Monday, September 24, 2012

Magellan Minerals Presents Rare Buying Opportunity

Gold stocks have moved up significantly during the latest run-up in the price of gold, as physical gold shot up from $1550 to over $1750 an ounce. The stocks led the way higher, with the HUI Gold Bugs index eclipsing 500 after hitting lows around 350 just months ago.

As gold approaches $2,000 an ounce an ultimately $5,000 an ounce in the coming years, the gold stocks will led the charge, outperforming. As I've stated before, I believe the junior gold stocks and exploration companies will outperform the major mining companies. Juniors are smaller in size, but hold explosive, 1,000 percent gain potential. And, of course, more risk.

Now, many gold and silver mining stocks have made big moves this past month as the Federal Reserve announced monthly, unlimited Quantitative Easing. But not all gold stocks have made big moves and it is a challenge to find one that hasn't.
*Magellan Minerals is one micro-cap gold stock I've written about before. They own two very promising gold projects in Brazil.

They are a Canadian-based junior gold exploration company "focused on mineral exploration and development in the state of Para in northern Brazil. The Company has interests in a number of properties in the Tapajos region which has a historic gold production estimated at 20-30Moz of gold. The Company has two advanced gold projects, Cuiu Cuiu and Coringa."

Magellan has been a big underperformer as the stock has gone from .35 cents a month ago to just .22 cents today. And in 2011, the stock was over $1.50. The brutal correction in the gold mining stocks was not kind to Magellan.

However, I see the tides changing very soon for this company.
**Here are three big reasons why I consider Magellan Minerals an outstanding buying opportunity at current prices: 

1) Financing with Sandstorm Gold  - on May 15 for $7.5 million. This gives them an ample supply of cash (Probably still much of it left over to date). The latest presentation says they have $5 million cash on hand, however, this does not include the $7.5 million financing. So I believe they likely have over $10 million cash on hand currently. *This financing is a third party validation from Sandstorm Gold. Sandstorm does not do deals with companies they don't believe in.

This shows me that: A) Sandstorm believes in Magellan management. As Sandstorm has stated a number of times, this is very important in their process of finding gold streams, and,B) They believe in the upside potential of Magellan's properties.

2) Insiders have been buying - They first started back in May around the time of the financing. More recently, insiders bought over 200K shares on Sept. 21. There are a number of reasons for selling, however, there is one reason for insider buying - they think the share price will rise.
Insider Buys at Magellan. Credit:

3) Positive news flow to come - while they have been quiet of late, I expect news going forward, and very shortly. Coming at the end of this month or early next month will be the updated PEA on the Coringa deposit (1.1 million ounces).

*The previous NPV of  Coringa was just $41 million but was only based on a resource of 370K ounces! The new PEA will be based on 1.1 million ounces!

Plus, the previous PEA was based on $950 gold. At $1,200 gold, the original PEA gave the project a NPV of $80 million. ***With a 1.1 million resource and a price of gold at $1,700, one can expect the new NPV of Coringa to be well above $100 million.

(Have I mentioned that the current market cap of Magellan is around $20 million!)

In conclusion, I strongly feel that the market has not placed a fair value on shares of this company.

Best of luck investing!

FULL DISCLOSURE: I am long V.MNM and SSL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article. Please do you own due diligence when investing!

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