Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The Critical Investor takes a close look at MGX Minerals, a Canada-listed company with portfolios of magnesium, lithium and silicon projects in British Columbia and Alberta.
MGX Minerals Inc. (XMG:CSE; MGXMF:OTCPK) is a diversified Canadian mining company engaged in the development of large-scale industrial mineral portfolios in western Canada. The Company operates magnesium, lithium and silicon projects throughout British Columbia and Alberta. Although the company has a Canadian Stock Exchange (CSE) listing at the moment, it is one of the most liquid stocks over there, and management is currently looking into the possibility of uplisting to the TSX Venture.
The strategy of MGX Minerals is well-thought out by management. It seeks to build long-term shareholder value through development of industrial mineral assets, in specific commodities and mining-friendly jurisdictions. Benefits of this type of assets are relatively low initial capex needs, solid demand and price decks, near term cash flow, very simple quarry-like open pit operations with shovel and scoop mining with no tailings, fixed operating inputs, long -term supply and energy contracts, streamlined permitting as industrial minerals like magnesium and silicon just need quarry permitting. On top of that the company also has partnerships in place or is seeking those, providing financing, engineering expertise and low-cost energy solutions.
The company is led by President and CEO Jared Lazerson, who is a relatively unknown name in the field of junior mining. When talking to him, I became impressed by his knowledge on almost every aspect of the company, the projects and by his strategic thinking, work ethic and enthusiasm. Veteran resource investor Robert Hirschberg and his team feel the same way about him, and we all think Jared could make waves in the mining business soon. He gathered an experienced team around him with many decades of experience, but particularly impressive is his team of technical consultants, where Larry Marks, Claudio Manissero and Cementation AG stand out. Larry Marks is a former Shell Canada executive, Claudio Manissero a former FMC executive, and Cementation AG is a renowned engineering firm working with the likes of Suncor, Rio Tinto and Hudbay Minerals. Larry Marks and Cementation AG are very important for the lithium project, based on oil brine recoveries. Larry Marks is laying down the framework for MGX Minerals with large oil producers for all sorts of collaborations through his vast network in O&G, and Cementation AG is instrumental in developing the new lithium recovery method.
MGX Minerals has its main listing on the main board of the Canadian Securities Exchange as mentioned, where it’s trading with XMG.CSE as its ticker symbol. The US ticker is MGXMF.US. With an average volume of in excess of 91,000 shares per day, the company’s trading pattern is already quite liquid, but it has to be noted that the daily volume is increasing rapidly, due to possible catalysts and upscaled marketing efforts (I am just a small component of this) to get the story out to a much wider audience.
MGX Minerals currently has 56.7M shares outstanding (fully diluted 71.9M) which gives it a market capitalization of C$37.9M based on yesterday’s share price of C$0.67. At the end of the fourth quarter, the company had an estimated working capital position of just over C$350k, and in excess of C$500k in cash in the treasury, which will probably see MGX Minerals going to the markets rather sooner than later.
As the lithium project seems to gain traction as the testing of the first, small pilot plant was nearing completion at the end of December 2016, the share price reacted accordingly, rendering a convenient, early low entry something of the past. Fortunately the share price retracted a fair bit on profit taking. Notwithstanding this volatility, I will try to explain why I think this is just the beginning of much more possible upside. Needless to say why Robert Hirschberg and his team are such excellent early stage stockpickers, as they took down most of a C$500k private placement (5M shares @ C$0.10) in April 18, 2016. So far they haven’t sold a single share, as they too are aware of the potential here.
Projects
MGX Minerals rather has several portfolios of projects instead of individual projects, as it amassed lots of claims for each mineral/metal: magnesium, lithium and silicon. Their flagship Driftwood Creek magnesium project, surrounded by numerous adjacent claims, is probably closest to the definition of a single project, and most advanced by having a recent resource estimate. The lithium venture doesn’t have a NI-43-101-compliant resource estimate yet (as economic potential has to be established by then, for example by verifiable testing), but pilot testing of lithium recoveries from oil brines is well underway as a first step, which if successful will undoubtedly lead to resource estimates and economic studies to define economic potential.
Silicon, the third commodity, is still at a very early stage on a project level, as no claim set has a resource being done on them, but has only seen sampling and limited drilling, also by previous owners. However this was enough to establish the high grade nature of all claims, and therefore could be interesting for further exploration and analysis of economic potential. As the company is focusing all attention on the magnesium and lithium projects, and the silicon projects are very early stage, I will focus solely on the first two as well.
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The Critical Investor is a newsletter and comprehensive junior mining platform, providing analysis, blog and newsfeed and all sorts of information about junior mining. The editor is an avid and critical junior mining stock investor from The Netherlands, MSc background in construction/project management. Number cruncher at project economics, looking for high quality companies, mostly growth/turnaround/catalyst-driven to avoid too much dependence/influence of long term commodity pricing/market sentiments, and often looking for long term deep value. Getting burned in the past himself at junior mining investments by following overly positive sources which more often than not avoided to mention (hidden) risks or critical flaws, The Critical Investor learned his lesson well, and goes a few steps further ever since, providing a fresh, more in-depth, and critical vision on things, hence the name.
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Disclaimer:
The Critical Investor: The author is not a registered investment advisor, and currently has no position in this stock, but might initiate one soon. MGX Minerals is a sponsoring company. All facts are to be checked by the reader. For more information go to www.mgxminerals.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.
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