Apex Silver Mines Limited (SIL)

Value of silver and zinc in ground from its 65% stake at the San Cristobal project is $9.9 billion. Derivatives and debt total 1.3 billion. This gives you a net of 8.5 billion for a market cap of 400 million. A decent bargain to say the least. An added bonus is that this mine is already producing and will be up to full capacity by the end of the year.

Why is it trading so low? Some fear the large hedging losses, but as we can see it is more than overcome by the value of the mine. The other concern is political instability in Bolivia and Evo Morales' attempts at nationalization. I do not view any large scale mining sector nationalization as likely however.

Nationalization so far has been mainly limited to the oil sector and reassurances have been made by the socialist government that all out nationalization of the mining industry, is not on the table. Morales himself made a trip over to Japan to meet with their prime mister about Japanese investment in San Cristobal (Sumitomo now holds the other 35% of the mine). Even among his own people, he meets fierce and violent opposition of the many cooperative miners to government involvement. Although it is a risk, near term, the odds of nationalization are slim.

Lets assume though that there is a worst case scenario, to appease the critics. Apex Silver still has 14 other explorations properties in 4 different countries, five of which are being actively explored for feasibility. In past conferences, Apex has speculated that at least one could yield as much as 300 m/oz. Even if one out of 14 sites obtains this yield, it would mean at least a $3.3 Billion value, more that double the liabilities.

Likely scenario, its the steal of the century. Worst case, it still has decent value left in it. Because of the inherent value and revenue from operations ramping up, This stock should perform very well. And wiith a whopping 20% of float shorted, there will be a lot of people running to cover.

So In short, BUY.