MMGG: Here's why you will make a fortune on zinc.
Silver Stock Report
by Jason Hommel, January 28th, 2006
I'm so excited! I've had a revelation! An epiphany! A Eureka moment! I looked at the zinc leverage of MMGG, especially in light of expectations of higher zinc prices, and I tried to quantify that, and oh what a revelation!Metalline Mining (MMGG.OB)
19.8 million shares fully diluted
(plus a $4-8 million financing just completed, not sure how many more shares.)
(I'll estimate 15 million more shares fully diluted)
I'm guessing: 35 million shares fully diluted.
I'm guessing: $62 million Market Cap
4.9 billion pounds of zinc resource
To produce annually: 398 million pounds of zinc.
(MMGG needs to raise about $300 million to build the mine.)
$62 million Market Cap / 4900 million pounds of zinc = $.0126/pound
You get 82 pounds of zinc in the ground for 1 pound of zinc's worth of shares.
That's way more leverage than we get in most silver stocks! The best silver stocks provide about a 30 to one leverage.Why is the zinc in the ground so much cheaper? Because there are gold bulls, and there are silver bulls, but I don't think there are very many zinc bulls! Who runs a “zinc stock report”? I realized that these other metals were badly neglected by investors and analysts and newsletter writers when I did a full analysis of my moly stock, IGMI.
Sure, the mining gurus are generally bullish on commodities, as am I, but I've not seen anyone do the following type of analysis, as I'm going to share with you.
Now, the SEC forbids mining companies from making projections on assuming higher commodity prices. It's insane that they prevent the mining companies from showing you basic seventh grade math, but you and I can do it legally, just fine.
Yesterday, I quoted several executives of major mining companies, one from the number two zinc producer in the world, who predicted that zinc prices will rise for the next 2-3 years, since no new major zinc mines can come online and become operational in that time frame, and many existing mines are closing. Sounds logical and realistic, and I agree. But what does that mean? Unless we quantify it, and “count the cost”, that's just fuzzy thinking. So, 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 to 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% by weight 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: necessary & cheap.
It's like silver, or uranium. Silver is used in tiny quantities in industrial applications in electronics because silver is the greatest conductor 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 fuel a multi billion dollar nuclear reactor, and those people who run it will buy all 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, which is like the zinc. Who cares if the price of that tiny, but vital, ingredient rises 10 fold, to $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 be used to make stainless steel that does not rust that is needed for things like cars, 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 there is 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 in steel have risen about ten fold already, such as 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
And I'm sure there may be short covering of futures contracts, too, just like there will be in silver!
So, what does that mean for little zinc explorer/developers like MMGG, that are highly leveraged to rises in the zinc price? Oh boy, this is what had my head spinning. Are you ready for this?
MMGG can produce 398 million pounds of zinc per year, at $.25/pound, which is the lowest cost in the industry due to the new zinc/oxide electrowinnowing process.
Imagine a profit of, say, a conservative $2/pound, times nearly 400 million pounds produced each year. That's $800 million profit per year. MMGG could have a market cap of nearly $8 billion (or more), up from under $80 million today. MMGG is a stock that could rise nearly 100 times in price!
The world is geared to overlook such opportunities, partly because of laws that prevent companies from showing you such math, but also because so few people truly understand the ramifications of hyperinflation taking place right at the beginning of a major commodity boom. Hyperinflations always cause major price distortions at the edges of an economy in those “essential and overlooked things”.
Furthermore, zinc is not glamorous like gold or silver. But great fortunes were made in commodities during our industrial age, in steel and oil. And this industrial age is bigger than any before ever in history!
But just like little silver is geared to outperform gold, little zinc is geared to outperform iron.
The best part is that God saw fit to put silver and zinc together in many deposits on earth.
Since silver prices are too low, that means that less zinc is produced as a byproduct of silver mining, and this is helping to create the opportunity that exists today.
So, what are the drawbacks and dangers that may prevent us from reaping 100 fold gains? I think the biggest danger is hedging. If a company, such as MMGG, decides to hedge, or pre-sell, the zinc production, at, say $1.50/pound, to borrow money to finance a mine, but hyperinflation takes zinc prices up to $3/pound or well beyond as dollars become worthless, then bankruptcy is a real risk. If you own stock in MMGG, I strongly urge you to contact Merlin, the president, and urge him to avoid hedging at all costs! It will be easier to convince a man now, than later down the road.
Any hedging during hyperinflation is like giving away your birthright for a bowl of soup.
Industrias Penoles recently hedged zinc at $1000/ton, and zinc is now over $2,000/tonne! Oops, they just destroyed shareholder value!
Another thing that might prevent MMGG from rising 100 fold, ironically, is higher silver prices! What? Yes, because as silver prices rise, more silver mines will go into production, and since zinc is a natural byproduct of many silver deposits, more zinc will be produced. But this is a wonderful problem for the zinc/silver companies like MMGG to have! As one man once said to me, “You mean this danger can actually make me more money? Great!”
I do not know which will continue to go up in price further and faster, silver or zinc.Currently, zinc is outpacing silver, and both still need to catch up to oil's gains.When I heard the zinc story in the past, I always ignored it. I thought, sure, zinc is necessary, but so is silver, but silver will have monetary demand, and nobody will buy zinc to use it as money.But that does not matter, because I'm not advocating the purchase of physical zinc! The beauty of zinc is that zinc is overlooked by the equity investors, and that means that with zinc exploration companies, the leverage is that much greater, even for modest price rises in zinc.I'll never stockpile zinc, but I will make a pile of money from my silver/zinc stocks—and if things go as I expect, I'll use the profits to add to my stockpile of silver!
Currently, I think Metalline is the best zinc/silver company that I know of at current share prices. To find other silver/zinc companies, search for “zinc” in my last silver stock report, #57, from July 2005, at the archives at my web site.
Final Disclaimer:I currently own Metalline, and nobody has paid me to write this.
Excerpt from my article: Bible Verses on how to Manage Money
The borrower is the servant to the lender. Therefore do not lend, lest you enslave someone. And do not borrow and enslave yourself. No man can serve two masters, God and mammon. So, how could you enslave yourself with debt, and become a servant of money? If you are in debt, you must "service" the debt, and the borrower is the servant to the lender. Be a servant to God alone, not to money, not to the lenders. Make your money serve you, don't serve the money you have spent to excess that did not belong to you in the first place.
Proverbs 22:7 The poor are
ruled by the rich, and those who borrow are slaves of moneylenders.
Deuteronomy 15:12 If any of you buy Israelites as slaves, you must set them free after six years.
Jeremiah 34:14 As part of this agreement, you must let a Hebrew slave go free after six years of service. Your ancestors did not obey me...
Modern math, compounded interest, which you can do on an Excel spreadsheet, shows that usury leads to slavery.
If you invest a single ounce of gold, and invest it for 6000 years, since the time of Adam, you can see the truth of usury. You can grow an ounce of gold into 6 billion ounces of gold (which is more gold than has been mined in all of human history) at a mere 1/4 of 1% rate of interest! And if you grow from an ounce of gold at 2% for 6000 years, then all the atoms of the universe would all be gold, and it would all belong to you. Therefore, it is impossible for extremely large money to grow more than 1/4 of 1% per year. And if it does, it will have corresponding years of losses to make up for it, because no man can own all the gold in the world. But small amounts of money can grow at extremely fast rates: you can buy a can of coke for 50 cents, and resell it for a dollar in one day to make a 100% return.
Acorns can grow into big oak trees, but oak trees do not grow to the moon.
Interestingly enough, this topic ties directly into the dangers of hedging.Hedging is actually worse than debt in a hyperinflation.
Many people have recently emailed me, asking questions about my views on usury.Please see the following two articles:Usury Enslaves - 19 January 2004
Freedom from Usury - 23 January, 2004