(How to make money on rising zinc prices.)
Silver Stock Report
by Jason Hommel, April 4, 2007
We do not have to be at the mercy of the winds of rising prices. We can harness the winds of these price changes and channel money directly into our pocketbooks. You can harness these winds just like a sailboat or windmill, you just need the know-how.
For the last eight months I’ve been working with a programmer, at great cost, to create a user-editable online spreadsheet database of mining stocks to help my subscribers and me find the most highly leveraged stocks in the entire world, with the most resources in the ground, at the least cost to you, the investor.
Let me share with you the details one of the best on the list, the name is below.
It’s a company I’ve bought and sold a few times. As well I should have, because the stock price has been volatile, and I’ve traded it well. But in the last year, the zinc price has exploded, and so this company has been brought back to my attention, via our new online spreadsheet. Further, looking at the chart, now is a great time to buy this stock, as it has a trading range from $.50 to $2.00, and you can get it for about $.80/share.
They have $8.9 billion worth of minerals in the ground.
With a market cap of $83 million, U.S. (With $25 million, U.S. cash in the bank!)
Dividing the resource value by the market cap, that’s leverage of 100 to one.
But unlike most other highly leveraged stocks, the ore is very high grade rock, it’s not like your typical $50/tonne low-grade, bulk-tonnage projects, like Novagold, Mines Management, Northern Dynasty or Northern Orion (no offence to those companies).
Instead, their rock is worth over $700 per tonne!
They need to raise about $80 million to finish the mine.
And they could pay back that capital in about 6 months of profits from the mine.
So, the stock has a forward-looking P/E ratio of about 0.5, less than one.
This year, the company is planning to spend $8 million U.S. on further exploration.
In 2007, after further exploration, they plan to complete a 43-101 resource, to upgrade the former historic resources I just shared with you.
They also plan to finalize a mine plan. And then, in late 2007, apply for a mining permit, for the first time. The company has already secured 5 permits, and has never been turned down for a permit. Many people have complained about permitting being a huge problem and issue for this company, but mining just takes a lot longer than people think.
After all, it was barely 3.5 years ago that this company had no cash, and was running on fumes, and when base metals prices were at all time lows.
See Lawrence Roulston’s wonderful article, “Economic Theory Meets the Real World” from March 29th, discussing the big picture with regard to base metals prices and why this bull market will last a lot longer than many of the popular pundits think.
http://www.kitco.com/ind/resopp/mar292007.html
Here’s some further details:
CANADIAN ZINC
Symbols at Yahoo! Finance: CZN.TO CZICF.PK
http://www.canadianzinc.com/
Toll Free: 1.866.688.2001
Share Structure:
107,590,212 shares outstanding
16,775,493 warrants and options
124.4 million shares fully diluted
@ $.78/share Cdn x .86 US/Cdn = $.67 US
$83 million Market Cap, USD, fully diluted
$29 million cash, Cdn, no debt. ($25 million, U.S.)
(About $80 million needed to finish mine construction & start mining)
($100 million worth of mining infrastructure already in place!)
CZN has a historic resource of 70 million ounces of silver. (IN ZONE 3 only!! of 12 zones! Their 18 year mine plan consists of zone 3 only, but there are 12 mineralized zones on the property.)
Silver Leverage:
$83 million Market Cap / 70 mil oz. = $1.18/oz.
70 milllion oz. x $13.50/oz. =
$945 million
/ $83 milion Market Cap = 11.
You get “approximately” 11 ounces in the ground for 1 oz. silver’s worth of stock.
This was the mining operation set up by the Hunt brothers, the major silver investors in the silver spike to $50/oz. in 1980 who were bankrupted by their own debts and margin calls as a result of the COMEX rule changes and silver short sale manipulation. The Hunts spent $50 million building infrastructure to build the mine. They were 90% complete when bankruptcy hit. The value of those buildings is now perhaps over $100 million, and the mine only needs about $80 million, roughly, to get the mine up and running. That’s much cheaper than other cost estimates of other operations.
CZN has very high grade ores!:
12.5% zinc/tonne x 2200 lbs/T = 275 lbs. zinc/T x $1.59/lb. zinc = $437/tonne for the zinc.
10.1% lead/tonne x 2200 lbs/T = 222 lbs. lead/T x $.89/lb. lead =
$198/tonne for the lead.
6 oz. silver/tonne x $13.50/oz. = $81/tonne for the silver.
0.4% copper/tonne x 2200 lbs/T = 9 lbs. copper/ton x $3.10 /lb. =
$27/tonne for the copper.
What’s their rock worth?
Total: $742/tonne! (Assuming full recovery rates, which will be somewhere less than 100%, perhaps about 85%.)
Total resource base valuation:
With 12 million tonnes x $742/tonne, CZN has about $8.9 billion worth of “historic” resources. (Measured, indicated, and inferred, historic.)
Leverage: $8.9 billion / ($83 million Market Cap – $25 million cash on hand + $80 million Capex needed to build the mine) = 8,400 M / 133 M = 64.
That’s leverage of 64 to 1. The value of the metals are worth 64 times more than the market cap and capital costs not yet raised less cash on hand.
With a mine life of 18 years, that’s not bad.
(At our online spreadsheet, we discount a lot of the resources for CZN, since they are not truly 43-101 compliant, but are historical resources, so we count about 1/2 of them. Further, the spreadsheet gives a further penalty for a mine life longer than 10 years, since it takes time to realize all the profits of the resources.)
Expected annual production: 100 million lbs. of zinc & 4 million ounces of silver.
Expected cash costs: The scoping study is from 2001, which showed they could be profitable at $.50/lb. for zinc.
Expected profits: Assuming that silver production can be more than enough to pay for costs, at $1.50/lb for zinc, they can earn up to $150 million per year or more. (This is my rough, low estimated number.)
Forward projected P/E ratio, if they raise capital through share dilution at present stock price of $.80/share:
($83 million Market Cap – $25 million cash on hand + $80 million Capex needed to build the mine = $138 million) / $150 million = 0.92.
Forward P/E ratio: 0.92! Less than one!
(And the crowd cheered!)
Technical timing: The stock has repeatedly bottomed out at about $.50 to $.60 Cdn/share over the last few years. Peaking from $1.50-2.00/share.
People ask me, “Jason, why don’t you tell us about these stocks at $.50/share?” Good question. Answer: Because I was the one furiously buying at $.50/share. In fact, I bought CZN up to $.80 just this week.
There was a recent financing from 4 months ago that has come free trading last week on March 23. Just under 7 million flow through shares were issued at $1.25. Thus, the stock price has likely just bottomed out. There is no further overhang of stock at the present time, all stock issued is free trading.
The company recently issued financial results for 2006, and plans for 2007.
http://biz.yahoo.com/iw/070402/0233767.html
To find out about more stocks similar to this one, subscribe to the “look at my portfolio”. You will also get access to a forum for paying subscribers, and access to our online database of mining stocks, which shows other highly leveraged companies.
Disclaimer: I own 842,000 shares of CZN, all purchased on the open market, no options or warrants, and CZN has not paid me to write this article.
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Different ways to earn 1000% in a year.
(See http://www.smartmoney.com/compoundcalc/ for the math.)
1. You can buy a stock at $.80, and sell at $8.80 a year later.
2. You can buy a stock at $1, and sell after 230% gains in 6 months. You can buy a second stock, and earn another 230%, to make $11.
3. You can buy a stock at $1, and sell after 22% gains in 1 month. Repeat each month for a year, to make $11.
4. You can buy a stock at $1, and sell after 5% gains in 1 week.
Repeat each week for a year, to make $13.
Many mining stocks are now trading more than 10% each way in a day. This is a market maker’s paradise, because if all you do is buy a basket of 5 to 10 highly leveraged stocks, and sell those that are up 5-10% in a day, and buy those that are down 5-10% in day, (or wait for more gains in longer periods) you can make well over 1000% per year, in many different ways.
Further, there are other highly leveraged zinc stocks to consider other than CZN. For the names of these other zinc stocks, please look at my portfolio.
All aboard!