Wise-Owl puts speculative buy on Magma Metals

Wise-Owl has produced a report on Magma Metals (ASX: MMW), with a Speculative Buy rating on the stock.

MINERAL discoveries tend to put a rocket under the share prices of junior resource companies. Rags-to-riches stories capture many hearts, but often mixed profits for investors buying after the discovery hype.

The transition from explorer to producer is a long one, and so elation following early success with the drill bit needs to be balanced with the realities of planning and funding a profitable mining operation. Magma Metals (ASX: MMW) is a classic case in point.

Soon after the company listed in 2006, a platinum discovery at its Thunder Bay North project in Canada sent its share price soaring from under 15c to more than $1 in a week.

Unfortunately investors buying into this 566 per cent surge would have been hard-pressed capturing a profit, as most of the gains were surrendered within a few months. There haven't been more fireworks during the past three years and the hype has passed.

So with subsequent exploration work yielding positive results, a period of share price growth could be looming. The company has established a maiden resource estimate for the project equating to 690,000 ounces of platinum, 90 per cent of which is amenable to open pit mining.

The shallow nature of the resource should lower mining costs, while nearby infrastructure reduces the financial burden of development. The project is accessible by road, just 45km from the main town of Thunder Bay, and isn't too far from grid power.

The project area also spreads just 20km-60km southeast of an existing polly-metallic mine and processing facility, which is operating below capacity.

An infrastructure sharing agreement may assist project economics, but we are comfortable with Magma's ability to go it alone.

The company has a strong institutional presence on its share register, the largest of which is mining heavyweight Anglo American (12 per cent). Anglo's interest is a testament to Thunder Bay's resource potential, which Magma suggests could be substantially increased by further drilling. In light of this exploration upside, and scoping study results due mid-year, we rate the stock a speculative buy.

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