This is a rare ‘long term’ play for me and even rarer that it’s a pink sheet stock.  I absolutely do not want anyone to go into this blindly if they choose.  I will be providing updates often on this company.  As I said, this is not for the weak at heart and there is potential to lose all your investment so look before you leap!  On the reward side, I feel this stock can be a 5-20 bagger even from these current levels upon certain benchmarks being accomplished. 

MCIO Long - MineCore International, Inc. (http://www.minecore.com/)

Here’s the basic overview of the company. It’s an exploration company with mineral properties dealing in sapphire, ammonite and gold.  The main focus is on the 15,000 hectares of sapphire bearing property in Madagascar.  At the conference, they presented some beautiful pink sapphires.  They had some in the rough (they look like pop rocks) and then the cut/polished versions. They also had the 20 grams found in the field test by R. Bachman on 1/3^rd cubic square meters, which were previously valued at $4-8k.  This included the 16 carat (2.9 grams) blue sapphire in the rough.  It was interesting to note that 80% of the sapphire goes to waste when it’s cut for gemstone retail selling.  Therefore, the 16 carat blue sapphire ends up as a 4 carat sapphire after being cut and polished ready for sale to the retailer.  During the sifting process, sapphires under 4 millimeters are considered waste as well and fall right through the sifters.  A lot of ‘waste’ is generated and thrown out.  This is a key factor.

There are three important factors that convinced me on this play:

1)      Value – so I know what it’s worth in worst case scenario.  the value play and turnaround story was originally was compelling enough for me.

2)      Credibility – so I know it’s not a scam

3)      Growth – the ‘sexy’ story--- this is the clincher…

1) Value – First of all, the company has to complete their audits.  This is important and can’t be taken lightly.  I am going by the company’s numbers as they claim. They have revenue generating and self sustained subsidiaries in construction, engineering and consulting.  Vertical integration seems to be the theme with the subsidiaries all aligned to cut costs and add scalability once they go into full-scale production.   They have assets of $115.3 million according to their powerpoint, unaudited with $2.6 million in short term liabilities.  Book value $1.16 per share.

The shareholder equity is $112.7million.  Although the outstanding shares sit around 97 million, the float is somewhere around 1-2 million shares which makes it very thin.  This means it can move UP fast and DOWN fast.  As I mentioned, I originally looked at this as a value play on the assets, supported by the subsidiary revenues ($20 million a year according to website) with a lotto ticket on the sapphire properties going into full production once financing is completed.

2) Credibility -  This was the initial tough part for me as pink sheet stocks are notorious havens for scams and shell companies.  I had a lot of questions regarding the past operations and why the company hasn’t yet gone into production.  These questions were answered sufficiently when I met with the COO, Mr. Mikolazcyzk (?sp) of the company.  His passion was abundant.  I feel the efforts by the company are sincere and actions are being taken to move this company forward.  Actions speak louder than words. 

The addition of the two new board members really validates the credibility aspect.  http://biz.yahoo.com/iw/080328/0380781.html  Richard Boehner is president of research at Symyx Technologies (Nasdaq symbol: SMMX) and he has been involved at the executive levels of 20 other companies including vice president at McDermid (which was purchased by private equity funds for $35 a share), SNY, HON, CEM (all NYSE companies) and more.  Breene Kerr is heavily involved in the technology and public sector formerly a board member of the Santa Clara VTA and mayor of city of Los Altos Hills, CA.  He is also with the Kerr family of the Kerr-McGhee corporation which was merged to form Anadarko petroleum (NYSE: APC) and spin off Tronox Corporation (NYSE: TRX). 

Do not underestimate the heavy significance of the contacts, experience and resources these new board members bring to the table.

3) Growth ß This is the compelling part… the ‘sexy’.

I addressed 1 and 2 which is enough for this to stick around the $1 x 1.50 range near its book value.  However, the most compelling reason is the growth.  However, not the growth that you may assume.  Although the sapphire market is very fragmented and having 100 million cubic square meters of sapphire bearing property can change the worldwide supply, this is not the sexy growth part.

The real growth is the applications for semi conductors and notable for solar cells.

Moore’s Law is the theory that semi conductors can double their performance capacity every two years.  While this has been true for the past 30 years, the physical limitations are becoming more evident and causing the industry to search for material solutions.  Semi conductors are made of silicon (which used to be the second most ample material on the planet, now nearing a shortage crisis as well).  Most importantly,  physical limitations come from the heat generated by the circuits. 

The heat generated by the additional transistors as chips increase capacity is the major problem with silicon based semi conductors.  The silicon chip are nearing capacity due to heat constraints. Silicon melts at 1410 degrees Celsius.  The solution?  Sapphires.  Sapphires have a melting point of 2040 degrees Celsius.  Sapphires are the second hardest material on the planet next to diamonds. They are also resistant to radioactivity.  Sapphires can be used as a cooling/coating agent (sapphire on silicon) or they can be used to replace silicon.  The issue has been mostly one of cost.  Therefore a higher supply can greatly reduce the costs.  If that supply comes from waste… hmmm.

Let’s move this a little further.  As traders, we know what is HOT in the market.  The two hottest sectors are solar (eg; FSLR from $28 to $308 under 2 years!)and fertilizer (POT, MOS, TNH).  Solar is the focus here with sapphires. 

Solar energy demand has been growing at 30% worldwide for the last 15 years and 57% in the US alone last year.  The cheaper access to solar panels, tax incentives, higher energy prices are starting to really hit the masses.  One hour of sunlight can power the planet for a year!  http://www.solarbuzz.com/FastFactsIndustry.htm

The concept is no longer just ‘politically correct’ or for environmentalists.  Businesses are adapting to solar power for tax incentives and expense reductions.  Germany leads the world (80% of FSLR revenues comes from there).  This is a massive growth sector.

Here’s a real quick rudimentary lesson on the two existing types of solar cell technologies.  The higher end crystalline solar cells used with silicon wafers dominate the existing market with a 93% market share.  They are more expensive to produce but make up for it with a higher efficiency up to 15%.  There is a polysilicon shortage until the end of 2007. 

Thin film solar is cheaper to produce but have 50% less efficiency at 7% and tend to lose efficiency with time.  SWPR claims 18-23% efficiency with their best of breed solar silicon chips and FSLR up to 10.5% with their thin film. 

One of the limitations of existing solar cells is they absorb only the red spectrum.  The ability to absorb wider spectrum is the key to raising efficiency.  Sapphires when mixed with indium gallium nitride absorb the green, blue and white spectrums allowing for efficiencies greater than 70% vs the theoretical maximum spectrum of 28% for crystalline solar http://www.solarserver.de/wissen/photovoltaik-e.html

It’s interesting also to note the importance of efficiency vs cost.  Here is a great link to an interview with TJ Rodgers (Ceo of CY and visionary behind SPWR) http://www.news.com/8301-13578_3-9887435-38.html
TJ Rodger’s argument for the inherent problem with thin film technology’s lower efficiency: ”For a system on your house, let's say the full retail price prior to subsidy is $10 per watt. Of the $10, $3 is the solar cell and $7 is everything else--the frames, the panels, the modules. So somebody comes along and says my product's half the cost, so take your panels, empty them out, and I'll give you solar cells at half the efficiency but half the price. Your $3 per watt goes to $1.50. Your $10 per watt total goes to $8.50. Oh, and your 10 panel system went from 2,500 watts to 1,200 watts. It got cut in half.”

Bingo!  Efficiency is the key.  What about costs? Sapphire has been cost prohibitive due to the fragmented market and the retail demand.  However, if the amount of waste (80%) of cut gem stones in addition to the amount from non gemstone quality sapphires were available in abundance, this would drop prices dramatically thereby making sapphires are viable superior choice for solar cell and semi conductor applications.

Minecore has 15,000 square hectares of sapphire bearing concessions.  Once they get into full scale production (contingent on financing), the 10 year projections for gem quality sapphires (going to retail distribution) totals 230 million grams.  However, the ‘found money’ is the 75% surplus sapphire (waste from cut gemstones and lower grade/size rough stones) totaling 690 million grams.  This is the sizzle.  The revenues generated from the gemstones is great but the additional found money generated by the sourcing of materials originally meant to throw out makes this one sexy--- raising max efficiency about 70% for solar cells makes it super sexy.

Here’s a breakdown of the main points:

Sapphires can be a superior product in semi conductors because of their melting point at 2040 degrees Celsius vs silicon at 1410 degrees Celsius thereby allowing for the continued enhancement of processor speeds based on Moore’s Law. Also, sapphires are great for superconductors http://www.sciencedaily.com/releases/2008/03/080328070113.htm.

Sapphires substrates can be used for solar cells to increase max efficiency through 70%, which means less panels needed than current technology and especially thin film.  The cost has been prohibitive because of the fragmented market. 

Minecore can meet the cost issue when they go into full scale production because the ‘waste’,which out numbers the useable gemstones 4 to 1, can be utilized to melt into sapphire wafers and sliced.

Technically, MCIO has held a nice base after the big run up.  The current support sits at $1.10.  The current resistance and key breakout is that $2 level.  This is a thin volume stock so its best to work the bids and tighten the spreads IF you decide to play.  If it falls to support will look to add or if it cracks through that $2 barrier as that will set up the next leg up. 

Targets:  Since this is a thin stock, a break through that $2 barrier could easily send this one to the $4.50 x 5.50 level.  As I said, the company had a very good showing at the mining conference which was attended by mostly portfolio managers and institutions.  This one should get on the radar soon.   Ultimately, I and looking at $10-12.50 range on this one if financing comes through.  Will continue to update my thoughts in the coming weeks and months.

The website http://www.minecore.com/ has all the information and nice access to the third party field reports.  Also, read up on the two new board members, this is very important and should not be underestimated the contacts and resources they bring to the company.

Once again, this is NOT for intra day players.  It is risk capital only for pure speculation.  I plan on holding the majority of shares for at least a year to let this unique play work itself out.  I will also continue to accumulate shares on certain support and breakout levels (2+).  I will provide updates as things develop and if the gameplan changes.  This is a long term play for me so do yourself a favor if you can’t handle the spreads and stay out.  Good luck to us if you take a shot at it.