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Every junior miner strives to become a producer, or to be bought out.
Both of these paths take a lot of financing and dilution before the end goal. It takes much more than just some drill holes to succeed.
The hard truth is, mining exploration and development is a negative cash flow business.
Juniors need to continually raise money for the many processes involved in bringing a mine to life. They need to drill enough holes to gain enough interest from the majors for a buyout. This ultimately leads to further dilution.
Many will fail.
But what if there is a junior that is cash flow positive before production?
What if there was a company with revenues nearing $16 million last year?
What if there was a company with an 80% interest in a property with over $12 million in expenditures in the last two years, a 43-101 resource, a historical “reserve” sitting between two of the world’s largest silver mines, and expecting production in Q1 of 2011*?
What if they were fully permitted and fully funded to begin production?
Is there such a company? There is. It’s:
United Mining Group (TSX: UMG) (OTCPK: UMGZF)
For many of you, this may sound like déjà vu. That’s because United Mining Group (TSX: UMG) was featured in a previous report back in May 2010. However, at that time, they were trading on the CNSX, an exchange with much less liquidity than the senior Canadian exchanges.
By listing with the CNSX, United Mining Group (TSX: UMG) was able to quickly and efficiently raise the capital it needed to begin the process of going into production in Q1 of 2011. Once they accomplished that, it was time for them to move up.
Over the summer months, we felt that their listing was one of the major reasons why United Mining Group (TSX: UMG) has yet to receive any major media attention and thus suppressing its share price.
But that has changed.
In a very short period of time, United Mining Group (TSX: UMG) was able to graduate from the CNSX to the premier resource exchange in the world, the Toronto Stock Exchange. (see TSX and TSX Venture listing requirements)
With close to $16 million in revenue last year and a controlling interest in a property situated between two of the world’s largest silver mines, it’s no surprise that United Mining Group (TSX: UMG) was easily able to make this transition.
The doors have opened for United Mining Group (TSX: UMG), but the story hasn’t changed…
The Battle for Silver Land
Silver has been a very heated topic for us. For the last few years, we have published numerous editions on why the price of silver will continue to rise. Even our latest featured silver company continues to climb in share value. It’s up over 40% since our initial report back in June 2010.
If you have been following the major silver headlines this past year, you must have heard about the fight over one of the world’s richest, past-producing silver properties: The Sunshine Mine
The Sunshine Mine
The Sunshine Mine is located in northern Idaho’s historic Coeur d’Alene district, famously dubbed,” The Silver Valley.”
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And with good reason…
The Silver Valley is the world’s 2nd largest silver district, producing over one billion ounces of silver.
Since its discovery in 1984, the Sunshine Silver Mine alone produced over 328 million ounces of silver grading 23 opt (ounces per tonne). To date, it is believed to still have resources in excess of over 260 million ounces left for mining.
Last month, the heated battle for the Sunshine Mine was finally won by Silver Opportunity Partners, a company backed by multi-billionaire Thomas Kaplan.
Thomas Kaplan has deep pockets. Very deep. He is also known to be extremely aggressive when he sees a resource investment opportunity he likes. Having a guy like Thomas Kaplan take over the Sunshine mine is great news for the Silver Valley. He can trigger some much needed life into one of the world`s most promising silver properties – and those directly around it.
Although the Sunshine mine remains one of the key components of this district, it still has many issues. Despite having 260 million plus ounces left to be mined, much of the Sunshine Mine`s silver may never be recovered because of the mess the previous owners left when they mined it.
Like gold mines, if you start producing without understanding the resource, you can significantly ruin your mineable ore – the same goes for silver mines.
The Sunshine mine also has a NSR issue (up to 7%) with the EPA (United States Environmental Protection Agency) which may put a serious damper on the profitability of the mine. With that being said, there must be obvious reasons why multi-billionaire Thomas Kaplan made the move to outbid everyone for the Sunshine.
Here’s where it gets interesting.
Right next door to the Sunshine, lies United Mining Group`s (TSX: UMG) project, the Crescent Mine.
The Crescent Mine is located immediately between, and along strike, of both the Sunshine and Bunker Hill mines. The Sunshine and Bunker Hill mines have produced nearly half of the Silver Valley`s historical production of One Billion Ounces!
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The Crescent Mine is also a past producer, producing 25 million ounces of silver at 27 opt. It currently hosts an indicated resource of 6.1 million ounces silver consisting of 324,000 tons grading 18.7 ounces silver per ton and an additional inferred resource of 4.1 million ounces silver consisting of 211,000 tons grading 19.5 ounces silver per ton.
By today`s measures, it may have the highest grade ore in the Silver Valley.
Yet it remains mostly untouched.
With over 5000′ vertical feet of historic stoping and more than 6000′ of prospective strike length along 12 separate veins between two world class mines, the Crescent has excellent potential to produce for many times the 5-10 year mine life based on the existing resource.
More than $12 million has been spent on the Crescent Mine in the last two years on surface/underground drilling and mine rehabilitation. Much of this work was actually conducted by United Mining Group (TSX: UMG), so you can bet they understand this property better than anyone else.
To reap the benefits of the Crescent, United Mining Group (TSX: UMG) only had to give up $220,000, some shares of its stock, and spend $9 million over 3 years to earn and keep their 80% interest in this property (see NI 43-101 for more details).
Did we mention that the Crescent Mine project is already fully permitted and financed for phase 1 production in Q4 2010 – Q1 2011?
That’s right, United Mining Group (TSX: UMG) already has the permits in place and the money they need to bring the mine into production.
When you consider the issues of the Sunshine Mine, it would make sense for Thomas Kaplan to also own the Crescent Mine. The Crescent Mine is not only easier to mine, but should be much faster and cheaper to bring back into production.
We’re not sure exactly what Mr. Kaplan’s intentions are, but with approximately 55 million shares outstanding and a market cap of just over $33 million, United Mining Group (TSX: UMG) would be an easy target for Kaplan if he wanted to take control.
When you consider the recent mergers and acquisitions activity within the mining sector and the rising price of silver, a takeover of United Mining Group (TSX: UMG), or its interest in the Crescent Mine, would not surprise us one bit.
But there’s more to this story.
Aside from their interest in the Crescent Mine and the fact that they are already permitted and funded to go into production within the next year, United Mining Group (TSX: UMG) also owns and operates a mine services company.
That means, unlike practically all of the junior miners and explorers, they make money!
The Money Maker
In 2009 alone, United Mining Group (TSX: UMG) made close to $16 million in revenue and was profitable.
Their compound annual growth in revenue was 77% from 2007 to the end of 2009. Seriously, there aren’t many juniors out there that can say that. Heck, there aren’t many companies with $200 million plus market caps that can say that.
Furthermore, their projected revenue for 2011 is expected to grow to $30M in 2011 as the Crescent Mine is brought into production. This means that at the current share price and silver price, United Mining Group (TSX: UMG) will have an annual revenue nearing their own current market cap.
That is almost unheard of in the mining world – or any sectors for that matter.
When you consider the comparables, the differences are shocking.
The Lowest Market Cap?
Many comparable companies with the same production value, resource, and revenue profiles have market caps in excess of $150 – $200 million plus. United Mining Group (TSX: UMG) sits at just over $33 million.
Let’s take a look at Alexco Resource Corp* (TSX: AXR), for example.
Alexco Resource, like United Mining Group (TSX: UMG), has an environmental and mine services company that produces revenue, in addition to their silver exploration and mining division with a high grade silver property. So it makes sense to use them as a comparable.
Alexco currently has a market cap in excess of $228 million.
United Mining Group (TSX: UMG) has a market cap of $33 million.
Alexco expects to have revenues of $20 million in the next 5 years with their environmental services division.
United Mining Group (TSX: UMG) already had revenues of well over $15 million last year.
Alexco has just over 13 million ounces of silver in their resource calculations for their advanced stage Keno Hill property.
United Mining Group (TSX: UMG) has just over 10 million ounces of resources (indicated resource of 6.1 million ounces silver consisting of 324,000 tons grading 18.7 ounces silver per ton and an additional inferred resource of 4.1 million ounces silver consisting of 211,000 tons grading 19.5 ounces silver per ton)
Both are targeting a 100 million ounce silver deposit.
As you can see, when compared to many of the other silver juniors in the market, United Mining Group (TSX: UMG) has a market value substantially less than its peers.
If you know of any other companies with a market cap similar to United Mining Group (TSX: UMG), with a similar world class property, and making in excess of $15 million before production, and fully permitted and funded to go into production within a year, let us know – because we still haven’t found it.
From drill shot potential plays capable of multi baggers to world-renowned management teams, our featured companies all have their unique situation worthy of our portfolio. That is why we are biased towards United Mining Group (TSX: UMG). Although they are advertisers on our website and we are paid consultants, United Mining Group (TSX: UMG) is also one of our la
rgest holdings within our current portfolio.
Now that United Mining Group (TSX: UMG) is on the TSX, it is now much easier for investors, including brokers and institutions, to participate.
We said it before, and we’ll say it again: United Mining Group (TSX: UMG) – Try and find a similar story.
United Mining Group Ticker Symbols
Canada: (TSX: UMG)
US: (OTCPK: UMGZF)
Until next week,
Managing Director, Equedia Weekly
Equedia Network Corporation
Call Us Toll Free: 1-888-EQUEDIA (378-3342)
*The planning for United Mining Group’s production is based on recently completed drill results, underground work, ongoing mine planning and historical mine workings in the immediate area of the proposed production. The Company has not completed a preliminary assessment as defined by NI 43-101 or a pre-feasibility study with respect to the Crescent Silver Mine.
**Alexco Resource facts and figures are based on their August 25, 2010 Corporate Power Point presentation and information derived from their website.
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