My Top Stock Pick

Silver Stock Report

by Jason Hommel, October 2, 2006


In nearly a year of diligent searching, and pouring through over 100 stock tips given to me by my faithful readers, I have found no stock better than this one, especially not at this share price:

Idaho General Mines (Symbol: GMO trading on the AMEX)
http://www.idahogeneralmines.com/
38.1 million shares issued and outstanding
57.8 million shares fully diluted
@ $2.00/share
$76.2 million market cap
$115.6 million market cap (fully diluted)

They have $37 Billion worth of proven and probable reserves.  

For proven leverage of nearly 500 to one!

They also have a completed feasibility study (the plans to mine) indicating cash costs are about 11% of the value of the metal in the marketplace, for profits of about 900%.  Interested?  

It's better than I've indicated, of course, because they don't have $37 billion paper dollars in the ground that can go up in smoke, it's a mineral vital to world growth.

If this were a gold mine, the gold equivalent, at $600/oz. would be:
62 million ounces of gold in proven and probable reserves!
With a feasibility study indicating cash costs of $66/oz.!

This would be, by far, the largest gold mine in the world, with the lowest cash costs in the world.  What an unbeatable, one-two combination punch!

If this were a silver mine, the silver equivalent, at $11.50/oz. would be:
3.2 billion ounces of silver in proven and probable reserves!
With a feasibility study indicating cash costs of $1.26/oz.!

That's over 3 times as many silver ounces as owned by either SSRI or PAAS, whose ounces are scattered among over 10-20 projects!

Now, would it really matter if GMO had gold or silver?  No.  Of course not, investors would bid up a company like that to well over $1-3 billion in market cap within months.  At $3 billion, (counting fully diluted shares) that implies a stock price of $51/share!  That's 26 times higher than the current $2/share!

But, actually, the mineral is not gold, neither is it silver, it's molybdenum (moly)!

The beauty of moly is that we don't have to wait for prices to skyrocket, because they already have, which has created this beautiful investment opportunity.  Moly prices have risen over ten fold up to a high of $40/lb., and have recently bottomed out, and are back up again at $28.50/lb.!    

The company has 1.3 billion pounds of moly in reserves.  Cash costs are $3.15/lb. (11% of today's moly price of $28.50/lb.)  The mine life is expected to be 53 years, and they plan to produce 35 million pounds of moly per year for the first 5 years.

The free market, which is the most efficient and most profitable economic system ever discovered, is based on allowing prices to freely move, as prices are the best indicator of telling us investors what the world wants and needs (and thus what to invest in).  

If you believe in the efficiency of the free market at all, you should listen to what moly prices are saying, especially about the profitability of moly projects.  Moly prices cannot be manipulated to the downside, as they are not traded on any futures exchange.

Moly prices have been above about $25/pound for nearly two years now, and are telling us to invest in a good moly project.  

So, why does the stock remain so cheap?  Several reasons.

First, it was just over two years ago, that this pre-drilled moly project, (drilled out years ago by Exxon Minerals) was acquired by this company, at a fire-sale low price from a private family who had been sitting on it for years.  Second, I only began promoting this stock this year, in 2006.

Third, about 5 months ago, GMO completed a $30 million financing at $2/share, to help them get through the permitting stage.  This stock placement recently came free trading, which has caused selling pressure back down to $2/share.  Fourth, only about 6 weeks ago, GMO was listed on the AMEX.  

GMO has proven to be the undisputed leader of the world's moly projects, with the lowest cash costs in feasibility, with the highest grades of moly of the big open pittable projects, with the most moly produced per year, with the lowest relative capital costs to construct the mine.  At current moly prices, capital costs of $415 million could be paid back in 6 months (after permitting and mine construction)!  

If GMO produces 33 million pounds of moly at $28.5/lb., at cash costs of $3.15/lb., that's a projected EBDTA (earnings before depreciation, taxes & amortization) of $836 million per year!

This moly project will be wildly profitable even if moly prices drop back to $7/pound.

The location is Nevada, which is the best jurisdiction politically on earth for any mining project.   

I've visited the site, and seen the drill cores in the warehouses in the fall of 2005.  Just amazing! 

I've seen the old drill core about 20 years old, but it's a new opportunity created by new, higher moly prices.

GMO has substantially updated their web site in recent months with new information for investors.  See
http://www.idahogeneralmines.com/igmidir2/investors.htm

See also their Frequently Asked Questions page:
http://www.idahogeneralmines.com/igmidir2/investorfaqs1.htm

Some questions I've received are generally how this company compares with many others.

Many moly projects have higher grades, but will only produce about 1-2 million pounds of moly per year, not 35 million pounds like per year like this one.  

Of the large projects, GMO has the highest grades.

GMO is also the largest moly project out there, by far.  Adanac will produce only about 10 million pounds of moly per year, which is 1/3 as much, and Adnac has cash costs nearly twice as high, with lower grades of moly, and has capital costs about the same.  Therefore, it should be no surprise that GMO has raised $30 million in the past year, and Adanac has raised less.  

Also, there are the other big copper/gold/moly projects such as Northern Dynasty, which has a market cap five times as high at $545 million or more.  Further, that is mostly a copper project, their moly grades are very low by comparison, and their overall grades are also low by comparison.  Also, it is still being drilled, and may not be permitted until 2011, and my cost between $600 to $800 million to build their mine.

Northern Orion, another gold/copper/moly project also has a market cap of about 6 times higher, at $600 million.  NTO is still working on feasibility, has moly grades 1/3rd as rich as GMO, and has low copper grades of .3 to .4%, and is located in more politically risky Argintina, and will probably also require substantially higher capital costs to get started.

I strongly suggest that you put no more than 10% of your portfolio into any one thing.  But I also strongly suggest that you put up to 10% of your portfolio into GMO.  This stock is now liquid, on a major exchange, on a price dip, and has the most leverage and potential of any stock that I know of.  I think the biggest risk is permitting, although permitting is progressing nicely.  Financing should be easy.

If GMO raises $500 million at $10/share, for 50 million more shares, that will be 107 million shares.  If they earn up to $800 million per year, that could give them a market cap of $4-8 billion, which would imply a stock price of $37 to $74/share.  That's substantially higher than the $2/share it's trading at today.

Possible share price timeline:  
Promotion throughout 2007.  $2-7/share.
Permitting completed by 2008.  $7-14/share
Financing completed by 2009.  $19-18/share.
Mine completed by 2010.  $15-30/share
Mine producing by 2011.  $20-40/share.
Mine producing with history, 2012.  $40-80/share.

It could do better than that, of course, if moly continues to remain in high demand, and those prices are highly dependant on moly prices.  So, if there is a substantial inflation, and if moly prices keep pace with inflation, so, too, will the share prices outperform inflation.

I believe GMO is a perfect diversification for silver investors.  If the world economy, especially China's, continues to boom, moly will be in even higher demand, and GMO's stock should explode by up to 20 to 40 times higher, or more.  If the world economy collapses due to a currency crisis, silver bullion should grow in value 20-40 times higher.  If the world somehow manages to limp along somewhere in between, GMO should grow in value by about 100% per year for the next 5 years, and silver should do about the same.

I visited the GMO booth at the Silver Summit, and I spoke with Mr. Russell, president of GMO.  The project is progressing nicely.  I also learned that the current tire shortage for miners should be fixed by 2008, as three new major tire plants are now in construction.

Links for your further due diligence:

The 156 page prospectus for Idaho General Mines, for the Toronto Listing, released late December 2005:
http://tinyurl.com/da89r

July 2005:
MOLY REPORT by Teck Cominco (mining major, #9 moly producer in the world)
--mentions IGMI on page 15
--is very bullish on moly
http://www.teckcominco.com/presentations/ms-canaccord-moly-july05.pdf

The Northern Miner, June 2005, Quote:
"The future looks good for molybdenum," says McDonald. "We can't predict where the price is going, but it does look as thought the fundamentals have shifted positively. We know the demand is strong and growing at ten per cent per year; we just don't know where the supply is going to come from."
The Northern Miner Article does not mention Idaho General Mines.
http://www.rocamines.com/i/pdf/nminer-jun242005.pdf

Article, from late summer or fall of 2005?:  Big Time Backyard Moly
By David Bond, Editor
The Silver Valley Mining Journal
http://www.theresourceinvestor.com/RI-archive/2005/0605-bond.html

September 21, 2005
Molybdenum ...  The Big Secret
by Ken Reser
http://www.goldrea.com/Molybdenum%20the%20Big%20Secret%20_7_.pdf

July 21, 2006
A Hungry China Set to Gobble More Moly
By Steve Christ
http://www.siliconinvestor.com/readmsg.aspx?msgid=22644612

GMO discussion board:
http://www.stockhouse.com/bullboards/forum.asp?symbol=GMO&table=AMEX

Yahoo! Finance should also have a discussion board soon, as they do for all AMEX listed stocks.

Final Disclaimer:  I own 429,000 shares of GMO, and 205,000 warrants at $.80, and this is an unpaid endorsement.

Timing:  I send my emails to about 30,000 opt-in email addresses, and about half will read this in 24 hours.  Therefore, unless you are prepared to buy on October 2nd, you may consider doing further research while waiting for a dip in the price.  On the other hand, there is no guarantee on what the price may be in the future, and we do live in a world of "first come, first served", and it is a bull market in metals, in my opinion.  Markets wait for no one. 

Sincerely,

Jason Hommel
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