As a trader, I focus on the charts, which give me a road map of the actual buying and selling to help forecast where the stock will go.  As an investor, I have to do my research to justify that the stock is worth a lot more than what it is priced at now.  Since I don’t ‘invest’ much, the stock needs to be worth a hell of a lot more than where it is now.  The risk reward should be at least 10 to 1.  If I can justify at least 10 times upside to 1 downside, then it’s worth the risk as an investment for me.  One more factor that I haven’t mentioned is the independence to overall market conditions.  As a trader, we time the market every single day looking for transparency before it becomes too transparent.  Most stocks follow overall market movement.  I particularly like the fact that MCIO doesn’t move with the futures or the markets in general.  This also makes it easier for me as a speculative investment so I can deal with trading other stocks with the market.

As both a trader and investor, I also have to be aware of what sectors are seeing money flow in the overall markets as well as the overall market conditions.  It’s an extra bonus when the investment is linked to a favorable sector or theme. 

MCIO = Mining/Gemstone/Solar/Semiconductor/Technology play

I have focused mostly on the latter solar/semiconductor angle because of the ‘sexy’ nature.  Minecore released news a week ago announcing a series of white papers to be released on the technology applications of natural sapphires http://www.marketwire.com/press-release/Minecore-International-Inc-871239.html.

I especially love this part:  “The white papers will be prepared by a consortium of renowned engineers and researchers with backgrounds from various technology giants such as Intel and IBM.”.  That’s sexy… Intel and IBM.  Minecore apparently has been attracting some interest from the big boys.   

This week, I want to analyze the mining/gemstone angle.  More specifically, I want to attempt to put a valuation on the sapphire properties in Madagascar only.  There are two reasons for this.  First of all, it goes back to being able to justify a minimum 10 to 1 upside versus downside ratio based on valuation alone.  Secondly, what if one of these large players wanted to acquire the company or properties?  In fact, think outside of the box.  Think in terms of international tech goliaths or even sovereign wealth funds (government endowment funds composed of a country’s surplus) combing the planet for material resources. What are they going in invest in… banks?  They already got killed with the financials.  Look at Citigroup as an example.  Sovereign wealth funds plunked $12.5 billion for the right to convert their shares around $38 (C closed Friday at $17.25 fyi).  I’m sure they are thrilled. Bottom line, that money needs to go somewhere.  Materal resources that have applications in technology and energy are the new sexy.  These are true assets with value.  Keep that in mind.

Unlike a technology patent or blueprints to design a new chip, we are talking about a natural material resource.  It’s not an idea or process that can be stolen or infringed upon resulting in some long convoluted lawsuit (eg: RIMM vs NTP, TIVO vs DISH, etc.). It’s a natural material resource that can only be obtained either through joint venture/distribution deals with MCIO or…  by acquisition/buyout.   

Caveman Valuation:

Once again, I am not taking into account any other assets of Minecore, like the Canadian ammolite, Venezuelan gold properties or their independent business subsidiaries.

Based on figures from third party field report by Dolbear of $159 usd per bcm (bank cubic meter), Minecore’s estimated indicated resources total $2.4 billion per property (there are six) according to the site.  Of course this is just estimates and doesn’t take into account the time and expenses factored into actually mining out all the sapphires.  It also doesn’t take into account the possibility that one property may have more or less than another property.   If we cut that estimate in half to 1.2 billion and then assume conservative net margins of 25%, this comes out to $300 million net proceeds per mine.  Margins could be higher especially since Minecore emphasizes the scalable vertically integrated model to produce higher margins (like having their own construction company with over 100 pieces of heavy machinery, etc).  Sapphire values could go up or down in the future and so forth.  The factors are endless. 

However, for simplicities sake, let’s assume $300 million net proceeds of potential per mine after all is said and done.  These are the gemstones only.

There are six mines for a conservative net proceeds totalling $1.8 billion.  If you apply this to the float, that comes to around $18/share just for gemstones.  

This doesn’t take into account the solar and semi conductor applications for the 75% waste surplus.  We also must remember that the original model was to release rough stones under 4 millimeters when screening.  Now that roughstones under 4mm will also be included, this adds additional surplus.

Pricing this is the wild card.  It is all ‘found money’which is the nice bonus.  The white papers should give a better idea of the market, distribution channels and pricing.  Personally, I couldn’t find much on what pricing could be.  The closest I saw was an example with grown crystal silicon carbonate wafers costing more than $10,000 a piece http://www.mri.psu.edu/articles/06f/eoc.asp.  A 2inch sapphire wafer can produce 2,000 LED chips.

The valuation for the technology applications could be an exponential multiple of what the gemstone values are.  However, more information will be needed to properly assess a valuation. This is the missing link that the white papers should hopefully clarify.  The great part is that it’s a bonus because it is ‘found money’. 

Therefore, a target of $10-12 based on valuation alone is actually very conservative, but that’s how I like to play it.  Once the white papers are released, we should be able to put a more accurate valuation on the surplus byproducts that are supplied to the technology sector.  

Technically speaking, a monthly close above monthly 5 period moving average at $1.65 keeps the uptrend intact.  A close above the monthly upper bollinger bands at $2.08 can trigger an early monthly mini pup.  Once again, this one is a highly speculative play which is not for everyone.  Do your research before considering it.  More updates to come.  Good luck to those who are in!