Virgin Metals Riding the Moly Wave
By Michael J. DesLauriers
23 Apr 2007 at 08:46 PM GMT-04:00
resourceinvestor.com
TORONTO (ResourceInvestor.com) -- About 10 months ago, in early July of 2006, your correspondent covered a freshly listed Mexican copper/moly play called Virgin Metals [TSXv:VGM]. Back then the company was trading hands around 35 cents, and despite its strong fundamentals continued to languish in the high 20s until about mid-March when word began to spread about Sprott’s Moly Fund and the small universe of related stories all doubled and tripled. While this would appear to have validated moly and moly explorers, developers and producers and breathed life into the good and the bad alike, Virgin Metals is in fact more than a fast-money moly momentum trade.
Last year we pointed out that, “The company offers an attractive model for investors, by combining the certainty of near-term production (Los Verdes) to generate cash and take advantage of lofty metals prices, with the prospect of major blue-sky in the form of a high impact advanced exploration project, with centi-million tonne potential. The beauty of this scenario is that it allows for one project to finance another, and provides shareholders with added excitement and upside as a potentially world-class deposit gets tested, drilled out, and proven up.”
Ironically, the recent run has probably not taken much of this into account, but one happily accepts the gains regardless of in what form they come.
Although on the production side of things delays are par for the course these days, VGM is still well ahead of the pack (in terms of other moly names) and has also been turning up impressive holes with enviable grades, making it one of the better vehicles with which to ride the moly wave. As the wheat is separated from the chaff in the coming months, VGM should stand out for its ability to capitalize on high copper and moly prices now, from the geopolitical safety of Mexico. Additionally, as the company continues to confirm its historical resource its multiple is likely to improve despite a less than ideal share structure.
That being said, with a lot of loose paper having been chewed through in the last month, and VGM being one of the more liquid moly issues, traders will likely continue to find reason, such as today’s drill results, to take the stock higher. We would not be surprised to see it trading near C$1 in the near-term and a TSX listing will further help the company distinguish itself from what will be a growing roster of moly companies emerging in the near-term.
About a year ago we concluded that Virgin could cash flow north of C$25 million from Los Verdes, which, taking into account the new share numbers should put the stock north of a buck, without taking Cuatro Hermanos, the company’s high-impact copper-moly project into account. As the drilling campaign begins to take shape and ramp up there, we would expect the market to attribute some value to it, which would not appear to currently be the case.
VGM closed Monday at 65 cents, up a penny on heavy volume of 1.6 million shares. |
