Weekly Investment Report: We Establish a Model Portfolio - We Plan to Buy Minefinders (MFN) Soon

In 1980 one ounce of gold would buy the Dow for $850. The Dow was at 850, gold was $850 an ounce. We could see gold and Dow parity again, perhaps at the 5,000 number. The place to be in the future is gold and silver and oil. The dollar is going down and will be replaced as the reserve currency. Residential real estate in the US topped out in 2006 and the stock market topped out in 2007. The commercial real estate market may be the next to fall. 125,000 retail stores may be closing in 2009, creating more unemployment. The G20 countries have pumped a lot of liquidity in the system, but the employment picture is still bad. But for people with money to invest, what do you do now?

We are starting a model portfolio of $30,000. This is risk capital we can afford to lose. We are not investment advisers, we are not recommending any investments to anyone. The model portfolio will seek to be targeted to just a few issues of stocks, not diversified. We believe the stock market may go to over 10,000 on the Dow but may top out in the near future, perhaps as early as October 2009. We see a buying opportunity for gold and silver stocks between October 1 and the 13th. While most stocks may soon top out and go down, we believe the precious metals stocks will do quite well in the future. We believe gold will drop to the $975-$980 area and the time to buy will be around October 7th.

Our model portfolio will move from $10,000 in cash sometime in the first half of October into one stock, a producer of gold and silver. We plan to purchase Minefinders (MFN). Minefinders operates the Dolores Mine in Mexico. Commercial production started this year and the start up bugs are being worked out. Minefinders recently had a stock offering to pay some debt down and build a mill that will result in higher production. They have no need now to go into the credit market for financing or to issue new stock. Their financing is in place, and they do not hedge production. Their large trucks and equipment are brand new. Minefinders is an open pit mine that stacks crushed ore on leach pads that are sprinkled with cyanide. Their recovery rates look good and there does not seem to be any major problems with the ore pads. Dolores has a mine life of at least 15 years, but probably much longer as additional reserves are defined and mined out.

Why did we choose Minefinders? We like their Dolores deposit. Many mines are just liars standing over an open hole. An investor has to be very wary of buying any junior miners. If you get the urge to buy a penny mining stock, its best to lay down and hope the urge passes. But Minefinders is the real deal. We believe the only surprises now will be good ones. Their Dolores Mine could make them an attractive takeover candidate. Today's closing price of MFN at $9.21 is a very attractive price. We believe at today's prices MFN is worth $18. If gold shoots up to $1,325 an ounce, MFN could be trading easily at over $20 by the end of this year. If gold and silver prices go up as much as we think, MFN may go to $50 a share perhaps as early as the end of 2010.

If the stock market keeps climbing and does not crash, Minefinders will keep up with the market. But if the market does crash in the next month, it should still go up and do well in a bear market. The underlying economy has severe problems. We may see the stock market return to the market lows we saw in April, perhaps even a down day of over 1,000 points. Whatever the stock market does MFN will do well. The dollar will keep declining and gold and silver prices will go up much higher than they are now. We are buying a company which is substantially undervalued compared to a major gold producer. This is a company that will be in positive cash flow with their peso denominated cost per ounce going down over time while their revenue per ounce should be dramatically going up.

While most stocks are now fundamentally overvalued, MFN is substantially undervalued. We will be seeing a flood of investors seeking the safety and security of the gold mining stocks in the near future. MFN is largely unknown by the investment public. Its not widely followed by the security analysts. But once this company gets discovered in the coming gold and silver mining boom, look out. We know the FED has supplied so many dollars to the system that the dollar will keep going down. We have heard several respected investors, economists and mine operators calling for $5,000 an ounce gold in five years. The Dolores Mine will still be a young mine then. With operating costs at well under $1,000 an ounce (Mexican peso will go up to the dollar) Dolores will be a cash flow machine. In that scenario, MFN will easily be a $100 stock in five years, protecting your investment capital from the ravages of a declining stock market and a devalued dollar.

DISCLOSURE: We currently have a position in this stock.

The Bull and Bear Financial Report with a featured article on Minefinders

Pay Dirt Magazine article on the Dolores Mine

Minefinders corporate website

Minefinders presentation at the Denver Gold Forum (Sept. 14, 2009)

Minefinders presentation at the Rodman and Renshaw conference (Sept. 10, 2009)

Minefinders presentation at the Latin American Mining Congress (May 6, 2009)

BNN Interviews Mark Bailey (January 22, 2009)

Message board posts on the internet about Minefinders

Bullet points, why we like Minefinders:

* We think gold and silver prices will continue to go up from here.
* Minefinders is very undervalued on the basis of gold and silver in the ground compared to other mines, owned by larger mining companies.
* Their cost per ounce will come down as they are able to get into the higher grade ores now and reach steady state recovery rates. Also, some one time costs will disappear.
* They have other properties and prospects in Mexico and after working there 15 years are developing an expertise in Mexico.
* They do not hedge their production, any gains in gold and silver prices will go directly to the bottom line.
* They are an attractive take over candidate.
* They have new equipment, specially designed for the Dolores site, which should keep breakdowns to a minimum.
* They are already in positive cash flow, and should show a profit in the third quarter of this year.
* There is no more need to issue stock or obtain debt financing. Therefore there should be no dilution going forward.
* They are practicing good mining methods. We believe they may have higher recovery rates than they have forecast on their leach pads, which would have a large impact on the bottomline. Their ore appears to be very amenable to heap leaching. The true recovery rate for gold and the slower leaching silver will not be known for some time.
* With positive cash flow and Dolores maturing in the coming years, they will be able to buy properties in Mexico that other juniors may not be able to finance and that the majors may deem to small a mine property.
* Because of delays with village relocation and the road blockage, the need to mine low grade ore at the beginning of the year, one of the screens being a lemon, projected costs per ounce turning out to be way to low for the first 2 quarters of 2009 and other problems some people perceive management as being inept. There are problems with any mine start up, and Minefinders is no exception. We think we finally can make a fair evaluation of the company. We believe the surprises forward will be good ones and that the share price is very undervalued.

World of Wallstreet blogger compares Minefinders with two other heap leach operations.

Great Book on Investing: The Intelligent Investor by Benjamin Graham:
Benjamin Graham - The Intelligent Investor