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Message: MIDAS and Mexico Mike comments from tonight's report

MIDAS and Mexico Mike comments from tonight's report

posted on Dec 10, 2008 02:38PM

My largest holding, ECU Silver (98 cents Cdn, up 4 cents), came out with a bomb shell of a spectacular report and the market yawned…

Mineral Resource Estimate Highlights - Measured & Indicated Resources of 40 million oz silver equivalent. - Inferred Resources of 391 million oz silver equivalent.

http://www.marketwatch.com/news/stor...
.aspx?guid=%7B1142C15C-02A7-4A31-AA6...

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Unreal, and that is WITHOUT the mother load massive sulfide below which produced this already humongous resource. Mexico Mike sees it this way…

Hi Bill!
When people speak of the crazy market that we have been through this year for the resource sector, I will just think of ECU Silver and how it has traded in recent months. This is a company that was near bankrupt a few years ago, and operating a mine that had very limited resources, in a setting that was so challenging that few people believed it could ever make money. One successful exploration program after another has since transformed the story to where it now stands as one of the largest silver deposits in the world. However, like most of the other junior mining stocks, it has been all downhill for the share price.

When ECU first announced the total resources had risen above 100 million silver-equivalent ounces it was a big deal. But there were still analysts who questioned the viability of the project and doubted the integrity of management. Then the company found a whole lot more gold and silver, and updated the resources to over 200 million ounces, an accomplishment that very few companies anywhere in the world could match. And still ECU could not get much respect from the investment community. With this latest report issued today, the total resources have now doubled yet again, now amounting to about 431 million silver-equivalent ounces. And there is still a great potential to more than double the resources of the project one more time as the mineralised zones remain open to further expansion and the company has only recently begun to target the bulk tonnage potential of massive sulphide lenses at depth.

Despite all of this success at the end of the drill bit, ECU shares traded yesterday below a buck. The contrast between the performance of the company and the performance if its stock is astonishing. Management has been telling the market for years that they have something special at their Velardena project, and they have gone ahead to deliver exactly what they promised, significantly outperforming the rest of the sector in terms of discovery achievement. Yet the stock has been pounded and none of that success has generated lasting value in the trading.

This has been a decade of extremes. It took years for all the bad decisions and poor management from the financial sector to be priced in by the market, and those stocks have crashed this year. I am hoping that we have just endured a similar delay for all the good work at ECU to be priced in with a steep recovery. I have remained an optimist throughout this nasty countertrend bear market for the juniors. I believe that the good companies with real projects will recover and go on to set new highs. I cannot think of a single other company in the world that has been able to confirm 200 million ounces of new resources in just a year. If this does not gain some well-deserved exposure and respect for ECU, then nothing will.

At some point investors will have to just decide that the market has been irrational and difficult but the world is not coming to an end. All stocks, good and bad, eventually find fair value in the market, it just takes longer than we are prepared to wait sometimes. The fundamentals eventually matter. Investors can buy silver ounces in the ground for about 50 cents by owning ECU. There are a whole hell of a lot of silver ounces awaiting development at Velardena and this has to be attractive for any senior producer. The universe is shrinking for high quality, large deposits located in safe countries. Exploration has slowed and it is unlikely that more exciting new discoveries will be reported for a while. So the larger producers who must complete acquisitions soon to replace depleted reserves are going to have become more active soon.

I fully expect that in the months ahead, I will be sending my comments to the Cafe to discuss a takeover offer for Velardena. The stakes have gone too high now for this project to be overlooked indefinitely.

I have given up trying to call a bottom for this sector. Having owned ECU for about 5 years now, and after riding that roller coaster all the way up and then back down to where we are today, I can only say that I am very confident that I will one day look back and realise it was worth the wait. I think the project is worth a multiple of the current share price, and I fully expect that fundamentals will still be relevant over time, and that ECU shares will trade at levels that make the current price look stupid cheap. The only variable left is time and I can wait as long as it takes for this sector to get right-side up again.

Congratulations to ECU management and to the shareholders that have believed in the potential throughout this ugly market.
cheers!
MexicoMike

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