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April 7, 2011 Dear Friend,
We raised Mercator Minerals to Neutral
from Underweight because (1) its shares fell 20% since our last report
written at $4.90 in January, (2) it recognized hedge losses on March 31st
as we had warned in our two prior reports January 16th and January 11th and
(3) we incorporated the El Pilar mine operation beginning in 2013 that
increased NPV, even with 10% higher costs and 40%-50% higher capital costs
than the two year old feasibility study.
There are many risk factors here, and we
warn that the company's construction of a new mine in 2008 had many, many
hiccups and the new mine construction in Mexico is subject to many execution
risks. Mercator Minerals has undertaken its own bulk samples to verify the
optimal crushing and develop some bulk recovery rate experience, which is
prudent. Its reliance upon bank financing means that monthly reporting,
bank financial oversight, technical consultants the banks might retain and
other controls may be present in 2011 to 2013 that were not present in the
2006 to 2009 prior mine planning. We believe the Mercator team learned a
lot in prior constructions, and will buy motors from more reliable equipment
suppliers, expect delays in crossing the border and avoid the hiccups that
were most troublesome in its recent past.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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