Dave from Denver on a related note…

Wednesday, October 14, 2009

An Update On Aquiline/ECU: Aquiline Hits Paydirt, Is ECU Next?

On Sept. 29, I posted analysis that explained why I was confident that Aquiline Resources and ECU Silver are fundamentally "twin" companies and why both stocks are ridiculously cheap to fundamental value.

Well, Aquiline just agreed to be acquired by Pan American Silver (PAAS), in a stock and warrant deal that effectively values Aquiline at $626 million (based on the current price of PAAS stock), or roughly 83 cents per ounce of silver Aquiline has indicated on its latest 43-101 resource filing. We will be taking some profits on our Aquiline position and plowing them into even more ECU stock.

Using this deal as a guideline to assess the relative value of ECU, applying 83 cents to ECU's measured, indicated and inferred resouce of 431 million, ECU stock would have a value of $1.25 vs. it's current trading level of $.77. HOWEVER, Micon International, the independent mining engineering firm which prepares ECU's highly regulated 43-101 Resource Estimate Report, has identified additional mineral potential that has been quantified at an additional 570 to 930 million silver equivalent ounces.

If we apply the 83 cents/per ounce in the ground to just the low end of Micon's assessment, that would give ECU 1 billion ounces, and an implied valuation of $830 million, or $2.91/share.

One more point to bear in mind. At one point in May 2006, the market was valuing silver in the ground, on average, at $2/ounce. If we apply THAT metric to ECU, the Company would be worth anywhere from $860 billion to $2 billion, or $3-$7/share. Please note that back then the spot price of silver was around $13/ounce and had hit a brief peak of $15.35. Right now silver is $17.85/ounce on its way to at least $20. At some point, the market will value in-ground silver much higher than $2/oz. In other words, any way you want to value ECU's reserves, the stock is incredibly cheap.

I can say with complete confidence, and with money backing my statement, that I have rarely, if ever, seen an investment opportunity in the stock market with the low risk/high return potential of ECU. I say this because ECU, as per its latest press release, is now generating monthly cash flow from its milling operations that is much higher than anyone expected (except maybe CEO Michel Roy), it has demonstrated that the mineralization of its ore has a higher amount of gold than previously thought, and it has the certified potential to have at least a 1 billion ounce deposit. I might add that a huge benefit, though not well understood by most investors, from the Company's endeavor to generate revenues from processing its stockpiled ore is that it has demonstrated that is has a solid understanding of the metallurgy of its massive silver deposit. That issue is the golden (or silver) key to unlocking the value in a discovered mineral deposit.

Oh, and let's not forget about the Massive Sulphide Zone, which still needs to be explored. In conversations with people who have visited the mine-site, it is believed that this Zone could contain several hundred million additional ounces of silver. It is thought that this Zone is the ultimate source of ECU's already proved silver deposit. That potential is not factored into the above valuation analysis.

Please do your own due diligence. I have found COO Steve Altmann to be very responsive and user-friendly to any and all investor inquiry.