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Figuring Out Mines Management (MGN)

 November 30, 2012 11:35 AM

Mines Management (MGN) deserves my attention today.  I always look for management that's truly experienced in the mining sector.  Their current management team is heavy on finance and general corporate work but could benefit from more than just one principal officer who's a geologist.

Their Montanore project in Montana looks promising if they can get a final 2P estimate.  It's fairly close to existing roads, so the site may be viable if they can solve any extant water problems and get approval for a power transmission line.  It's important to note that their estimates use a long-term silver price of $6.24/oz, which is far more realistic than the current spot price of over $34/oz for a mine with an expected long life.  If the inferred grade of about 2oz/ton Ag doesn't improve with further drilling and analysis, then MGN will have to keep its cash cost of production under $12/ton for this mine to be viable.  Granted, the same dirt also has copper so they may have some wiggle room on cash costs.

[Related -Insider Weekends – August 17, 2012]

Their La Estrella project in Peru is not as well-explored as the Montana project.  Preliminary drilling results show 1.0g/t Au may be available, which is not terribly exciting but may be the new normal given the declining grade quality of new mines worldwide.  That makes it worth pursuing.

[Related -Insider Weekends – October 7, 2011]

The financial results so far have been disappointing.  A review of their Q3 2012 10-Q reveals the company's candor about risk factors such as lack of 2P reserves and the likelihood of continued losses.  Their burn rate appears to be at least $8M/year, and with less than $12M cash on hand as of this past September they'll have to raise more capital by December 2013.

I kind of like this one, even though the Peru project looks like a hedge on the Montana project's viability.  Montanore doesn't need that much more work to get started if the final NI 43-101 confirms some decent reserves.  I'll pay attention to whatever final data they publish.

Full disclosure:  No position in MGN at this time.  



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