For one of the largest zinc mining projects in the world, having to pipe in water is not a showstopper and won't be a significant cost. How many world-class mining projects do you know of that didn't go to production because they couldn't get water or had to pipe it in?
IMO, MMGG is the baby being thrown out with the bathwater amid a sector selloff. It's a tremendous bargain here, and will be much higher in a year and probably starts the reversal very soon if it hasn't already started yesterday.
It sure looks now like it was a tremendous bargain on that drop and the reversal did start the previous day. Up over 80% since the low earlier this month.
I think the Skorpion precedent shows that piping water over a long distance isn't a showstopper for a mine. Skorpion in Namibia, Africa, is the first and only oxide zinc mine in the world (owned by Anglo American), and it has a lot of similarities to MMGG's Sierra Mojada (oxide zinc, same SXEW processing planned, similar tonnage and grade, similar flat, open areas in a warm, sunny climate in an area with fairly cheap and plentiful labor, though Skorpion didn't have as much infrastructure and had to build a power plant and sulphuric acid plant). You can see more on Skorpion here: metalin.com (check out the photo of the warehouse full of zinc bars at the bottom).
Green Team International (GTI) did the feasibility study for Skorpion and moved them to production in 2003, when zinc was at about $.35/lb. GTI is the group doing MMGG's feasibility study right now. From the GTI site, I found that Skorpion actually pumped water from 45 km away:
gti.co.za
"water supply from the Orange river, 45 km away."
Since Skorpion was able to be economically feasible at $.35 zinc (now over $1.90), despite having far less infrastructure than Sierra Mojada has and having to pump water 45km, I have no doubt Sierra Mojada will be shown to be economically feasible now by the same GTI team. MMGG was able to find water 20km away in their first round of exploratory drilling (http://www.metalin.com/10-04-06.pdf ). If they confirm this source is sufficient, their water piping costs should be less than Skorpion's.
Even if the water they found is a dud, and they can't find enough water within hundreds of miles, they can locate the refinery plant near water, either within Mexico or elsewhere. Since there's only one oxide zinc refinery in the world (Skorpion's), part of MMGG's project is to build their own oxide zinc refinery. That's why they had to prove up such a huge zinc deposit, enough to justify the building of a refinery, before commencing the feasibility study. Their earlier testing showed that they can easily produce a concentrate from the ore which they can ship anywhere in the world for refining, meaning they can locate the refinery wherever it makes the most sense from a tax incentive, power, labor, etc. standpoint. This flexibility gives them negotiating power with Mexico and other countries to get the best all-around deal for the refinery.
Bottom line is there is water nearby. They need to confirm it's enough for the mine and refinery, but if not, they'll locate the refinery elsewhere (they may anyway if they get a better deal somewhere else). Until they confirm the water source, refinery location, and do everything else needed to complete the feasibility study, there will be risk of MMGG not being economically feasible. However, I think the risk priced into the company's tiny market cap for the size and stage of its 100%-owned proven zinc deposit, are much lower than people think, presenting investors with a great long-term zinc/silver opportunity. |
