Minera Andes (MAI.TO), Both Sides Of The Story

Here (click here) is a recent, tell-the-positives-only message board post telling the Minera Andes (MAI.TO) story:

"Mineas Andes-setting the table for big upside

Go to the website thru google finance and just enjoy reading all the positives with this company. It found a rich ag/au deposit now called the San Jose mine, which has 15 OUNCES per ton ag and 6.6 g/ton au; and is making money with it's 49% ownership of that mine. It discovered and has brought to a pre-feasibility study stage one of the world's richest cu deposits which has a NPV of $3 Bill with cu at 2.90/3.00 pound. The total deposit is expected to produce 11 billion pounds of cu, and may due so with open pit mining.

It has precious metal veins and seams that are undergoing, or are about to undergo, more definition drilling. All of which are 100% company owned.

Best of all it has a principle stockholder (33% of company bought at $1C price) who is CEO that has a GREAT business history as the founder of Goldcorp, and who is taking NO SALARY and he levels with his fellow stockholders. His name, you may recognize, is Rob McEwen. The Yahoo board is actively discussing this company; and you will be thrilled with the company website.

All of the assets are in Argentina which is now a stable, relatively fully predictable environment.

Straight lining the lastest qtrly earnings report and using a 20 multiple gives me a $1.6 price level for the shares. The sell today for 65 cents US. An amazing baseline and wonderful bargain."

Here's some negatives that aren't mentioned:

• The operator of their 49% owned mine (Hochschild) has managed to tick off the workers in Argentina where strikes are a respected and ongoing tradition. McEwan has already indicated that Q4 production / earnings will be down due to labor actions that have already occurred.
• The operator of their 49% owned mine (Hochschild) is operating the mine in strictly its own interest and it may be a long time before Minera Andes gets any actual cash-flow from the mine. It will be even furtherout, if ever, that stockholders get a slice of that cash-flow in stock-buybacks or dividends.
• XSTRATA, which knows more about mining copper in Argentina than anyone else, decided not to buy into that "3B$ NPV" copper project at triple the exploration cost to date. I'd call that an indication that the project isn't anywhere close to that 3B$ value. 

Still, the poster is right that the 49% owned mine is a great asset. I estimate a price to operating cash flow from that mine for 2010 at $1000 Au and $16 Ag at 2.1 making MAI.TO (leaving aside the copper project and other exploration project values) roughly undervalued relative to its peers (e.g. Minefinders [MFL.TO/MFN] by a factor of something like 3 to 1.

I bought back in yesterday at $C.67 (only 1% of my portfolio) because I'm a value investor at heart and it seems, even with the negatives above, way too undervalued.

MontyHigh, www.worldofwallstreet.us