Great Investments

In August (http://greatinvestments.blogspot.com/2006/08/why-we-think-several-companies-will.html), we mentioned two world-class sized zinc projects scheduled to start production in the next few years, one in Iran and one in Bolivia. These were the only two world-class sized (150,000+ tonnes per year) zinc projects in the world that had completed a feasibility study and were planning to start production in the next three years. Since then, the obvious political risks of those countries have put those projects into doubt:

• Mehdiabad in Iran has had difficulties financing the $1.6 billion project because of Iranian political issues, so in order to try to secure financing, management has decided to conduct a scoping study to consider a number of lower cost options to stage the project and start with much lower production. They’ve also had issues with the Iranian government http://www.unioncapital.com.au/UCL/documents/feedback.html. The U.S. recently ordering banks to shut down operations in Iran won't make financing any easier. It looks like if Mehdiabad can get financing and make it into production in the next few years, it will be on a much smaller scale than originally planned.

• Apex Silver's San Cristobal in Bolivia, which has presold a huge portion of their zinc production at .48/lb, is still scheduled to start production in late 2007. However, on Sunday, President Evo Morales completed the nationalization of Bolivia’s Natural Gas industry, signing contracts to take control over foreign companies’ operations: http://biz.yahoo.com/ap/061203/bolivia_nationalization.html?.v=3. As that article explains, “Morales has said he plans to nationalize Bolivia’s mining sector.” After nationalizing Bolivia’s petroleum industry in May, some thought his threat to nationalize mining had no teeth, but the nationalization of the Natural Gas industry shows Morales means business. If Morales succeeds in nationalizing mining, that could delay or reduce production from San Cristobol.

If neither of these two world class zinc projects make it to full production as planned in coming years, the zinc crisis we mentioned earlier this year could get much worse than anyone expects. There would be no proven feasible projects of this production size left in the pipeline, which would be very bullish for the price of zinc.

If MMG can successfully complete the feasibility study for their Sierra Mojada project at anywhere near expected production rates, the problems at Mehdiabad and San Cristobal could make Sierra Mojada the only world-class sized zinc project in the world proven feasible and scheduled for production in the next few years. At a time of zinc crisis, where MMG is also the only zinc junior miner listed on a major exchange in the U.S., MMG’s 100% owned Sierra Mojada project could become the premier mining takeover target. We expect multiple takeover bids at much higher levels from cash rich major mining companies looking to replace their depleting reserves. While we believe shareholders would best be served by MMG going to production alone, takeover bids would ensure MMG a more appropriate market valuation for their premier assets.