World Of Wallstreet

Best Of The Boards: Metanor Valuation

As you may recall, on Feb 3'ird I profiled PurePaloma's Metanor mining as a fat pitch. MTO's stock ran just as expected and is now consolidating around $1.00. There is still a lot to like about this stock and Monday may be a good entry point.

The following post provides a simple, straightforward valuation of MTO. Seems pretty attractive provided they execute their plan.
http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=23067685&l=0&r=0&s=MTO&t=LIST

By the way, here's (http://miningmarketwatch.net/flashmto400.htm )a really nice overview showing what they have in production step by step from blasting at the pit mine to pouring the gold dore.

I've got a tonne of things to write about, but am on vacation in Austin Tx and don't know how much I can post. I'll probably get a few things in later this afternoon.

MontyHigh

Fat Pitch: Potash Corp, Saudi Arabia Of Potash

[Editor's Note: World Of Wallstreet welcomes Dr. Stocks (Toby Hickle), Senior Reporter And Staff Writer - Dr. Stocks follows a value investing approach where he is using concentration to build wealth. He's diversified in that he is young and still has his day-job. He'll be posting relatively infrequently, but when he posts you can expect to find something that is pretty deeply thought out that Dr. Stocks is committed to himself.]

Potash Corp has an incredible story. Potash (or carbonate of potash) is an impure form of potassium carbonate (K₂CO₃) used as a fertilizer. Demand for potash outstrips supply.  It is not surprising then to see China pay more than triple in 2008 than what was paid in 2007.  The bigger story though isn't the price but the lack of quantity delivered to China.  In a Potash press release it was stated, "As previously reported, Canpotex (the export arm of Potash Corp)has prorated China’s 2008 volumes and, as a result of the timing of this settlement and unprecedented demand in other markets, has only 1 million tonnes that it can commit to Sinofert (China) through the remainder of this year."

 

Since the Chinese announcement on April 16, 2008 a Uralkali and their export arm BPC announced on April 22, 2008 that effective July 1, 2008 potash prices will rise to $1000 USD per tonne for spot prices in Asia and Latin America. Vladislav Baumgertner, President, General Director of Uralkali stated, "These price increases are driven by the continuous growth of global demand, historically low inventory levels and unprecedented tightening of the supply for the remainder of 2008 after the agreements reached by the Company in China and India."

 

This is nearly a 50% increase in the selling price (excluding freight costs) of potash in less than a week.  Additionally, this major potash consortium indicated that yearly contracts would be reduced to six month contracts as opposed to annual contracts given the tight supplies worldwide.

 

As a result of the rapid price increases in potash analysts are not able to update their research and price targets fast enough.  Many analysts have not factored in the recent China and India price increases which in and of themselves were massive.  One week later we have already witnessed another massive price increase effective July 1.  You can bet that Canpotex, the exporting mechanism for Potash, will at least match the $1000 price for certain parts of the world.

 

The main drivers creating tight supply & demand for potash are really quite simple.

 

1.  The world's population is growing every year.  U.N. estimates are 100 million a year; and

 

2. This growing population for the first time desires a higher protein diet (more meat.)   Meat production is grain intensive.  It takes 7 pounds of grain to produce 1 pound of beef according to the USDA.

 

3.  There is less arable land on which to grow crops as a result of the growing population.

Therefore, in order for countries to feed their hungry populations they must increase the yields and efficiency of the farm land already in use. This is done in part by use of fertilizers such as potash.   

Economic Slowdown and Effects on Potash

 

Some investors wonder how a worldwide economic slowdown would affect the business of Potash Corp.  In the Q3'07 conference call Potash Corp CEO Bill Doyle stated, "If you look at the credit crunch, the sup-prime, the liquidity crisis, in North America and its impact on North American agriculture, I would say it (economic slowdown) is nil." 

   

CEO Doyle went on to emphasis that, "...we're on allocation, very tight supply. Our customers are concerned about availability.  They're not concerned about price."

 

The Need for Potash
Look at Slide #20 of Potash Corp's presentation. Between China, India and Brazil they would have to increase potash use by 22 million tonnes in order to optimize their growing potential.

According to slide #22 Potash Corp can produce an additional 7 million tonnes between now and 2012. The competition combined could produce 6 million tonnes. That taken together is 13 million tonnes. This is still 9 million tonnes short what China, India and Brazil would need in order to optimize their crop production potential. When populations begin to riot because there is no food you can bet these countries are going to go out and maximize food production by using proper amounts of fertilizer (potash). Two great reasons why governments would want to do this:
1. It is a good investment. The value of the additional crops exceeds the costs of the additional fertilizer.
2. It insulates the current government and power structure from being uprooted in any kind of massive upheaval caused by a hungry and angry population. In other words, the host government would risk anarchy. 

 

Valuation

 

On January 24, 2008 Potash Corp provided earnings guidance for 2008. Their projections were for the company to earn $6.25 to $7.25 per share.  Lets take the average of those numbers and use $6.75 as the company guidance.  At that time Potash pricing was $320 and $450 for North America and Offshore markets respectively.  Effective July 1, 2008 a major potash producer will charge $1000 USD per tonne.  This is over double that charged at the time Potash Corp guidance was provided for 2008 eps. Lets do the math:

 

Sensitivity analysis indicates additional $0.34 for each increase of $20 in price of potash (see http://www.potashcorp.com/investor_relations/financial_performance/sensitivities/ ).  Since we are talking only half the year lets take half the amount per $20, or $0.17.  To be conservative lets figure a price increase in potash from $450 to $1000 effective July 1, 2008.  This is a $550 increase. 

 

$550/ 20 = 27.5

 

27.5 X $0.17 = $4.67 additional eps due to $550 price increase in potash. 

 

Original company guidance = $6.75 

$6.75 + $4.67 = $11.42.

 

Potash Corp should easily earn $11.42 in 2008.  Please keep in mind that these figures do not include any increases in potash production.  Potash Corp has a more favorable valuation multiple for many reasons one of which is the fact that Potash Corp has the ability to significantly increase potash production to meet market demands.  Additionally, these figures do not include any upside in earnings due to more favorable nitrogen and phosphate prices and production.  The announced share buyback program of 5% of the outstanding shares was not factored in either. Also, the $11.42 assumes no further potash price increases for the remainder of 2008.  Clearly $11.42 is a conservative number. 

 

Put a 30X earnings multiple on the $11.42 and you have a $342 share price target based on conservative 2008 assumptions. 

In conclusion, governments around the world can NOT afford to NOT put the proper amounts of fertilizer on their farmlands. As previously noted China, India, and Brazil are only three counties mentioned. There are lots of other areas around the world that also need to optimize their use of potash. This bodes extremely well for producers...especially those that are able to significantly increase potash production. POT can increase their production by over 50% in the next 4 years. Just in case there would be less demand for whatever reason, POT has the power to withhold potash production and keep prices stable and insure necessary profitability for the shareholders.

Looking at the big picture, Potash Corp is not some a Jr miner like those covered by MontyHigh, Firecracker and AceOfKY. It has a market capitalization of 64B$. While Potash production is the key to Potash Corp's earnings growth in FY2007 potash net sales accounted for only 33% of total net sales.  Nitrogen fertilizers account for 36% and phosphate fertilizers 31%.  The other segments have the chance to boost earnings in a big way in addition to that of the potash segment.

Its important to note that all Potash has to do to achieve the above earnings growth is "turn the crank", that is, do what it is already doing. It doesn't have to open new mines, get permits, get financing, commission mill expansions or any of the other things that frequently delay (and dilute) Jr miner's earnings.

The stock price will zig and zag. Try and time the price in order to add shares at a lower price and you risk having to buy back at a higher price. This is gambling. Especially given the historical charts as viewed in the rearview mirror where pullbacks are few and far between and what is presented out the front windshield given the tremendous future prospects.

 

Those who are just joining the party have a lot of time before the clock strikes midnight and the carriage turns into a pumpkin.

If you have any thoughts about Potash Corp or other opportunities in the Agriculture sector. Let me a comment,

Dr. Stocks

Firecracker Stock Profile: Capstone Mining Looking Better Than Ever

[Editor's Note: World Of Wallstreet first profiled Capstone Mining October 21, 2007 (click here). Since then its stock price has advanced 17%. This article gives Firecracker's latest thoughts on the stock.]

Capstone Mining(CS.TO or CSFFF) is a sleeping giant. Rarely can you find a stock this undervalued.

Capstone Mining has many reasons that compel you to look at it as an investment opportunity.

• Capstone is one of those rare junior miners that does everything it says it will do when it says it will do it. They have actually run ahead of schedule on production capacity increases. Capstone Mining currently mines copper, zinc, lead and silver in Mexico. 2008 production is expected to be 30M pounds of copper and 2009 production is expected to be 40M pounds.
• Capstone is a very low cost producer because of the byproduct credits. Capstone's cash cost on copper is currently right at $1 per pound. With copper now at $4 per pound Capstone stands to make $3 per pound on its copper. That means pretax earnings of $90M in 2008 and $120M in 2009.
• Capstone is in excellent fiscal shape. Capstone currently has about 81M shares outstanding and has been buying back its own shares. When first quarter results are out in a few weeks Capstone should have working capital of close to $70M. Capstone also owns about 30M shares of Silverstone Resources(SST.V) which is worth about $75M. [Editor's Note: Silverstone is quite a nice asset and probably undervalued (click here for more).] Together the working capital and SST.V is $1.65 per fully diluted share. I am expecting first quarter revenues of about $32M and pretax profits of about $20M or about .24 per share. Capstone's latest mine expansion is due to be completed in quarter 4 of this year. Full year earnings should be more than $1 per share pretax if copper stays around $4. That's a pre-tax price to earnings ratio of 3.5 for 2008. 2009 pretax earnings should be about $120M or $1.50 per share. Capstone has no debt and IMHO will have $100M ($1.23 / share) in cash on hand by year end. Add in its SST.V's current value and that $2.15 /share of working capital and publicly traded assets.
  
• Capstone is looking for an acquisition that will provide a high cash flow. With $200M in cash available by the end of 2009 Capstone should be in a position to make an accretive acquisition by then.

There are many opportunities in the metals market right now. Capstone is one of the best opportunities I know of.

Firecracker

Fat Pitch: Aurcana, Mexican Mine Reopener (Polished)

Well, the trashing silver and other metal prices took this morning disposed of the stock price pop I expected of Aurcana this morning. I got some comments on this and have decided to polish it up a little. So here goes the revised profile. The main fix was to increase measured and indicated resource-based the mine life to three years by incorporating an earlier NI43-101's resources.

After this morning, Aurcana (AUN.V) should more of a fat pitch than ever. I've been wanting to do a Fat Pitch profile of Aurcana for a while but now is a perfect time as today seems like a good entry point.

Aurcana is a company that has reopened a mine in Mexico and is planning on reopening a second Mexican mine in 2009. Aurcana has been seriously undervalued for three reasons:
(1) It has had little official NI43-101 compliant resources. Instead it had significant historical resources. A drilling program is underway (and results are now coming in) to address this.
(2) Although producing Ag, a significant part of Aurcana's revenue comes from base metal byproducts (Zn, Pb, Cu) and so the market does not award it the multiples of a primary silver producer. The second mine to be opened is a Ag/Pb and the resulting overall revenue mix should clearly classify Aurcana as a primary silver producer.
(3) Aurcana's first mine has recently been opened and has been ramping up and the market is waiting to see whether actual results match the forecasts.

Today Aurcana announced the results of an NI43-101 report for one of 23 ore bodies in their first mine. This is the second such NI43-101 since the start of the year. This NI43-101 report covers 587M tonnes of Measured and Indicated resource for that one ore body. The mine is currently operating at 1M tonne / day. Together with the previous NI43-101 Aurcana has measured and indicated reserves for a three year mine life. Further drilling is expected to increase the mine life extensively and justify an increase in production to 1.5 M tonne / day. The metals in this morning's NI43-101 587M tonnes is, at today's prices, worth 96MM$ which more than covers Aurcana's market cap of 82MM$C.

I estimate a price to operating cash flow of 2.5 at current metal prices, current production rate and stock price. This is, in my opinion, significantly undervalued for a current producer with 33% of its revenue from silver.

The catalysts to move the stock price up, beyond today's specific resource announcement, are:

• Audited Q4 results - by the end of April. If there's no disappointment, this announcement should go a long way to reassure the market that Aurcana's results match its forecast and could step up the share price.
• Increased Production Plan Announcements - further refining the plans to increase the first mine's production by 50%.
• Second Mine Reopening Announcements - promising the transition to Aurcana being a primary silver producer with increased revenue.
• Additional Drill Results And Increased Resource Announcements - from the drilling program underway.

Here's some items that could possibly move the stock price down:

• Metal prices could deteriorate (Ag, Zn, Pb and Cu). This directly impacts Aurcana. Of course, they could also rise.
• Aurcana anticipates ramping up production from the first mine and opening the 2nd mine using cash flow from the first mine. This may be over optimistic and a possible catalyst to move the price down might be a private placement (worse yet with warrants) to raise cash for expansion.
• Aurcana could have production problems as they ramp up their first mine.

Overall, I'm pretty jazzed and Aurcana is my 2nd largest holding right now. Ron Neolitsky, one of Aurcana's directors, has been heavily buying Aurcana on the open market over the last three month. This kind of insider buying is generally bullish and means that I'm not the only one who is jazzed about Aurcana. I recommend you put it on your list for further study.

Fat Pitch: Aurcana, Mexican Silver Mine Reopener

After this morning, Aurcana (AUN.V) should still a fat pitch even though I'm expecting a decent pop in its stock price which closed at $C.87 on March 18. I've been wanting to do a Fat Pitch profile of Aurcana for a while but now may have waited too long.

Aurcana is a company that has reopened a mine in Mexico and is planning on reopening a second Mexican mine in 2009. Aurcana has been seriously undervalued for three reasons:
(1) It has had little official NI43-101 compliant resources. Instead it had significant historical resources. A drilling program is underway (and results are now coming in) to address this.
(2) Although producing Ag, a significant part of Aurcana's revenue comes from base metal byproducts (Zn, Pb, Cu) and so the market does not award it the multiples of a primary silver producer. The second mine to be opened is a Ag/Pb and the resulting overall revenue mix should clearly classify Aurcana as a primary silver producer.
(3) Aurcana's first mine has recently been opened and has been ramping up and the market is waiting to see whether actual results match the forecasts.

Today Aurcana announced the results of an NI43-101 report for one of 23 ore bodies in their first mine. This NI43-101 report covers 587M tonnes of Measured and Indicated resource for that one ore body. The mine is currently operating at 1M tonne / day and this gives Aurcana more than a year and a half's resource to mine. Further drilling is expected to increase the mine life extensively and justify an increase in production to 1.5 M tonne / day. The metals in this 587M tonnes is, at today's prices, worth 96MM$ which more than covers Aurcana's market cap of 82MM$C.

I estimate a price to operating cash flow of 2.5 at current metal prices, current production rate and stock price. This is, in my opinion, significantly undervalued for a current producer with 33% of its revenue from silver.

The catalysts to move the stock price up, beyond today's specific resource announcement, are:

• Audited Q4 results - by the end of April. If there's no disappointment, this announcement should go a long way to reassure the market that Aurcana's results match its forecast and could step up the share price.
• Increased Production Plan Announcements - further refining the plans to increase the first mine's production by 50%.
• Second Mine Reopening Announcements - promising the transition to Aurcana being a primary silver producer with increased revenue.
• Additional Drill Results And Increased Resource Announcements - from the drilling program underway.

Here's some items that could possibly move the stock price down:

• Metal prices could deteriorate (Ag, Zn, Pb and Cu). This directly impacts Aurcana. Of course, they could also rise.
• Aurcana anticipates ramping up production from the first mine and opening the 2nd mine using cash flow from the first mine. This may be over optimistic and a possible catalyst to move the price down might be a private placement (worse yet with warrants) to raise cash for expansion.
• Aurcana could have production problems as they ramp up their first mine.

Overall, I'm pretty jazzed and Aurcana is my 2nd largest holding right now. Ron Neolitsky, one of Aurcana's directors, has been heavily buying Aurcana on the open market over the last three month. This kind of insider buying is generally bullish and means that I'm not the only one who is jazzed about Aurcana. I recommend you put it on your list for further study.

Fat Pitch: Gold Resource Corp (GORO.OB)

I consider Gold Resource Corp (GORO.OB) to be a hidden asset play. The hidden asset is high-grade gold-ore which has not passed the formalities needed to be considered NI43-101 resources or SEC Proven / Probable reserves. This makes it a speculative buy in my view. I classify it as a fat pitch because of the comparatively low risk and high reward of this opportunity.

The best introduction to Gold Resource Corp is the very-classy, narrated corporate presentation on their web site (click here). The four things that make Gold Resource Corp a compelling opportunity from my perspective is:

• High-Grade Gold Resource
• Proven, Stockholder Friendly Management
• Planned Production In Less Than A Year
• Valuation Compared To Benchmark Mid-Tier Producer

High-Grade Gold Resource

GORO has four high-grade properties whose ore can be processed by a single planned mill. The properties are in Mexico adjacent to 8 km mineralized trend that is conveniently located next to the Pan American highway.

GORO claims that this constitutes 773 oz of gold equivalent although this is mineralized ore rather than NI43-101 resources or SEC proven or probable reserves. The ore is such high-grade that bringing it to production is economically a slam-dunk and the GORO strategy is to skip the NI43-101 resource definition and feasibility phases and go straight to production on the strength of their management reputation and the quality of the drill results. These results, for the first project, the El Aguila open pit project, include several drill intercepts of 6 meters averaging over 10 grams/ton right next to the surface. GORO forecasts, given a silver by-product, that this mine will have a cash cost under $100 / oz Au.

Less than 2 km of the 8 km mineralized trend has been explored and drilling continues. The latest drill results are the best so far. I expect news results of continued drill results and increased mineralized ore estimates as the El Aguila mine progresses towards production.

Watch the presentation for more information on the high-grade gold properties.

Proven, Stockholder Friendly Management

Gold Resource Corporation was founded by Bill and David Reid. The Reids co-founded U.S. Gold Corporation (USGL), and ran the company since its inception in 1977 until August of 2005. During the 28 years USGL operated under the Reid's management, the company built or participated in 6 producing mines.

Bill and David Reid are the largest stockholders. As such, their interests are aligned with other share holders. This has a practical impact. Examples of how this helps other share holders include:

• Getting financing for the El Aguila open pit mine and mill with a private placement at current market price without warrants. The absence of warrants minimizes the share holder dilution and prevents the private placement price from being a major point of resistance to a rising stock price. In fact, this private placement took place at $4.00 a couple of months ago. The stock is now trading well below this level even though all the news since that time has been increasingly positive. The price of gold has been rising. A permit has been granted (see below). The ore body has been enlarged with increasingly higher grade drill results. This presents the rare situation of being able to buy at a price substantially below what "Smart Money" paid.
• An announced plan award to stockholders 1/3 of operating cash flow in dividends. How many Junior miners have announced a dividend policy like this?

A very well connected Mexican, Pepe Renoso, is the manager of Mexican operations and is responsible for the permitting process. His father was the head of the Mexican mining ministry. This should expedite the permitting process.

The management shows integrity. I had a 30 minute conversation with GORO's IR guy (Jason Reid, son of one of the founders) Friday. Jason was very clear at holding the line and providing only information that had been previously publicly announced. This is the first time I've had a pre-production Jr IR representative take this seriously. To me it is a positive sign of management integrity. After a couple of disappointing recent experiences with other promising Jr miners, I run at the first sign of a lack of management integrity. 

Planned Production In Less Than A Year

GORO has targeted production at the El Aguila open pit mine to commencing before the end of 2008. They are forecasting an initial production rate of 70K oz Au / year.

Progress towards this production is underway:

• The financing has been obtained (without issuing warrants, see above).
• The mill has been ordered.
• The approval of the Ejido (local government) as been received.
• The first of three federal permits, the permit for the road to the mill, has been approved.
• The second approval, the crucial one in my view, for the mill and tailing pond is off the critical path and is expected any day. This should be a major stock price catalyst. The third permit, for the open pit mine itself follows.

The fact that the final two permits are not in hand is another factor that makes GORO a speculative buy. My judgment is that the combination of:

• the management, with proven experience starting five mines,
• the well-connected in-country management,
• the approval of the local government (the Ejido),
• the grant of the first federal permit (granted by the same ministry responsible for the remaining two approvals)

leave the permit issue as a risk, but a managed, relatively low-level risk. The absence of permits also represents an opportunity as I have seen the stock prices of other advanced development Jr miners take off when the permits are actually finalized. 

Relative Valuation Compared To Benchmark Mid-Tier Gold Producer

GORO's presentation provides GORO's own view of how undervalued it will be compared to other gold producers as it progresses. I recommend studying it closely.

I compare Jr, pre-production gold Jr miners to Rangold (GOLD), a high-cost mid-tier gold producer with a relatively slow forecast growth rate.

Gold Resource forecasts a production of 100K oz during its second year of production and 1.3 million oz of resources. Compared to Randgold, and assuming GORO achieves this in the year 2010, I estimate that Gold Resource's price would have to advance by:

• 400% to match Randgold on a price to annual oz of production basis.
• 677% to match Randgold on a price to operating cash flow basis.
• 493% to match Randgold on a price to proved and probable reserves basis.

Gold Resource should be a low-cost producer while Randgold is a high-cost producer. As such, Gold Resource's price should advance even farther than this comparison indicates.

Overall, this is more than a big enough margin of error for me and makes Gold Resource sufficiently undervalued to be my favorite gold mining Jr.

Here's some additional items worth noting:

• Relations With Nearby Residents - It turns out that an economic calamity is looming for the vicinity immediately adjacent to Gold Resource's properties. This is the re-routing of the Pan American highway to a coast route. The result of this is that tourist traffic forming the main source of revenue for the nearby villages will be disappearing. This leaves nearby residents strongly supporting Gold Resource's mine startup as mining will be a major source of jobs and will help compensate for this loss of the tourism revenue.
• The recent stock price has been depressed by what appears to be an fund's forced selling, perhaps as a result of investor redemptions. This constitutes a major buying opportunity as conditions have improved since the "Smart Money" entrance price of 4$.
• The near-term stock price catalysts are continued drilling results and federal permit approvals.
• Gold Resource plans to focus entirely upon getting to production. Once in production, they expect to have all the information necessary (drill results, etc) to turn their mineralized ore into SEC-approved proven and probable reserves.
• I expect a move to AMEX exchange will take place around the time that production is underway and proven and probable reserves can be announced. This is yet another catalyst for a stock price advance.
  

Conclusion

In my view, Gold Resource (GORO.OB) constitutes a Fat Pitch. I have been cannabalizing other excellent Jrs to increase my position. Gold Resource has now grown to about 10% of my portfolio. If things go reasonably close to plan, Gold Resource will be in production 18 months from now with 1 MM oz of proven / probably reserves and the stock price should be trading at multiples of its current level. In my view, its an excellent risk/reward hidden asset situation. Of course, everyone should do their own due diligence and really understand an investing situation for themselves prior to actually committing any money.

Fat Pitch: Pinup22's And Mining Bull's Metanor Minings (MTO.V)

Metanor Mining (MTO.V) is the respected Pinup22's favorite gold Junior. It is also a favorite of the respected Mining Bull (hat tip to both of them for bringing MTO to my attention). MTO.V has just formed a rather bullish cup and handle formation. It matches all the criterion for this formation enumerated by Bulkowski's Encyclopedia Of Chart Patterns. Here's the chart:

The catalysts for this break out appear to be:

• Gold hitting all time highs this week.
• The buzz on the message boards. The boards say that Metanor's mill is running (for the first time) and soon a start of production, first gold pour announcement should be forthcoming.

The basic story on Metanor is that it is a Northern Ontario mine gold mine restart. Its got the only mill in a historic gold mining district and as such could grow to pickup all the properties in the district. The web site is pretty weak and the stock has a really low market cap. Its so illiquid I can only put a small fraction of my portfolio in it. I consider Metanor to be a speculative buy.

Here's the highlights of my fundamental analysis (you should check this yourself, because the stock is so small and the web site is so poor that some of the inputs for this are hard to find):

• 76MM$C market cap with no significant debt.
• 58M oz/year initial annual production with a cash cost of $350. The only source for the cash cost I could find was message board buzz (for whatever that is worth).
• 260M oz Measured and Indicated resource with 480M oz Measured, Indicated and Inferred. This puts Metanor clearly in the Junior category, but again there is considerable exploration upside and the drills are already working on proving additional resources up. This leaves Metanor a little short on resources (without this upside) as it is only underpriced on a price to measured and indicated basis by 18% compared to my slow-growth mid-tier base line company, Randgold.
• The above gives MTO an absolutely stunning price to annual oz ratio of $1327 and price operating cash flow ratio of 2.9! Compared to my slow-growth mid-tier producer, Rangold, MTO's price would have to jump 380% to match Rangold's valuation.

I consider Metanor to be a "Fat Pitch" (good price / risk ratio) at this point with a great upside if it produces as expected and increases its resources and a non-negligible risk given the potential for startup problems and some of the uncertainty associated with its upcoming exploration.

According to Bulkowski, the target price for this pattern is 34% above the top of the cup (or $1.20C) and 50% of cases achieve this target.

It has a great catalyst for a price jump in the form of anticipation of its production startup announcement and has significant downside protection in the form of two different warrantless private placements at $C.80. This means the smart money thinks anything close to $C.80 is a real value.

Fat Pitch: First Majestic Silver (FR.V)

First Majestic Silver Corp (FR.V) is a mid-tier silver mining company in the making that is valued like a junior. Compared to Hecla Mining (HL), a steady mid-tier silver mining company, First Majestic is undervalued between 2 and 3 to 1.

FR.V has three operating silver mines in Mexico and is already producing silver at an annualized rate of 3.2 MM oz/year (with a minor lead byproduct equivalent to 400M oz Ag/ year). The three mines are capable (and forecast) to ramp up production to a 6MM oz/year rate during 2008 without further dilution. The mines are also being aggressively explored with 11 drill rigs. The forecast result of this is 300 MM oz of resources by the end of 2008.

FR.V's management is the kind that garners my respect having a proven track record building substantial mining companies. The CEO is John Neumayer was the founding president of First Quantum Minerals whose market capitalization exceeds 5B$. The COO, Ramon Davila, has held key operating posts in Mexico's largest silver mining companies, including VP of Mining operations for Luisman and president of a subsidiary of Pan American Silver Corp where he was in charge of all aspects of production, exploration and administration of Pan American's Mexican operations.

My spreadsheet analysis comparison of FR.V to Hecla Mining (HL) based on $14/oz silver indicates that, should FR.V achieve its forecasts, by the end of 2008 FR.V's silver production will be equivalent to HL's. FR.V's price will have to increase, relative to HL, by:

• 266% to be valued the same as HL in terms of price to annual oz of production ratio.
• 66% to be valued the same as HL in terms of price to operating cash flow ratio. NOTE: This means FR.V is leveraged more to the price of silver and would be expected to suffer more on a precipitous silver price collapse (or benefit more if silver continues to rise).
  
• 1800% (that's an 18-bagger) to be valued the same as HL in terms of price to Measured and Indicated resources ratio.
• 2000% (that's a 20-bagger) to be valued the same as HL in terms of price to Proven and Probable reserves ratio.
• 800% to be valued the same as HL in terms of price to Measured, Indicated and Inferred resources ratio.

This makes First Majestic (FR.V) look to me like an Easy Double in 2008. Continued growth of its existing mines and resources, its aggressive, competent management and the opportunity for significant consolidation of Mexican silver juniors gives First Majestic considerable upside from there.

So, how is it that FR.V finds itself so undervalued? This is probably attributable to two factors:

1. First Majestic is still considered to be a junior silver miner and the market has undervalued juniors relative to mid-tier and senior producers. This perception should be adjusted should First Majestic achieve its forecast results. These results clearly match and exceed those of Hecla. The perceptual change should be assisted by First Majestic's announced to move from the junior Venture stock exchange up to the TSX this spring.
   
2. First Majestic is just coming together. It is a young company that has experienced multiple dilutions in assembling its three mines.

The above chart indicates that First Majestic has been consolidating for the last two months after recovering from August's sell-off, but now looks likely to breakout. Unlike true junior silver miners, FR.V has not suffered from tax-loss selling. It has excellent support around 4.20$C which is 11% below the recent close. Here's some catalysts that could cause it to break out of its trading range:

• The price of silver breaking out of its trading range. The chance of this seems pretty good to me given recent precious metal price action.
• Increased resources in the form of new/updated NI43-101 reports. These are due in early January and in February and then later in the year. In addition, drilling results can be expected on an ongoing basis.
  
• Increased quarterly production with falling operating cash costs (as startup expenditures die down). The next quarter is the fourth quarter which may delay (while auditing takes place) the release of the quarters results. Without this delay, the next results would be expected to be announced by the end of February 2008.

First Majestic looks like a really fat pitch to me. Unlike the true juniors I will be profiling over the next couple of weeks, First Majestic is not lacking anything specific that is holding back its valuation other than a relatively simple expansion of its current activities.

First Majestic is actually my favorite stock right now. Its relative lack of liquidity has been keeping me from enlarging my position, but now it looks so good that I've been adding to my position over the last couple of days despite the chart looking a little overbought as of today's close. If you are considering entering you might want to wait either for a break out or for it to fall a little closer to that support at 4.20$. You may miss the boat if the expected drill results come out before you enter and it jumps 10 or 20%.

Of course, everyone should do their own due diligence and invest their own money.

If you are interested in this kind of profile, check my blog over the next couple of weeks (http://montyhigh.typepad.com/world_of_wallstreet/) as I'm planning on profiling several junior precious metal stocks I'm holding.

Fat Pitch: First Majestic Silver Corp (FR.V)

First Majestic Silver Corp (FR.V) is a mid-tier silver mining company in the making that is valued like a junior. Compared to Hecla Mining (HL), a steady mid-tier silver mining company, First Majestic is undervalued between 2 and 3 to 1.

FR.V has three operating silver mines in Mexico and is already producing silver at an annualized rate of 3.2 MM oz/year (with a minor lead byproduct equivalent to 400M oz Ag/ year). The three mines are capable (and forecast) to ramp up production to a 6MM oz/year rate during 2008 without further dilution. The mines are also being aggressively explored with 11 drill rigs. The forecast result of this is 300 MM oz of resources by the end of 2008.

FR.V's management is the kind that garners my respect having a proven track record building substantial mining companies. The CEO is John Neumayer was the founding president of First Quantum Minerals whose market capitalization exceeds 5B$. The COO, Ramon Davila, has held key operating posts in Mexico's largest silver mining companies, including VP of Mining operations for Luisman and president of a subsidiary of Pan American Silver Corp where he was in charge of all aspects of production, exploration and administration of Pan American's Mexican operations.

My spreadsheet analysis comparison of FR.V to Hecla Mining (HL) indicates that, should FR.V achieve its forecasts, by the end of 2008 FR.V's silver production will be equivalent to HL's. FR.V's price will have to increase, relative to HL, by:

• 266% to be valued the same as HL in terms of price to annual oz of production ratio.
• 66% to be valued the same as HL in terms of price to operating cash flow ratio. NOTE: This means FR.V is leveraged more to the price of silver and would be expected to suffer more on a precipitous silver price collapse.
• 1800% (that's an 18-bagger) to be valued the same as HL in terms of price to Measured and Indicated resources ratio.
• 2000% (that's a 20-bagger) to be valued the same as HL in terms of price to Proven and Probable reserves ratio.
• 800% to be valued the same as HL in terms of price to Measured, Indicated and Inferred resources ratio.

This makes First Majestic (FR.V) look to me like an Easy Double in 2008. Continued growth of its existing mines and resources, its aggressive, competent management and the opportunity for significant consolidation of Mexican silver juniors gives First Majestic considerable upside from there.

So, how is it that FR.V finds itself so undervalued? This is probably attributable to two factors:

1. First Majestic is still considered to be a junior silver miner and the market has undervalued juniors relative to mid-tier and senior producers. This perception should be adjusted should First Majestic achieve its forecast results. These results clearly match and exceed those of Hecla. The perceptual change should be assisted by First Majestic's announced to move from the junior Venture stock exchange up to the TSX this spring.
   
2. First Majestic is just coming together. It is a young company that has experienced multiple dilutions in assembling its three mines.

The above chart indicates that First Majestic has been consolidating for the last two months after recovering from August's sell-off. Unlike true junior silver miners, FR.V has not suffered from tax-loss selling. It has excellent support around 4.20$C which is 9% below the recent close. Here's some catalysts that could cause it to break out of its trading range:

• The price of silver breaking out of its trading range. The chance of this seems pretty good to me given recent precious metal price action.
• Increased resources in the form of new/updated NI43-101 reports. These are due in early January and in February and then later in the year. In addition, drilling results can be expected on an ongoing basis.
  
• Increased quarterly production with falling operating cash costs (as startup expenditures die down). The next quarter is the fourth quarter which may delay (while auditing takes place) the release of the quarters results. Without this delay, the next results would be expected to be announced by the end of February 2008.

First Majestic looks like a really fat pitch to me. Unlike the true juniors I will be profiling over the next couple of weeks, First Majestic is not lacking anything specific that is holding back its valuation other than a relatively simple expansion of its current activities. First Majestic is actually my favorite stock right now. Its relative lack of liquidity has been keeping me from enlarging my position. II expect I'll be enlarging this position over the next couple of weeks if its price does not run away.

Of course, everyone should do their own due diligence and invest their own money.

If you are interested in this kind of profile, check my blog over the next couple of weeks (http://montyhigh.typepad.com/world_of_wallstreet/) as I'm planning on profiling several junior precious metal stocks I'm holding.

Fat Pitch Update: Golden Star Resources

Click here to see the earlier (12/10/2007) full discussion of Golden-Star Resources (GSS, GSC.TO). Since that post, I have completed and updated my own comparison of GSS to my reference mid-tier gold miner, Rangold (GOLD).

Here's the highlights of that analysis (assuming $800/oz gold price going forward and that GSS achieves its objective of 550,000 oz in 2008 with an operating cash cost of $450/oz). GSS's price would have to increase, relative to Randgold, by:

• 368% to have the same valuation in terms of price to annual oz production.
• 261% to have the same valuation in terms of price to operating cash flow.
• 367% to have the same valuation in terms of  price to Measured and Indicated resources.
• 317% to have the same valuation in  terms of price to Proven and Probable reserves.
• 260% to have the same valuation in terms of price to Measured, Indicated and Inferred resources.

That's why GSS is my largest position. Based on the comparable valuation GSS would more basically quadruple if it achieves comparable valuation to Rangold. I call that an "Easy Triple". Its very liquid and I could easily exit this position in a day if I need to even though it is my largest position.

The only news from GSS, since my previous post on it, has been that its CEO is stepping down (as expected). Given that he was in charge during the last couple of years of disappointment this is probably as positive thing for the company.

The chart is pretty ugly given how strong the price of gold has been recently. The only positives I see in the chart has been that the recent MACD buy signal is holding and that the price broke out of its downward channel and has (barely) stayed out of that channel.

Its really going to take one or two quarters of improved results to make this market believe that GSS is turning around. Last year, GSS announced its earnings date on Jan 9 and the actual results on Feb 7. This means you probably have some time open a position in GSS if you haven't already. Last quarter the stocked surged prior to the quarter results and I'm expecting the same thing to happen this quarter. Hopefully it will surge further after the results actually come out.

Fat Pitch: Golden Star Resources (GSS)

Toby Hansen explains here why Golden Star Resources looks like a fat pitch. See this for my earlier GSS post. GSS looks like an easy double to me. GSS is my second largest holding (after SST.V, see this and that) right now.

Silver Stone, For Once A Private Placement Is Bullish

On October 26, I profiled Silverstone Resources (SST.V) as being undervalued based on its being directly comparable to SilverWheaton. The stock was a little under 3$C then and now is a little above 3$C (of course the C$ has advanced a bit vs the US$ over that time).

Silverstone has just announced a warrantless 50 million $C private placement at 2.90$C. I think this is bullish as it probably means they have another, accretive silver stream deal ready to go. Such a deal should lessen the annual production difference between Silverstone and Silver Wheaton (thereby making them more comparable) while maintaining the favorable differences in valuation ratios (thereby maintaining its favorable valuation to Silver Wheaton). The result should be to pull the Silverstone stock price up until its valuation more closely matches Silver Wheaton's.

Most Canadian Jr mining private placements sell to the purchaser a number of units where a unit is typically one share of stock and half of a warrant (a stock option). The warrants typically expire after a couple of years. The private placement unit cost is typically a little below the current market price (giving the purchaser a bulk discount) while the warrant strike price is typically somewhat above the current market price.

Private placements are usually a bearish thing, as they dilute the value of existing shares, but there are a couple of other bearish effects on the stock price related to the warrants. One strategy often employed by purchasers of private placements is to:

• immediately sell short the stock at anything at or above the private placement price (thereby eliminating risk on the money expended on the private placement and getting that money back immediately) and
• retain the warrants as a riskless opportunity to benefit from future stock price gains.

This short selling often depresses the stock price and caps it at the private placement price (until all those shares have been sold). Secondly, there is a further holding of the stock price back somewhat above the warrant strike price as warrant holders are motivated to exercise their warrants and sell the resulting shares to lock in a profit on the warrants while the price is above the warrant strike price.

This capping of stock prices by private placements is not a hypothetical thing. A prime example is Blue Note Mining (a Jr Zinc/Pb producer). Blue Note just recently had a large private placement and the stock price was, in fact, knocked immediately below the private placement price (of $.56C), a hit of over 10%. The price has effectively remained below that private placement price since. One can expect, further out, a similar holding of the price not too far above the warrant strike price of $.67C.

Silverstone's private placement does not have warrants. The absence of warrants in Silverstone's private placement means there are neither of these capping of the stock price and is a bet by big, probably smart money that there is significant upside for the stock above its private placement price. That is also bullish. The fact that the market price is only 3% above the smart money's entry price means you can follow the smart money by entering now.

Of course, the I am not a financial professional and cannot guarantee that this article is complete and accurate. Everyone has to do their own due-diligence and invest their own money.

Golden Star Resources (GSS, GSC.TO) Earnings Preview

Golden Star, a mid-tier gold-coast Afica gold-miner, is scheduled to announce earnings Tuesday Oct 7 after market close and have a conference call Wed at 11AM. I view it as a turn-around situation and am looking forward to some significant upside going forward.   

I bought a 3% of my portfolio position in this stock on a recommendation (with minimal due-diligence) from Tobinator, the highly-respected message board poster. My timing was unlucky (late October), as you can see in the chart below, as it was right before Golden Star announced financing. The stock has taken a dive since.

Golden Star, while having had its share of delays and problems, seems like an attractive gold stock to own at this point because:

• Golden Star is a relatively high-cost producer and is therefore highly leveraged to the price of gold. Unless you've been living under a rock you know that the price of gold has been climbing very nicely and many expect this to continue.
• Golden Star's production is rapidly advancing from 200K oz in 2006 to a mostly accomplished 270K oz in 2007 to almost double to 500K oz in 2008.

Golden Star problems stem mainly from delays in the production ramp up, although they also are attributed to a drought which has limited its access to hydropower electricity. With the delays, Golden Star is roughly a year behind schedule, but the CEO has recently assured stockholders that their current plans are on-track.

I wish I had more experience with gold mining stocks and could compare Golden Star to other gold miners with comparable cost / oz and number of oz. If I get to that point, I'll post and update. If you can help (perhaps by suggesting a couple of comparable stocks), please leave a comment.

If you are smart enough to tell the difference between long-term problems and construction and startup delays and problems then you can turn a nice profit by investing for a turn-around.

Quadra Mining (a Cu producer) is an example of such a successful turn-around. Quadra's stock price has advanced over a 100% over the last year. I think the chart (see below) from the start of 2007 thru mid-march looks a lot like the GSS chart last two or three months. Both are pretty close to having a double-bottom. With Quadra, things got worse, as far as the stock price is concerned, before getting better. I think that is what is happening with Golden Star and that its stock price can respond like Quadra's did when it starts achieving its planned production increases.

Of course, the contents of this post are just my humble opinion. Everyone should do their own due-diligence and bet their own money.

Fat Pitch: Roca Mining (ROK.V)

The great thing about investing is that you can wait for a fat pitch, that is, a high probability opportunity. If one opportunity doesn't seem really right, you can wait for another.

Right now, this particular day, investing in Roca Mines (ROK.V) seems like a "fat pitch" opportunity to me. Its the best opportunity I've seen in quite a while, specifically at this particular point in time. What is so timely?:

• Story - ROK is part of the very "sexy" Molybdenum story. Molybdenum is sexy because its price has sky rocketed, its essential to growing the energy industry and no significant supply is expected to come online for at least a couple of years. ROK is the first new primary Molybdenum mine to come into production in a while. Eric Sprott, among the most successful of the resource investors, has been promoting the Moly story with his Molybdenum Participation fund and is a big investor in ROK. Finally, ROK's deposit is of the highest grade and its reputed to be very similar to the very best Molybdenum mine in the world. The drilling results, which could indicate a Bonanza extension of the deposit, are due in a month. The excitement (and greed) should build as this draws nearer.
  
• Fundamentals - now that ROK is in production, a bundle of cash flow is starting to pour in. They expect to produce 5 Million lbs of Moly and, at current prices, they should get something like 150M$ of revenue (or 130M$ operating cash flow). This is $1.30 a share or a 3 to 1 operating cash/flow ratio. The only other Moly mining company in production, Thompson Creek (TCM.TO)  has a much higher ratio of around 7 to 1.
• Development Stage - ROK announced this week that it has started production. As described in this article, the time from when production starts, but prior to any operational problems surfacing, is one of the best times to own a mining stock.
• Technical - ROK has, within the last couple of days, broken out from a perfectly formed cup and handle formation. The rest of this post summarizes the implications of this kind of technical breakout.

As you can see from the above chart, we have a classic cup and handle chart pattern. I really like "The Encyclopedia Of Chart Patterns", by Thomas N Bulkowski, because it is the only technical analysis book that is based on an empirical study of thousands and thousands of charts that gives empirical results of each such pattern. By the way, this is the one chart pattern that O'Neil (of Investor's Business Daily fame) recommends in in his classic "How To Make Money In Stocks".  As you can see, the above chart almost perfectly matches Bulkowski's Selection Guidelines.

• Rise Before Cup Is At Least 30% - Yes
• U-Shaped Cup - Yes
• Cup Duration: 7 to 65 Weeks - Yes (about 12)
• Cup Depth: 12% or 15% to 33% - Yes (about 25% apart from the baby sized crash mid-August).
• Handle Duration: usually at least 1 to 2 weeks - Yes (2 weeks)
• Handles Form In Upper Half Of Cup - Yes
• Cup Edges Should Be At About The Same Price Level - Yes

Here's what Bulkowski says (based on 412 samples) are the results for this pattern in a bull market (like we have in mining stocks):

• Average rise: 34%
• Percentage patterns meeting the price target: 50%
• Break-even failure rate: 5% - this is the number of cases where the stock fails to rise at least 5% after forming the pattern.
• Days to ultimate high: 167
• Surprising findings: Patterns that are tall, have short handles, and a higher left cup lip perform better. NOTE: ROK's chart above has all these characteristics.

Its pretty rare to find a stock with a fabulous story, great fundamentals, at a development point that typically accompanies a price advance occur with such a well-known, reliable, documented chart pattern.

ROK has been my largest holding for a while and I'm pretty jazzed. I'm planning on holding until the rumors of imminent drill results get thick and the lighten up my position some. What comes after that depends on the drill results. Of course, everyone must do their own due diligence and bet their own money. 

Stock Profile: Silverstone Directly Comparable To Silver Wheaton

I mentioned Silverstone Resources in my recent profile of Capstone Mining. I've been avoiding precious metal mining stocks for some time because they just don't have the low valuations that base metal mining stocks have.

Like many, I now see the outlook for precious metals as being more attractive as the dollar craters and the inventory levels for base metals rise, so I've moved some of my money into precious metals.

Silverstone Resources is my favorite because it has such a simple business model, is directly comparable to the very successful Silver Wheaton, is poised for further growth and has the same management team as Capstone. Capstone management has shown itself to be smart, competent and shareholder friendly (see here).

The business model of both Silverstone and Silver Wheaton is simple:

• Silver mining companies get much higher valuations than base metal mining companies. For example Silver Wheaton has a trailing P/E more than 2.5 times that of PCU (a pure copper play).
• Base metal mining companies don't enjoy this kind of valuation for their silver byproducts.
• This difference in valuations allows a silver producer to purchase a silver stream (a base metal mine's silver byproducts) at a price that is profitable to both the silver and base metal miners. Its like a silver producer purchasing an undervalued "virtual" silver mine. Silver Wheaton invented this business model and Silverstone is the first company to follow-suit.
• This kind of deal is typically something like:
  • The silver producer buys the right to buy the miner's silver production for something like $3.90/oz. The $3.90/oz is the equivalent of paying the miner to operate the "virtual" silver mine after it has been purchased.
  • The silver producer gives the miner some of its own shares and cash upfront as it might when when purchasing a silver mine.

There are many producing base metal miners with significant silver byproduct streams that have yet to avail themselves of this kind of deal. It also seems like a natural method for a near-producer to raise the cash needed to finish a mine's construction. Silverstone has done deals with Capstone (naturally enough as Capstone created Silverstone) and highly-respected mid-tier Lundin mining. It expects to do more deals.

Silverstone is, in my humble opinion, better positioned than Silver Wheaton to win upcoming deals. Silverstone is directly comparable (does the same kind of deals) as Silver Wheaton, but has a competitive advantage over Silver Wheaton for two reasons:

1. Being smaller, Silverstone can do smaller deals; Deals that are under Silver Wheaton's size threshold. There are many such opportunities.
2. As we'll see, Silverstone's shares are relatively undervalued compared to Silver Wheaton's shares. Being relatively undervalued, Silverstone shares are more likely to grow in value than Silver Wheaton's shares and thus are of more value to a base metal miner.

With all that said, here's a comparison of the basic facts concerning Silverstone and Silver Wheaton. All of these values are very easily obtained from the companies' presentations and previous quarter's financial statements. Its pretty apparent from market cap that SLW is significantly bigger than Silverstone.

What gets interesting is when compare the two companies in terms of the ratios used to value silver miners.

This seems pretty attractive to me and I've opened a decent position. I'm always looking for clearly undervalued asset plays and Silverstone, given how directly comparable it is to Silver Wheaton, seems like one. Silverstone is also a growth play in that increasing production (by doing more silver stream deals) seems likely. When you throw in the probability/ possibility of climbing silver prices, there is a lot to like about Silverstone Resources (SST.V).

Of course, I am not a financial professional and cannot guarantee that this profile is complete and accurate. Everyone has to do their own due-diligence and invest their own money.

Stock Profile: There's A Lot To Like About Capstone (CS.TO)

Earlier this week I pointed out that I was not as bullish on copper as many and was lightening up on my copper mining stocks. Capstone (CS.TO) is not one of those stocks. There is a lot to like about Capstone. This post gives the results of my analysis of Capstone. The numbers contained may not be completely accurate and the reader should do his own due-diligence.

The Capstone story is one that perfectly matches the "Dhando Investor" low-risk value method to high returns. "The Dhando Investor" is my most recommended investing book. Capstone is a simple, well-run, understandable business that, in terms of estimated discounted cash flow, is grossly undervalued.

The business is simple. Capstone reopened and operates a single copper (with zinc, lead and silver biproduct) mine in Mexico which has recently more than doubled its production. The results of this production increase start to be seen in the financial when this quarters numbers are released around mid-November. At current (and futures strip) prices, the biproducts make Capstone a low-cost producer.

Silver mining companies receive much higher multiples (e.g. P/E ratios) than base metal mining companies (e.g. 20 to 1 vs 5 to 1). Capstone has leveraged this by selling its silver production to Silverstone Resources (SST.V). SST.V is a company which Capstone spun-off and IPOed and which should ultimately receive the ratios of a silver producer. Capstone has 23 million shares of SST.V. SST.V is reputed to be undervalued relative to comparable companies and to have a considerable growth coming. SST.V is, on the surface, sufficiently that I expect to profile it in an upcoming post after I investigate it further.

Capstone's numbers look great.

• My fundamental analysis (which is not that tough to do given Capstone's excellent web site) indicates an estimated 2008 Price/Cash Flow ratio of 1.9 to 1 (does not include G/A, taxes or royalties) and about the same going forward from there. This is based on futures curve pricing for the metals sold.

• Every share of Capstone includes 28% of a share of SST.V and Capstone has 50MM$ of cash on its books. When you subtract the market value of the SST.V and the cash from its price (reducing its price by a whopping 49%), you get a 2008 estimated adjusted price to cash flow ratio of 1.1 to 1. Wow! This means that, in a little more than a year from now, Capstone should have cash on its books (and SST.V stock) that nearly matches its current market cap and this cash can be expected to continue to pile up going forward. And this is without doing anything other than turning the crank on an existing mine which has a 7 year mine life with measured and indicated resources and more than a 10 year mine life including inferred resources. With these numbers, Capstone looks pretty undervalued to me.
  

Capstone's management looks extremely competent and (amazingly enough) truly concerned with the shareholder's interest:

• Competent: Reopened the mine on schedule.

• Competent: Completed the expansion on schedule and under budget.

• Looking Out For The Shareholder: Has initiated a stock buyback program and has bought-back shares.

• Looking Out For The Shareholder: Created SST.V as a vehicle to get the shareholder the full value from Capstone's Silver production.

In my experience, its pretty rare to find a company so undervalued with management that seems to really care about the shareholders. The only downsides I see to Capstone is that there is currently no specific plans for growth and that it is a pretty small company (with a market cap of 250M$). I believe that Capstone management will either make sure the shareholder gets the cash flow from current production (probably in the form of stock buybacks) or uses some of the enormous cash flow to acquire other projects and turn the cash-flow into growth.

In my opinion, there is a lot to like about Capstone. Let me know if you think I left anything out or got anything wrong.

Full Disclosure: I have a small position in CS.TO.