It is an error to believe that Peru is more risky than Mexico. It is not very much.
Maybe so, but the perceived risk is much higher, and I believe that has held Candente's price back and could hold ZNC's price back, too. Here's a reluctant sell recommendation by Jay Taylor on DNT at .80 from June based just on the rising political risk: candente.com
Taylor says, "the low valuation must be related to rising political concerns."
Those willing to take on the risk that the "project might be confiscated either directly or through enormously high taxes" may do very well because of the apparent undervalution of DNT, but many investors don't want to take that risk, particularly with neighboring Bolivia recently announcing mining nationalization. Financing may be more difficult because of the perceived risk, and "if there is interest on the part of a major, given the rising potential for confiscation, the price the major would be willing to pay would likely be significantly reduced."
By contrast, investors like Jim Puplava seek out projects in Mexico because of the relative political safety, as explained in this article, "Mexico: Land of Metals Opportunity": Message 23212541
I believe the perception by many that Peru is a much riskier place to invest than Mexico is why DNT and ZNC remain undervalued and one reason why MMG should trade at a higher relative valuation. I think the main reasons MMG trades at such a low valuation are the recent profit-taking from last year's private placement investors after 13+ million shares freed up from lockup, and the lack of recognition of their silver. I think the profit-taking is essentially done now and the silver will start to get market recognition soon as they focus more on developing that resource. Also, zinc has sold off primarily because of the market perception that the zinc market is suddenly in balance after a 300,000+ tonne supply deficit last year, when actually the pause in the LME zinc stocks downtrend is due primarily to a temporary surge in shipments from the Red Dog zinc mine (http://www.siliconinvestor.com/readmsg.aspx?msgid=23279668 ).
As MMG nears completion of their mine plan and feasibility study and proves out their silver, I believe the stock will move significantly higher. With the worldwide dearth of large, low-cost zinc projects, I think there will be multiple bidders for their zinc project upon completion of the feasibility study. If the perceived political risk for Peru is reduced over time, that should also help DNT and ZNC move much higher as they advance their projects. |
