MINCO gold and silver explorer.... the facts

Buy Minco at 16.25p
Says Tom Winnifrith of t1ps.com

Minco has just released results of a feasibility study of its proposed silver mine at Laguna Zacetecana in Mexico and it is unambiguously good news. The company can now start discussions with banks about project financing the site - capex will be a mere $19.4 million and the company reckons that it has a NPV of $26.5 million but that is on $6 silver. As I write silver trades at $7.06 oz and I believe that it will head sharply higher. Moreover there is good evidence that Laguna could be expanded in scope and that would push the NPV massively higher. What's more Minco has a stack of other assets yet it is valued at just £16.5 million. The shares are a buy.

This Irish explorer, founded by John Teeling, now has real assets in three countries.

Starting at the bottom:
In Ireland Minco has a 2% royalty of the Curraghialt gold deposit in Co Tyrone in the North which Toronto listed Tournigan has said it will drive through to production. If that happens that royalty income could be worth well into seven figures on a discounted cashflow basis. In addition Minco owns 7 lead/zinc licenses of which perhaps the most interesting one - Pallas Green - is being explored in a JV with Noranda. Expect results by Christmas. If the zinc price perks up this could again start to look very interesting. If I was running Minco I'd bundle the Irish licenses off into a separate entity and spin it off onto Ofex where it could easily be worth £2-3 million. I don't rule out a spin-off at some stage. But for the time being this must remain unlocked value.

In the FSU (Former Soviet Union) the company has options on a number of sites - in gold not silver. On the lead prospect - the Vodarazdelnoe gold deposit - due diligence continues and if all goes well Minco hopes to have this at the prefeasibility stage within a year. This has enormous upside potential as it has large proven reserves but at this stage it is utterly speculative. Its value is anywhere between 0p and a multiple of Minco's market capitalisation today. Take your pick.

Mexico is the crown jewels. Laguna is essentially a lake into which all the tailings from the old Spanish mines were poured. That means that - because technology had advanced greatly over the years - there are now significant quantities of silver (and some gold) beneath the lake together with rather large quantities of various nasties (notably mercury) from the old leaching process. It is clearly in the interests of the Mexicans to get this lake decontaminated as soon as possible and Minco has suggested a solution which will allow it to remove the nasties of a 6-8 year period and also to remove the silver. It is not a technologically difficult project.

Our current estimates of NPV are based on 18 million ounces of silver being produced over 8 years. But that is just from the lake itself. The surrounding area could easily double that reserve but would not add a cent to initial capex. Hence, if the surrounding area is developed that could clearly see NPV treble....or more.

Minco has net cash and is fully funded. It is clear that (low risk) Laguna can on its own more than justify the current share price. If there is any value unlocked in Eire or - more especially - in the FSU that is an added - but potentially huge - bonus. The stock is a buy.

Tom Winnifrith edits t1ps.com, also known as UK's premier share tipping site. Over the past four years his cautious style has delivered an average gain per tip (over 95 tips) of 30% and average FT All-Share outperformance of 35%. To access these unrivalled returns costs from just £73 a year, click here.