Headquartered in Canada, Morro Bay Resources Ltd. (TSXV-MRB) has just acquired a 51% interest in an advanced stage silver and gold project called Peñoles in the Durango Silver Belt, Mexico. The project offers up significantly more than one sees in junior mining plays these days. As discussed further below, the project already has an initial Resource Report for two separate deposits (open in several directions), and overall the project looks like it has significant growth potential. Perhaps even more striking is the fact that the Morro Bay Property is located in one of the most active (and lowest cost) mining district in North America. Several mid-tier and larger mining companies have built low capex operations in this district and are actively growing their production profile by acquiring projects similar to Morro Bay’s Project.
From an investor’s point of view, the fact of significant previous transactions in the area points us to believe the Morro Bay property could very likely be another take-out target. If such occurs, it should result in a significant gain in share value. Two transactions recently occurred and were based on properties very near to Morro Bay’s property and resulted in significant payments to the shareholders.
First in December 2013, Argonaut Gold Inc. acquired the San Agustin Project from Silver Standard Inc. for total consideration of $75 million. Similar to the Morro Bay Property, at the time of purchase a mine had yet to be built and the resource estimate estimated Indicated Resource of 121,000 ktonnes with grades of 0.41 g/t gold and 12.3 g/t silver (see the Argonaut news release dated November 5, 2013).
Similarly, in 2013, Coeur Mining Inc. purchased the La Preciosa project from Orko Silver (at the time a TSX:V company) by acquiring all of the shares of Orko for consideration totaling $384 million. This represented a value of CAD$2.70 per Orko share, a premium of approximately 71% to the Orko share price. The La Preciosa Property was the only material asset of Orko at the time. No producing mine was present at the time. The mineral resource and mineral reserves estimate provided by the Orko NI 43-101 Report dated October 25, 2012 reported an Indicated resource of 29,700 ktonnes with grades of 0.20 g/t gold and 104 g/t silver.
As announced by Morro Bay in compliance with securities laws, (and as further discussed below) Morro Bay reported an initial resource estimate for one deposit (El Capitan – primarily gold) 20,722 ktonnes with a grade of 0.46 g/t and for the second deposit (Jesus Maria – primarily silver) 7,573 ktonnes with a grade 62.3 g/t of silver (the full NI 43-101 Resource Report can be found at www.morrobayresources.com). These grades are very similar with those of the above two referenced sales. As a result, it is possible that Morro Bay and its partner (owning 49%) could see themselves being offered $75 million, more or less for control of the Project. That works to about $0.375 per Morro Bay share (using an estimated outstanding share float of 100 million shares after completion of Morro Bay’s financing). Currently the stock is trading around a nickel. Note that this is just speculation and assumptions that are loosely based on previous transactions.
Regardless, it appears that with the transactional history in the Durango Mining District, Morro Bay could be the next one to be purchased. So far the Company has consistently reported good drill results and they are planning a 20 hole drill program that will delineate the extent (near surface) of the known deposits. If results meet expectations, the Company will have the information required to advance the project to a PEA level assessment (Preliminary Economic Assessment) and things should get exciting.
Morro Bay is initiating a private placement financing opportunity for investors. Seeking to raise up to $1,500,000. The company is offering units consisting of 1 common share and 1 share purchase warrant at a unit subscription price of $0.05. The warrant terms of the financing indicate an exercisable option for one common share at $0.05 during the first year and for $0.10 during the second year. $1 million of the funds raised will be dedicated toward exploration at the Project, while $500,000 will be allocated for corporate purposes.
A recently listed junior mining company, Morro Bay presents a strong position in the industry, as it maintains an experienced leadership team. The company’s Board of Directors and Executive Management team, presided by CEO, John C. Zang, presents experience and expertise in public junior companies along with strong exploration and asset management skills and prior success in generating shareholder value. During the last 15 years Zang has been a director and/or officer of many junior companies provided substantial value returns to shareholders (almost always over 5 times their initial investment over a less than 3 year span per company). It appears as though Mr. Zang is prepared to do it again in Morro Bay. Mr. Zang states that “I look for valuable assets that larger companies will want to acquire on a timely basis. With the Morro Bay Mexican gold and silver property we have something which I believe places Morro Bay as a significant available seller to the majors around us.” As shown in the map below there does appear to be significant players in the area:
As indicated above, this is not just a blind prospector looking for gold and silver. Morro Bay has found the gold and silver—it is creating value and has significant potential. It seems like this represents a solid opportunity to take a stake in silver and gold play that MAY be sold for many times the current trading price. Currently, you can get an even greater exposure by participating in the company’s private placement. If you are interested please email me at firstname.lastname@example.org and I will direct you to the proper company representative.
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