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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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