Silver Stock Report
by Jason Hommel, December 10, 2006
(This is an update on Zinc & MMG based on my December 1st email. Important new content is in bold text. This report is scheduled to be sent out to 130,000 Newsmax readers on Monday, 8AM.)
Molybdenum prices are up 1250% in the last 4 years. Two weeks ago, I alerted Newsmax readers about the largest and potentially most profitable molybdenum project in the world, owned by Idaho General Mines (GMO), a stock that could rise up to 1000% or more. See:
But I never put more than 10% of my net worth into any single stock; so here’s another great opportunity: Metalline Mining, a zinc stock. (MMG on the AMEX).
Zinc prices are also way up! Up 500% in the last 3 years! (But many zinc stocks are barely up 50-100%).
Such price increases are the beginning signs of hyperinflation, in my opinion.
This Spring, the Fed stopped publishing numbers for M3 (M3 is the best measure of money in the banks) when M3 was about $10.3 trillion. Recently, I discovered a private company that is keeping track of M3, and M3 is soaring past $11 trillion, a 10% increase this year. See:
So, the inflation of money creation is at 10% in 2006!
The Korelin Economics Report interviewed me at the San Francisco Hard Assets Investment Conference. I spoke about why I’m so enthusiastic about zinc.
Here’s a quick summary:
In 2003, zinc prices had bottomed out at about $.35/lb. Today, zinc prices have hit a recent high of $2.11/lb., 6 times higher. How much higher will zinc prices go?
The zinc inventory depletion at the LME is alarming. The rate of depletion is about 1000 tonnes per day, and there are about 88,000 tonnes left, that will last about 88 days at current rates. See the zinc price charts and inventory charts here:
The problem is that no major new increase in zinc supply is expected in two years, or about 700 days, because it often takes up to 10 years to put a mine into production.
Therefore, zinc prices could just explode at any time in the next 2-3 months!
The other problem is that the next two major zinc mines that are expected to come to production in the next two years are located in two of the most politically risky nations on earth: Bolivia and Iran. Bolivia’s president has recently nationalized the oil and gas industries, and has stated that he will nationalize mining, too. And banks are pulling out of Iran, and the U.S. is on the edge of making war on Iran.
This means that zinc prices could explode again about 1-2 years from now, and just keep going up with no end in sight.
Most of zinc is used to galvanize steel, or used in brass. Zinc is, on average, 3% of the weight of galvanized steel. Zinc is a very low cost of galvanized steel, and so, demand is very price insensitive. This means zinc prices have to go up a lot to discourage consumption.
Zinc consumption is rapidly growing at about 5% per year. In 2005, China consumed 2.5 to 3 times as much zinc as the U.S.!
Many zinc miners hedged zinc at prices lower than 50 cents per pound. This is providing a supply of zinc to the market at uneconomic and likely unsustainable prices, and may also be part of the reason why zinc demand has not slowed.
Molybdenum, like zinc, is also used as an additive to steel, used in small percentages. If moly prices are a foreshadow of what is coming in the zinc market, perhaps we can see zinc hit about $7/lb.?
This analyst says: “I expect zinc to be selling over $2.50 a pound in 2007. After that, sky’s the limit. With the right conditions I believe we could be looking at $5 or $6 zinc within a few short years.”
Metalline Mining (MMG on the AMEX)
MMG is my number one stock position, over 10% of my portfolio. I own 400,000 shares of MMG, and 400,000 warrants at $1.25 good for 5 years. I can’t sell this until the 1-year hold time expires, in late January, 2007.
MMG has about 50 million shares fully diluted, at a share price of $4, and has a market cap of nearly $200 million.
MMG has 5.8 billion pounds of zinc resources (More than Apex Silver), and is working on a feasibility study that may take another 1 – 1.5 years to finish. This zinc is all unhedged, and at current prices, is worth about $12 billion.
There is a great blog that covers MMG here:
Duncan, the author of that blog, just reminded me of MMG’s high-grade silver potential:
Hi Jason — I was looking at an old 10Q from 2005 (http://sec.edgar-online.com/2005/06/15/0001031093-05-000002/Section3.asp) and found this text about the Polymetallic manto:
“The silver grades have ranged from approximately 10 grams to 50 kilograms (31 ounces per kilogram). One drill hole intersected mineralization with grades averaging 11 kilograms over a thickness of 9 meters (3.28 feet per meter) and copper grades measure as high as 4%, which indicates that the Polymetallic Manto contains very high grade silver, copper mineralization. Work on this mineralization was put on standby in 1999 when the Company recognized the potential of the oxide zinc mineralization as a result of a positive feasibility study conducted for the Skorpion Mine located in Namibia, Africa, that demonstrated that the use of the solvent extraction electro-winning (“SXEW”) process could make it profitable to mine oxide zinc deposits that would otherwise be unfeasible.”
Duncan writes, “9 meters is more than 27 feet, and 11 kilograms of silver/tonne is worth more than 41% copper. That’s over 340 oz of silver per tonne! At the current $13.90/oz price of silver, that’s over $4700 per tonne, plus the copper value. That’s the equivalent of about 68% copper (about 70% when you add the copper), but better because the fundamentals for silver are much better than for copper.”
Timing: MMG has had a good run up recently from about $2-$4/share, so the timing to buy may not be the best if you only consider the stock’s chart. However, timing in the silver and zinc markets could not be better than right now, as zinc is hitting new highs, and silver is getting close to break out above $15, and that may over-ride what the MMG chart is saying. Be cautious though, as MMG raised $11 million at $.80/share over a 9 month period a year ago, and most of it was raised around late January as the stock headed toward $2/share as the zinc price began to break out above $.70/lb., and head to $1/lb. Duncan had a price target of $13-21/share, but that was when zinc prices were as low as $1.57/lb. Look for others to take profits from that financing, and as the zinc market heats up over the next several months to two years. The stock could trade between $4-8/share in the next 6-12 months or so. Longer term, blue sky potential is up to $50/share, and I consider it hard to find (but a goal to find) stocks that have potential to rise ten times, or about 1000%.
To see what other great stocks I own, you can signup to Look at my Portfolio, for $40/month, here:
One of my other zinc stocks has $100 million worth of existing infrastructure, plenty of silver, is almost fully funded to go to production, and has a market cap of about $70 million, and is awaiting a permit.
Another zinc stock I just bought this month has potentially the largest zinc project on earth, which also might just be the largest mining project on earth–and the share price has barely moved up yet, because so few people have heard about it. The project is so large that they may spend up to 3 years on drilling and feasibility studies. This, again, is why the zinc shortage will not end anytime soon.
Currently, I have about 700 paying subscribers, and many of them discuss other great zinc stocks (and silver, uranium, gold, etc.) at the member’s forum, which alone, is worth the subscription price.
Final disclaimer: As indicated, I own shares of MMG. MMG has not paid me to send out this email.