Great stock trades based on fundamentals and technical analysis.
This morning, Metalline Mining (MMG) announced a private offering financing was completed last week
to raise $5.67 million. They will use the proceeds “to initiate an aggressive exploration program on the polymetallic (copper, silver, zinc, lead) mineral system at the Sierra Mojada project.” Despite U.S. rules preventing them from publicly promoting the financing and requiring private offering investors to hold restricted stock for 12 months (vs. 4 months in Canada), MMG was able to price the offering at only a $.07 discount to the market price the day of closing, and an $.08 premium to the market price the day before, and without paying any commissions. The dilution from this financing is relatively small (about 7%), but the potential return to shareholders could be huge if they can prove out significant new resources in this new exploration program.
This financing is great news for shareholders, as MMG can now prove out more of their resources more quickly, particularly the huge amount of silver they have (45+ former-producing mines that only direct shipped very high grade ore), and get valuation in the market for more than just their first zinc deposit. One of our biggest concerns was that the company would get bought out before proving up their silver and other resources, thus not getting credit for that value. If they can get their "aggressive exploration program" going fast enough to prove up new resources before completion of the feasibility study on their first zinc deposit next year, they should succeed in getting additional valuation for those resources.
So far this year, MMG stock has been hit by significant selling pressure as the price of zinc has dropped about 25% on a temporary surge in supply
, zinc mining stocks have taken a big hit in a sector correction exacerbated by the recent global stock market correction, and millions of shares have freed up from their 1-year lockup after last year’s private placement financing for the feasibility study. We believe this selloff has created a tremendous buying opportunity just as the two previous selloffs created great buying opportunities:
In this weekly chart, one can see that the two previous selloffs brought stochastics (Full STO) down to very oversold levels well under the 20 line and also dropped the Accum/Dist line down to a low level while the Chaikin Money Flow (CMF) oscillator indicated strong outflows of money. The recent bottom also was characterized by very oversold stochastics and a low level on the Accum/Dist line, but the CMF oscillator showed very little outflow of money despite the millions of shares freed up from last year’s private placement. This positive divergence on the CMF oscillator, with successively higher lows, looks very bullish to us.
We also like that the recent bottom hit exactly on the uptrend line from the two previous lows. If the stock can now move from the lower Bollinger Band (Bollinger Bands are the "BB" lines on the chart above and below most of the stock trading) to the upper Bollinger Band as it’s done after each of the last 2 selloffs, it should break out of the triangle formation by breaking the downtrend line connecting the previous highs. A move to the upper 3’s in coming months should accomplish that and would point to much higher prices.
Now that one of the more difficult time periods for shareholders is behind us, we believe the technicals are lined up with the fundamentals indicating much higher prices for MMG over the long term.
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