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Trading at Cash Value - Or Less


-- Posted 25 August, 2008 | | Discuss This Article - Comments:

In another sign that investors are shunning metals and mining stocks, publicly traded companies are now trading at their cash value - or less.

Essentially, this means the market is valuing properties - both exploration and producing assets - at zero.

Look at Mega Silver (MSR-TSXv). With a stock price of 43 cents, it has a $13 million market cap - and cash of $13 million.

Even the bigger exploration companies are getting no respect. Nautilus Minerals (NUS-TSX), a high profile and novel explorer searching for mineral deposits on ocean floors, has almost $300 million cash, and trades at a market cap of $225 million.

Even farther up the food chain, revenue producing companies are getting close to cash value. Altius Minerals (ALS-TSX), which has a royalty on the Voisey Bay nickel mine, has a $200 million market cap, and cash of $175 million.

"It's definitely a sign of the times," says Ken Carter, CEO of Mega Silver, who is working on three different silver exploration properties this year.

He adds, however, there could be a silver lining to this market situation.

"If this market drags on, it will become easier to get deals done, and we're lucky as we have a lot of cash compared to some companies."

With metal prices well down from their highs of only a few months ago, the financing market is very difficult for mineral exploration companies.

Statistics from the Toronto Stock Exchange show that investors have sold off two thirds of the value of junior mining stocks from December 2007 to June 2008 - at December 31 all the TSXv Mining Stocks had a combined market cap of $33 billion - at June 31 that was down to $9.8 billion.

Stocks are beaten up and psychology is very negative.

For value investors, it's time to start buying selectively, says Richard Reinhard, editor of the financial newsletter Growth Stocks Weekly. He focuses on the junior mining market.

"Patient investors who understand the market can make a lot of money now," he says. "These companies will not rocket or rebound, but if you buy the strong management teams you know they will use their cash to acquire a property the market will like. But few investors in this market are that patient."

-- Posted 25 August, 2008 | | Discuss This Article - Comments:

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