by Jason Hommel, February 26, 2014

Mines Management. I own shares. The company has not paid me to write this article. That means I benefit financially only if my investment does well.

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.

http://finance.yahoo.com/q/mh?s=MGN+Major+Holders

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."

Sincerely,

Jason Hommel

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Silver Stock Report: Mines Management Comparisons

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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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Silver Stock Report: MGN: $1/share to $20 or more?

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MGN: $1/share to $20 or more?

(Mines Management Stock)

Silver Stock Report

by Jason Hommel, February 13, 2014

www.minesmanagement.com (ticker: MGN)

Mines Management. I own shares. The company has not paid me in any way, neither in stock or cash.

Mines Management stock is trading around $.98/share as of Feb 13, 2014.

Here are three ways to get a projected share price for an advanced stage mining project stock such as Mines Management.

1. Net present Value of projects (NPV).
2. Comparative value of resources. (resource ratio)
3. Expected Earnings & Price to Earnings ratio. (PE Ratio)

1. NPV: price target $24/share
2. Resource leverage: price target $4.25/share, to compare with other stocks, and to give us a target where it may make sense to diversify into other similar stocks.
3. Expected PE ratio: price target $45.55/share

I will show how I arrived at those values, below.

Each of the three ways has benefits and drawbacks.

1. The NPV method is the easiest. You compare the market cap to the net present value. The drawback is that you have to rely upon the bean counters in the company, and so you don't always really know how they calculated their NPV.

2. The resource ratio is next. You compare the cost of the company to what you get in the ground, and compare across companies, too. This is an attempt to compare apples to oranges in many cases, as some resources are barely economic, whereas other resources can be wildly profitable. But in a bull market of rising metals prices, what used to be barely economic becomes wildly profitable.

3. Expected Earnings and PE Ratios is probably the most realistic, but it's also the most difficult, because you have to try to factor in so many unexpected and unanticipated costs. Also, companies typically understate "cash costs" as they don't count administration costs, marketing costs, exploration costs, permitting costs, or capital costs, nor acquisition costs in the cash cost which includes only the cost of actual ore mining. But in the real world, mining can't happen without all the other costs as well. They also might just lie about the cash costs, making this even more difficult. This also breaks down and fails as a method for two other reasons, namely, small companies typically never achive the standard PE ratio of 10, maybe only reaching 3 to 5. And also, and in a bull market, PE Ratios can reach from as high as 20 to much higher.

The following calculations are how I arrived at three projected stock share prices for Mines Management using all three ways.

1. NPV method.

Net Present Value about $700 million. Source: page 10 of the Company Presentation.pdf

MGN Current market cap: $28.4 million at $.98/share.

Math: $700 million / $28.4 million x $.98/share = $24/share

2. Resource Ratio method.

MGN: $28.4 million market cap.

Silver Resources: 231.4 million oz. silver resources (Canadian NI 43-101) Source: p. 9 of the Company Presentation.pdf

Math: $28.4 million market cap / 231.4 million oz. of silver = cost of $.12 cents per oz. of silver in the ground when you buy stock. The leverage?

With silver at $20.43/oz., (20.43/.12) you get 170 ounces of silver in the ground for every ounce of silver's worth of stock.

That's leverage of 170 to 1! That's not counting the copper values, which are worth more than the silver. If the copper were counted as "silver equivalent" ounces, then the leverage would be over 350 to 1!

Comparison: SSRI has a $797 million market cap with 1,520 million ounces of proven, probable, measured, indicated and inferred resources of silver. That's $.52/oz.

Based on that comparison, MGN stock could rise from .12 to .52, or from $.98/share to $4.25/share.

(But I think the Mines Management Montanore project is better than SSRI's key project. Both have a $700 million NPV, but the cost to start SSRI's big Pitarrilla project is more than the Montanore project. Also, the Pitarrilla project is 3 oz./tonne silver but with .75% zinc which is half the price of copper, whereas the Mines Management project is 2 oz./tonne silver but with .75% copper, which is twice the value of zinc.)

3. Expected P/E ratio method.

Mines management, once in full production, can gross $264 million or more per year for 30 years.

From http://www.minesmanagement.com/montanore-overview.php

"The project has already undergone extensive engineering, and is designed with an initial production capacity of approximately 12,500 tons per day estimated to yield 8 million ounces of silver and 60 million pounds of copper, with the added potential to increase production."

And what's the projected gross profits? The company estimates an operating cash cost of $22.51/tonne. (page 10) of the Company Presentation. But the ore contains $90/tonne worth of silver and copper. (page 9) of the Company Presentation.pdf

The implied math: $90 - $22.51 = $67.49/tonne x 12,500 tonnes/day x 365 days/year x 6/7 days/week = $264 million/year.

Expected P/E would be 10.

That implies a market cap of $2.64 billion.

The Capex, which is the amount of money Mines Management needs to raise to start mining is $552 million, from p. 10 of their Company Presentation.pdf.

I assume the company will raise most of that money by about the time the market cap is about $500 million, to increase dilution by double. They could also raise the money through debt financing, or through pre sales or futures contracts of silver, but that has caused the bankruptcy and failure of other mining projects, and I hope will be avoided. vSo, from $28.4 million market cap to $552 million market cap then raise $552 million, then market cap goes from $1.1 billion to $2.64 billion.

This implies a stock price rising from 552/28.4 x .98 = $19.05/share. Then, shares double, and the market cap is $1104 million. Then, 2640/1104 x $19.05 = $45.55/share ultimate price target with earnings at $264 million/year.

That assumes silver prices remain about $20.43/oz. as they are today.

So, to sum up, we have three methods of measuring stock price targets.

1. NPV: price target $24/share
2. Resource leverage: price target $4.25/share, to compare with other stocks.
3. Expected PE ratio: price target $45.55/share

Oh. And a fourth way, the easiest of all. There is an analyst at yahoo finance that is projecting $4/share. See the page here: http://finance.yahoo.com/q/ao?s=MGN+Analyst+Opinion

I assume that analyst is using the resource leverage industry comparison method of analysis.

Mines Management. I own shares. The company has not paid me in any way, neither in stock or cash.

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Silver Stock Report: Mines Management

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Mines Management

(Ticker: MGN)

Silver Stock Report

by Jason Hommel, February 4, 2014

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

www.minesmanagement.com (ticker: MGN)

The market cap is $22 million, at $.77/share

http://finance.yahoo.com/q?s=mgn&ql=1

Mines management, once in full production, can gross $264 million or more per year for 30 years.

From http://www.minesmanagement.com/montanore-overview.php

"The project has already undergone extensive engineering, and is designed with an initial production capacity of approximately 12,500 tons per day estimated to yield 8 million ounces of silver and 60 million pounds of copper, with the added potential to increase production."

And what's the projected gross profits? The company estimates an operating cash cost of $22.51/tonne. (page 10) of the Company Presentation. But the ore contains $90/tonne worth of silver and copper. (page 9) of the Company Presentation.pdf

The implied math: $90 - $22.51 = $67.49/tonne x 12,500 tonnes/day x 365 days/year x 6/7 days/week = $264 million/year.

Again. I own shares. Mines Management has not paid me to write about the company.

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