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.
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*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.

Credit: www.MagellanMinerals.com

**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: CanadianInsider.com

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!

Insider Buy Alert - Petaquilla Minerals and Magellan Minerals

Two gold junior mining stocks that I own and really like have been seeing a lot of insider buying of late.

Petaquilla Minerals have been buying back shares, while Magellan's insiders have been buying over the past 6 months.

below is the chart for Magellan minerals, with the most recent buy on May 22:

Credit: CanadianInsider.com

Here is the chart:

Source: CanadianInsider.com

And this is the chart for Petaquilla. They've been buying back a lot of shares...

Source: CanadianInsider.com

Disclosure: I am long V:MNM and V.PTQ. This is not investment advice nor am I an investment advisor. Please do your own due diligence when investing!

A Gold Stock With 10-Bagger Potential!

I recently learned of a new micro-cap gold stock that got me pretty excited. There are only a few times before when investing have I felt this sense of conviction - buying shares of Sandstorm Gold in 2010 and Endeavor Silver were two other times. I also really like the 2013 Silver Wheaton warrants as I stated in a recent video.

I frequently post at the message board of the Motley Fool website. Here's what I had to say about my new favorite gold junior, Magellan Minerals: 

Source: MagellanMinerals.com

"I'm sure you heard of the last Sandstorm deal - they cut a NSR with Magellan Minerals, on two of their projects in Brazil. Well, wouldn't you know, I did some DD on Magellan, and I am very, very intrigued!
Facts: The financing with Sandstorm Gold was for $7.5 million cash, $.5 mill in common shares (at .50 cents - the stock is currently only .20 cents).

At .20 cents, they have a market cap of about $20 million. Not considering what other cash they have in the bank (not sure to be exact but I will check), we know they have at least $7.5 million cash. Close to 40 percent of their current market cap!

*Management owns 11 percent. Both Kinross and Newmont are shareholders.

You can bet that they are going to use this cash to start getting the drills going.

Their two properties have total resource of 2.4 million ounces of gold. Brazil is a great mining jurisdiction. 

I bought yesterday at .20 cents. (I bought 10,000 shares).

The last point I'd like to make is Sandstorm's management and how they choose their deals. They only go for safe political locations, solid management teams, project upside, etc. That only gives me more confidence. 

Courtesy: Yahoo!Finance

(As you see here, shares have been beaten down pretty badly recently. However, I feel that we've either reached a bottom or are getting close. With $7.5 million in the bank and a 20 million market cap, I see little downside).

They are aiming for first production in 2015 and second mine in 2016. I of course like the potential of both of their projects. Check out the presentations on the site - http://magellanminerals.com/."

*This stock could return 1,000 percent of your money. I'm not kidding. If they can use that cash and get the drills going and update the resource at both of their projects, they could have over 4 million ounces of gold (measured, indicated and inferred). Then an updated Preliminary Economic Assessment should be in store.

*The PEA indicates a robust Internal Rate of Return ("IRR") of 34% and a Net Present Value ("NPV") of US$41M (assuming a 5% discount rate and a gold price of US$950/troy oz (oz). The project payback period is 3.7 years.*** (With gold at a more current price of $1,600, the NPV should be WAY higher - It's worth much more than the measly $41 million!).

The Coringa Deposit is a high grade deposit with roughly 560K measured and indicated and 534K inferred. If they can get constructed without too much dilution, we could see Magellan trading over $2 a share easily.

The hope is that the share price will be higher when they have to go to the market again. Since they have $7.5 mill in the bank, that won't be for a while. When they decide on constructing the mine they will most likely have to issue shares to raise capital, however, I expect the share price to be MUCH HIGHER at that point with the updated resource and drill results, and a better market (hopefully). 

My long-term (2-5 year) price target is $1-2 a share and I think we can easily get there. 

DISCLOSURE: I own shares of V.MNM. This is not investing recommendation, nor am I an investment advisor. Please do your own due diligence when investing!