Marengo Mining (MGO.ASX) - trading out

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Yesterday I took short term trading profits on Marengo Mining (MGO.ASX). I traded into Global Mining (GBE.ASX), which is currently striking low-term or all-time lows, and thus made a compelling entry. Looking at the chart for Marengo Mining, this stock appears to be going back to 9-10c support. This will probably happen in association with an issue; but I can't recall their cash position. The long term chart offers no short term clues of course; but it does show that we are looking at a lot of lateral consolidation before this stock breaks out. This is of course consistent with the VERY long development lead time. Let's not forget that this project is in PNG, and that exploration costs are high. I recall City Resources in the 1980s being absorbed by other interests because of the huge cash drain of its PNG interests. 

This company it at least more focused. The problem is that it found the most lucrative exploration area - highest grades after outlining the main ore zone. A great stock to trade though off that 9-10c support....though those trades will get commensurately smaller as that 'wedge' close out. 

Note the stock is struggling to achieve pass its moving average; and 15c is an important resistance.

Not a bad return for a fortnight stake - 12.5c to 14c. What's that 20%?

This is also an industrial stock and we are in a recession. Copper is an appealing commodity however.

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Niobum in size; global in opportunity. Yeh baby!!

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Today I purchased another 100K of Global Metals & Mining (GBE.ASX) at 6.9c. This stock is cashed up with some $26mil in cash; and yet the company has a market capitalisation of $15million, a world-class niobium resource, banking by a Chinese state enterprise, and a number of other interesting projects. Better news still!!!!!

1. They are at a technical support level which stretches back to early 2009 - that will be a very strong support; which means that it was always going to be reached. 

2. There is still some stock left at 7c - well just 40K units. Well, sorry guys. You really ought to get on my mailing list. 

Niobium is a very important or strategic commodity. You might already know about the commodities that the West wants but China dominates - like rare earths, tungsten and nickel. Well, there is a government more paranoid than the USA, Japan, Korea and EU, and that's the Russians and Chinese!!! Oh, I forgot about the crazy North Korean dictator....but they don't count. So basically, this project is important to the Chinese. Would I expect a takeover? No, because they will acquire their control over the project product marketing by funding everything. Which means GBE will dilute to a passive, minor stake in the project; but this will give them a very appealing cashflow of $15-25mil per annum I suggest, and it will still retain its cash for exploring its other projects. This investment strikes me as a 'no-brainer'. Its not enough to have cash; it needs to be adding value, and here it surely is. They also have a rare earth and gold project if I'm not mistaken.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Stock list - at current date

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I have a number of stocks at the moment:

1. Union Resources (UCL.ASX) - This both has short term and long term potential. I see a financial deal here which will see the phosphate project floated off into a new AIM listing given the world-class standing of this project. This would take the development off balance sheet. I see Union searching for another project whilst it waits for some developments in Iran....even if that requires regime change. 

2. Marengo Mining (MGO.ASX) - This company is developing a major copper-Molybdenum project in PNG with some gold. This project is huge in scope; it has an appealing overburden ratio, only improved by the recent discovery of high grade ore. This is a longer term project, but its market entry will be well-timed. This company is currently capitalised at $153mil; with scalar potential to a large earnings stream.

3. Millenium Minerals (MOY.ASX) - This company has just commenced gold production; and recently had a $8mil issue in order to fund working capital and exploration. This company offers short-medium term upside from drilling results, earnings re-rating and a higher gold price.

4. Gippsland Minerals (GIP.ASX) - This company has an advanced tin-tantalum project, bank syndicate, immense upside given the appeal of smartphones and the like. Egypt as a project host is settling down, so I think we can expect some upside here. 

All of these companies are well set to move forward. I also have some Globe Minerals (GBE.ASX), which is a longer-term proposition. Not concerned because it sits on a wad of cash ($25mil), has a world-class niobium project, underwritten by the Chinese, who are seeking an alternative to the Argentinian company which controls about 80% of global supply. I think Gippsland and Union Resources are listed in Frankfurt; Marengo is listed in Canada.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Marengo Mining (MGO) - progressing

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Marengo Mining (MGO.ASX) is a stock which has a world-class project in PNG. It has a lot of appeal for numerous reasons:

1. Immense resource - low grade, but its huge size and high grade zones give it appeal, scale and leverage. The discovery of the high grade zone is relatively recent. It would be nice if it comes at the front-end of the project, as was the case with the Porgera mine.

2. Institutional backing - the share register is dominated by some major institutions. These include the Sentinel Investment Fund, George Soros, et al.

3. Financial backing - the company has the support of Non-Ferrous China (NFC), a Chinese state-owned enterprise, which comes with bank financing, and probably equity participation for project finance

4. PNG government participation - This includes the reimbursement of Marengo for their $100mil expenditure before they earn 30% equity, i.e. MGO can expect $30mil back form the government I believe. Perhaps PNG govt has 10% free-carried, so it might only be $20mil. 

5. Cash backing of $25mil, say $5mil to finish the feasibility study; that means with PNG reimbursement, they have $45mil to contribute towards a project cost which I guess is around $2 billion. The implication of course is that there is going to be major dilution, with either NFC or institutions coughing up a lot of equity. But I dare say, not before a substantial rise in the share price.

6. Metal output: The mine will product a product stream comprising copper, molybdenum and gold; so the project start-up is commensurate with a turn-around in economic activity. The proposed project is 25Mtpa of ore throughput, doubling to 50Mtpa in time.

There are of course obstacles like the long development lead-time. i.e. The project is scheduled to start production in 2016. You can view a company presentation here; though I would keep watching the company website for an update on these high-grade zones. The Omora Zone is a separate and distinct target close to the existing orebody. This zone can be expected to mined early, and it will thus greatly enhance the commercial viability - since intersections of 165 metres @1.08% copper & 381ppm Molybdenum are more than double the grade of the primary ore zones.

There is no doubt that there will be some excitement with this company upon completion of the feasibility study. I expect this stock to rise to 27-30c, before some profit-taking and selling-back, because its a long development lead-time. So there is scope for a trade now.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Union Resources - best bet in bad market

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Looking for some short-term upside as well as some long-term serious upside? Look no further than Union Resources (UCL.ASX). For an update of its fortunes look to the latest quarterly report. But let me summarise:

1. The company has a 45% stake in one of the largest and easily accessible phosphates in the world; well-positioned to supply South American and European markets, if not Africa, where increasingly food production is important. The deposit has resources to last over 100 years; its a world-class resource which can be extracted using offshore dredging; the same technology used to recover diamonds. The difference is - the grade is 19% phosphate, not 0.2 carats per tonne. The resource is not fully-appraised, however 25-years mine-life is good enough for any commercial consideration. Its important because there is scalability.

2. Marawid Mining, a subsidiary of an Oman state-owned engineering enterprise, has acquired a 19% stake in UCL, as well as buying out Minemakers Ltd's stake in the Namibian offshore phosphate deposit for $25mil. That values UCL at twice its current valuation...that's the short term upside. The current AGM announcement suggests there is scope for more capital raising and a placement to Marawid Mining.

3. UCL has a long-standing 34% stake in one of the largest undeveloped zinc-lead deposits in the world. The problem is that the project is in Iran; and the state-enterprise is not recognising its equity-contractual interest. It looks like nationalisation or corruption; but no one is calling it as much. Iran is of course a target for political reform, regime change, or otherwise. That project interest must be worth $350-500mil; which is further upside to UCL, given its uncertain stake. Fortunately, given the promising Namibian project, and the likelihood of a deal over that, this is a 'no-brainer' investment. I frankly am wondering why the market is not responding. 

In the next few weeks I was expecting the following to occur....maybe it still will in the light of the recent appointment of a Marawid(?) director and placement. I have no inside information; but I would have thought that the companies would seek for:

1. Marawid Mining to become the London-based investment vehicle for the Namibian offshore phosphate deposit

2. Union Resources would sell its stake in the phosphate project to Marawid in exchange for equity in that company.

3. Marawid Mining I expected to seek a listing on the Alternative Investment Market (AIM) in London, and raise equity in the project. This should attract a lot of investment attention, and being based in London, it will be a precursor to a London capital raising to advance the project.

4. Eventually we might expect the company to be taken over in some fertiliser market rationalisation/ consolidation

5. I suspect that Union Resources will continue to exist with its Iran project, its passive stake in Marawid Mining, and I suspect it will probably go after more exploration targets.

That is what my crystal ball was saying; but now I'm inclined to think that the companies are taking some other course. Its possible that Union simply needs the case, and Marwid Mining hopes to convert its equity in Union into greater control of both Union and the phosphate mine. Well, the stock I believe has fallen to support, so I will top up a little at 13c. 

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com