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Gold/Mining/Energy : Magnesium Alloy Corp. (MGAC.U - Cdn unlisted)
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To: Ron Everest who wrote (41)8/13/1998 2:18:00 PM
From: GlobalMarine  Read Replies (1) of 103
 
Ron: I called up MGAC today, and things look good:

1) The Drilling for pre-feasibility will be done in September. Two drill holes, about 500 meters apart or so. There will be dissolution simulations done on the core samples as part of the technical work for pre-feas. Depth before hitting th carnallite sections is about 500 meters, not that deep considering that other solution mines have to go much deeper.

2) The technical people doing the pre-feasibility say that there are no real technical hurdles in the way for building an economic mine. That is, they say the ore body is economic to mine. Political risk seems to be the main project risk. The World Bank can and does ensure for political risk and the company has started a file there. Lloyds of London can insure the end magnesium product.

3) One possible power source under consideration is to build their dam so that they can generate their own power, thereby reducing risks associated with obtaining power elsewhere. Cost of the initial dam to produce the 100 megawatts needed for a 50K ton a year plant is about $100 million, not too much considering the mining plant is $500 million.

4) Projects such as this have a negotiated tax rate with the government put under contract. Perhaps a 30% tax rate.

5) The pre-feasibility may end up costing only US$2.25 million to complete, so with almost US$3 million the bank right now, the company may have significant cash left afterwards.

6) The $1400 to $1600 a ton production cost assumes 1.25 cents per KHW. Building their own dam places electricity costs at around 1 cent, so there seems to be a nice margin for error here.

All in all, IMO MGAC seems to be a far less speculative mining stock than junior gold mining stocks at this point. Market cap-wise, 17 million f/d shares X $0.35 = $6 million, rather cheap, esp. since cash makes up half of the market cap. A ten-bagger looks quite doable.

Rand
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