60% in 60 days!
by Jason Hommel, May 9, 2006
60% in 60 days! That's about what Zinc just did, from about $1 to
about $1.60/lb.! ($1.57 on May 9th)
You can find historical charts for zinc prices at kitco.com or
On Jan. 5th, I wrote "Silver Stock Picks for 2006", and included
Metalling Mining, MMGG, a zinc stock, when it was just under
$1/share. Today, it hit $3.85/share, up 285%! My
subscribers are, of course, thrilled!
Sometimes, to multiply your money 1000%, it's easier to take 100%
profits every four months, and put it into new deals that will increase
by 100%, but other times, it's wiser to stick with a winning trade and
ride it up ten fold! Last week, I foolishly sold a few shares of
MMGG at $2.50 to "lock in some short term profits", even as zinc prices
rose 60% in 60 days, and the stock of MMGG was about flat during that
I'm significantly more bullish on MMGG today, than I was at the start
of the year, for several reasons. First, my understanding of the
zinc market has significantly increased. Second, I'm aware of
other comparables. Third, we have price movement! 60% in 60
Like copper, zinc is tight. World supplies of zinc are down to
about 13 days, and some estimate that by this fall, the world will run
out of zinc. Look at the kitco charts of declining
Of course, we won't run out of zinc. Instead, prices will rise
until they choke off demand before we would run out this fall.
The question is, how high will zinc prices have to rise before demand
is reduced? That's an interesting question, that I tried to think
about in my Jan
28th email, where I wrote:
what price may zinc rise to? Will zinc rise from
$1.04/pound today to $1.50/pound next year? Or
are we talking much higher here?
Here’s my thinking: I believe it’s possible for zinc prices
increase well beyond $2/pound--even up to $3.50/pound. Here’s
why & what that will mean:
Zinc is a minor
ingredient in galvanized steel (3%
on average), used to prevent rust, and is absolutely necessary in many, or most applications. Absolutely necessary. And
a minor cost. Let those two concepts sink in:
It’s like silver, or
is used in tiny quantities in
industrial applications in electronics because silver is the greatest
of electricity, and thus, absolutely necessary! Furthermore,
a significant rise in silver’s price will not reduce demand,
because the end product is so very much more expensive than the silver
used. And uranium is absolutely necessary to
multi billion dollar nuclear reactor, and those people who run it will
the needed uranium, regardless of cost.
Here’s an analogy. Steel
is somewhat like a cookie recipe. It may
cost $10 to make a batch of cookies. But
one vital ingredient may cost $.20, such as the salt, or baking soda,
like the zinc. Who cares if the price of
that tiny, but vital, ingredient rises 10
$2--you are still going to use it to make the batch of cookies. But cookies are not as necessary as steel!
Likewise, regardless of
the price of zinc, it will
to make stainless steel that does not rust that is needed for things
kitchen knives, and who knows what else.
Think about this: the
world could sustain oil prices going from $10/barrel to $70/barrel. Hey, the inflation adjusted high of $43/barrel
from 1980 is a whopping $240/barrel! And oil is the largest commodity
in terms of its cost. For every $100
spent on commodities, probably $35 is spent on oil. Surely,
the wheels of the world economy will
not fall apart if tiny little zinc rises
ten fold from
the low of $.35 to $3.50/pound.
And if oil can rise
nearly 20 fold,
zinc can rise 40 fold, but let’s not go there.
Here’s another key
point: Several other minerals needed
steel have risen about ten fold already,
molybdenum and cobalt. I know of only
two other commodities that have risen as much, selenium and iridium. So, 2 out of those 4 are used in steel.
Pause, and let that sink in.
Zinc is clearly headed up next, due to China
increasing demand for steel—and
this all helps to explain the parabolic
price curve in zinc
that we are now witnessing.
And what if investors add to the demand, and continue to buy zinc
futures contracts in this thin market with greater and greater force?
is an invaluable source of news on the metals markets, as they provide
links to news sources all over the world. From my reading there,
I've discovered that we are not in a "fund-driven bubble" in
commodities, as so many of the poorer quality news sources seem to be
Further, a true "inflation adjusted" high price for zinc might be about
$2.15/lb. as Bill Murray observed in his recent article on
From my research, zinc prices are set to rise for the next 2-3 years,
(two to three years!), because supply is not expanding fast enough to
meet demand from China, and it will take that long to bring on enough
new zinc mines to offset the zinc mines that will be closing during
this time period! The details of major zinc mines are outlined in
the President's Letter to Metalline Mining Company
Shareholders, Monday May 1
Inco, Falconbridge, and Teck Cominco, all major zinc miners, are all
involved in a multi billion dollar acquisition dance, probably because
somebody wants to try to get major control of the zinc market before
things get even better for zinc--over the next two to three years!
Now, I've studied the silver zinc explorers for a few years, due to my
interest in silver. MMGG is the biggest, highest grade, most
feasible zinc play there is, even at today's higher stock prices.
Most others are smaller, or in higher risk countries, or don't have
costs as low. MMGG is the lowest cost, with the highest grade,
set to produce more zinc than all others of which I know.
Here's an apt comparison. EuroZinc Mining Corp. (EZM) is
aiming to produce 200 million pounds of zinc per year. MMGG is
aiming to produce just under 400 million pounds of zinc per year.
EuroZinc has a market cap of $1.6 Billion dollars, or $1600 million.
MMGG has a market cap of $192 million. (50 million shares at
EuroZinc already rose in price much more than ten times since mid 2003.
A few people have asked me about MMGG's recent financing at $.80/share,
that was announced in the President's letter. It certainly seems
too low. But the financing was open for 9 months, and during that
time, nobody wanted to invest in MMGG. Part of the problem was
that MMGG had run out of money from spending $8 million on drilling,
and proving up their zinc resources. The other problem was that
investors who had participated in the prior financing were selling, to
get in on the new financing, which drove the stock down. Finally,
in January, as zinc prices had advanced from $.50 to $1/lb., the recent
financing quickly closed as I, and a few others, began to give MMGG
some publicity. I bought the stock then, primarily because the
stock was "cheap" and a bit of a laggard compared to its peers.
At the time, we did not have such price action in zinc, such as the 60%
gain in the last 60 days! In January, zinc prices were below
$1/pound, and so today, MMGG is a much better opportunity, because it
is now clear that the long wait is about over.
MMGG will likely catch up to, and exceed
the market cap of EuroZinc!
If MMGG merely matches the market cap, including a $300 million
$10/share (to finance the mine construction) that will be an additional
45 million more shares (to allow for a half warrant), and
MMGG will rise to $16.84/share. (That's $1600 million / 95
shares = $16.84.) But MMGG may well exceed that, because if zinc prices
are slightly above a modest $2/lb., MMGG could be earning about $800
million per year, which, at a P/E of 10, could point to a market cap of
$8 billion! If that market cap is reached, at 95 million shares,
that's $84/share for MMGG!
Now, there are a few other zinc stocks, if you don't want to jump on
the MMGG train.
Try looking up and researching the following:
SIL (Apex Silver) --high market cap, hedged with about a $700 million
hedging loss, & in risky Bolivia.
EZM (Euro Zinc) --high market cap
(Yukon Zinc) --developing story, but recently hedged.
ZINC) --nearly full infrastructure, underground mine, to produce
about 1/4 the zinc of MMGG/year.
ABMBF.PK (Abcourt Mines) (I own shares of Abcourt)
FAN.TO FRLLF.PK (FARALLON RESOURCES)
--low grade, multi-mineral sulfides.
HDA.V (HUSIF.PK) (HULDRA SILVER)
--very tiny market cap
(SABINA SILVER CORP) --relatively low grade
(REDCORP VENTURE) --small market cap, lower grade
I suppose I ought to remind you about the very high grade silver
that MMGG has.
is a Silver District!
Sierra Mojada Property has produced in excess of 10 million tons of
high-grade ore that
graded in excess of 30% lead, 20% zinc, 1% copper
and 1 kg (31 ounces) silver per ton that was shipped directly to the
smelter. The district
has never had a mill to concentrate ore. All of
the mining was done selectively for ore of sufficient grade to direct
ship; mill grade ore was left unmined."
(That's 310 million ounces of silver. Who knows how much silver
is left?) That's the question with an
MMGG is set to spend some of the money in the recent financing proving
up their silver and copper areas. Also, they will be advancing a
feasibility study for their zinc. In the meantime, Merling
Bingham, president of MMGG has said he has no need to raise any money
until feasibility is completed. Resources move to "reserves" upon
completion of a feasibility study.
I regret to say that I've fallen seriously behind in responding to all
my email, as I receive over 100 questions per day, on average.
Please keep the email coming. I read it all, and I find it
invaluable in determinging the concerns of my readers.
I own shares of MMGG, and Abcourt, and neither company has paid me to
write this article.
For your financial health:
For your spiritual health: