Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
September 11, 2010
Issue 113  -  Another Fish on the Line?
 
I invest in very few things.  Although this is frowned upon in the investment world, I believe this is why I've been pretty successful.  Over the last 10 years I've only been invested in about fifteen stocks, and never more than 6 or so at the same time.  Right now, I have a very large position in Gold Resources (another all-time high this week), some call options in Pan American Silver and the Tocqueville Gold Fund.  The rest of my money is in cash equivalents, physical gold and physical silver.  I've been looking at a new stock for the past couple weeks.  I originally ruled it out and then took a second harder look and decided that it was worth a go.  This blog will focus on this new find.
 
 
The company in question is called Mexus Gold U.S., (symbol MXSG on the over-the-counter bulletin board) and although they do have some promising metal properties, the main reason I like them is not mining related.  Before I go on, let me repeat that this is NOT investment advice and please do your own due diligence before investing.  This is a VERY thinly traded stock and any buying can drive the price up as I can attest to from my buying this past week.  If even three or four people reading decide to buy, that can have a large impact on the stock price.  The stock has been as low as 2.5 cents in the last couple months and closed at 18 cents last Friday.  Now that is a huge gain in a short period of time, but I feel that the stock is still INCREDIBLY undervalued.  Either that, or it's a scam.  The third option is that I'm missing some key information, which is possible, since the information available is limited.  With those provisos in place, let's dig in.
 
 
With GORO actually producing gold, why would I be interested in another gold miner?  Well, as I mentioned, it's not their gold that interests me, its their salvage rights to an undersea cable.  Mexus has the salvage rights to a cable that runs from Alaska to Southern California.  Here is a cross sectional view:
 
 
As you can see there is a lot of metal inside, the most valuable of which is copper. (there is also lead and steel) Mexus is going to pull this cable up from the sea floor and then sell it.  They already have purchased a tug boat and barge.  The CEO has designed a pulling rig which will go on the tug.  One of the main reasons I initially rejected this company was the fact that it used to be called Action Fashions.  This seemed like a large leap.  About a week ago, the CEO had an audio interview posted on Wall Street Reporter.  Unfortunately, it was taken down after a week, as they don't keep all the archives.  Fortunately, I took notes while listening.  Here are the key points:
 
1.  There is 600,000,000 pounds of cable.
2.  Estimated 400,000,000 pounds of copper.
3.  If all material was recovered (not very likely) the value of the cable would be over $1,000,000,000.
4.  The barge can hold 4,000,000 pounds.
5.  Can pull 10 miles of cable a day, which is 100 tons.
6.  Could fill the barge in 20 days.
 
So lets work this out.  Let' say half of the weight is copper.  That yields 2,000,000 pounds of copper a barge load.  @$3.41 a pound, that is about $6.8 million per 20 days.  Let's assume they can only get half value.  That leaves $3.4 million in gross profit.  In 20 days! 
 
The CEO said that their cut of JUST the Alaska part of the cable is $250 million.  This means they can, assuming 20 days is a month, pull cable for about 6 years.  They are going shut down over the Winter months, so they will stop the process at that point.  Still, 8 months of pulling, will give a profit of about $27 million a year.  That doesn't seem like all that much money until you realize they are only valued at about $26 million, for the whole company!  And that's after going from 2.5 cents to 18 cents.  This yields a price to earnings of 1!  Obviously, that won't last.  Even a conservative PE of 10, would make this a $1.80 stock.  Plus, they have mining properties.  Sound interesting?
 
The cable pulling is scheduled to start within a month.  They also have a copper mine property that shows high grade copper at 80 foot depths.  This property looks so big that Mexus is already looking for a major miner to joint venture with.  A joint venture, typically gives a majority of the future profits from the mine to the larger company if they agree to pay for everything.  Obviously, this would take a while and there is no guarantee, but if they did acquire a partner, that would add significant value to the company.
 
They also have another very high grade silver property (also in Mexico) to begin mining within 120 days.  They have portable mining equipment, ready to go on site.  This will mine 25-30 tons of rock a day.  The property has very high silver content, at least 100 ounces a ton.  This would mean, assuming a $200 an ounce production cost, over a million dollars a day in profit.  That ore will probably not last long, but a profit that high, even for a year, would provide millions of dollars in profit, and the share price would rise accordingly. 
 
 
 
 
The CEO is experienced in small mining operations and has significant management experience, having built a trailer park and housing subdivision in Nevada.  He currently runs a trucking company which is funding activities.  He sounded very committed to keeping costs low, and that they were under budget on the cable salvage project.  He also seemed a little less than marketing savvy.  This could be why they aren't very well known
  
So what could be "wrong".  Here is my list:
 
1.  Could be total scam as the bulletin board stocks are often just that.  Risk of this:  low.  The demeanor of the CEO on the radio program just wasn't that of hypester.
 
2.  Might not be able to extract cable as easily as planned.  Risk of this: medium.  Their tug boat captain is familiar with the cable and they are hiring a diver.  This should alleviate most major problems.  They will shut down in Winter months so that will slow things no matter what.  The cable isn't going anywhere so this would just mean waiting longer for results.
 
3.  Large share count could keep growing:  Risk of this:  medium.  If they can get the revenue flowing from the cable salvage, this should be unnecessary.  Salvage to start soon.
 
4.  They only have a million dollar line of credit so they could run out of funds.  Risk of this:  low.  Again, revenue from the cable should start flowing.
 
5.  Management is older.  CEO is 69 and his demise would probably put a large damper on activity.  This would affect the share price downward, perhaps permanently.  Risk of this:  medium.
 
Overall, not that bad.  This actually looks like a potential 10 bagger.  Another plus in their favor is that 70% of the stock is insider owned.  That's a lot.  This means the float, or shares available is only about 40 million shares.  At $.18 that's only $7.2 million bucks.  That's a tight float.  Anyone looking to get in with a large purchase, will drive the price higher.
 
So if you decide to invest in this, here are some things to keep in mind:
 
1.  Only risk money that you wouldn't mind losing.
2.  Go to the company website and check it out.
3.  Only order this stock with a limit order. (if you don't know what a limit order is, this stock is probably not a good idea for you, but email me for help)
4.  Realize if you buy anything more than a few thousand shares, YOU will be driving the price higher.  I can tell you that my purchases last week, drove the price up 3 cents.  If too many people reading this buy, it might go up faster.  I would consider this stock to have a large margin of safety up to about 25-30 cents.  This may be a long term investment to pan out, so the share price will sink if time goes by with no activity 
5.  Don't buy this without first researching it yourself.  www.ragingbull.com has fairly active message board.
6.  The information available on this stock is very sparse.
7.  This is highly SPECULATIVE.  This isn't GORO.  They have a long way to go to prove their value.  GORO is paying dividends right now.  The difference between these two at this point is wide.  Don't put any more than 2% of your portfolio into it.  (that's what I have done)  As they execute their plan, I will think about increasing that.
 
I believe if this stock is for real, and can carry out their business plan, that they are vastly undervalued.  This is a stock that would easily trade at a couple bucks with the projected cash flow.  That is a ten bagger.  Those don't come around very often. 
 
I'll finish this week with another video from America's Got Talent.  This is a video of a ten year old singer who, if you haven't seen her, is simply gifted.  Have a great week!