Regarding Dynasty Metals (DMM.to)

In the intro section of The IKN Weekly issue IKN24 published last Sunday there was included a piece on general thoughts about Dynasty Metals (DMM.to). By the looks of the mailbox it went down quite well with subscribers, so just for a change let's put it up here on the blog too and spread a little feelgood happiness about a really cheap, misunderstood gold mining stock. By the way, as you can see above the stock is flying today on great volumes, too.

Dynasty Metals (DMM.to) and valuation on fundamental analysis

I have, quite rightly, had more mail in the last two weeks from subscribers on Dynasty Mining (DMM.to) than on any other company. This because 1) it has continued to underperform while 2) I continue to highlight it as a top pick. By way of example, here’s what one subscriber wrote on Friday evening:

Hi, as you know I rarely request content for the weekly report, but am curious whether you'll be talking a lot about Dynasty.



I find the market's current assessment of DMM.to puzzling, to say the least. And no I never just blindly rely on you are anyone else, taking my own look at the company I also don't see why it's valued the way it is, especially relative to other producers.



If you can give it a discussion this Sunday, would appreciate it.Best, XXXXXX

So let’s have a few lines on the company here.

• We’ve run the numbers using a more conservative cash cost level than that used by DMM in its own projections and have the company netting one loonie per share with gold at U$1,000/oz once commercial production is achieved. I know of no 100,000oz gold mine out there that runs at a PE of sub4X, so we can safely assume that the business economics are not the problem here.

• We known that the company enjoys good mineral resources, a long potential mine life and potential upside from either doubling production capacity at Zaruma (for no more than an extra $3m or so in capex) or adding production at its Jerusalem or Dynasty projects.
  
  

• We know that although late on the ramping timeline (mostly for reasons out of his control), CEO Washer now has a producing gold mine on his hands. There are even photos of the first pour available at the company website for those into gold porn. With the move now towards commercial production well underway it would seem there are only minor teething problems left between DMM and a fully functional mining company.

• Therefore (bar the possibilty that the market is utterly ignorant of the stock’s existence) the only thing that can be holding it back is the political risk. After all, as some of you have already said to me “If this mine were in (choose your own favourite location) the stock would be in double figures by now”. A moot point perhaps, but true enough.

So what is there to say about political risk? Well, let’s start with the fact that I think Dynasty is worth CAD$6.50 (12 month target) and the market says it’s worth CAD$3.74. This clearly means that I think there is less risk in Ecuador for DMM than the market believes. The law is now in place, the region in which Dynasty operates is not one of the “hot zones” and prone to environmental battles, the company has clear approval for its operations from the government, it is happy to comply and be a “responsible mining company” and it doesn’t have to wait for any sort of permit to be delivered by a government now entering its latest round of talks with the indigenous local communities.

In other words, I believe DMM is sorely misunderstood by a market that simply lumps all miners in Ecuador under one sort of political risk. There is no way in the world I’d recommend to you a project in one of the greenfield, virgin jungle areas of Ecuador right now, but the place where DMM.to sits at Zaruma is slap bang in the middle of a valley that is full of mines, full of miners, full of mining families (all of which, it’s worth adding, will benefit from the environmentally responsible practices brought to it by DMM instead of the normal muck and nonsense left behind by the artisanal mining practices of the region) that know what mining is all about, the good and the bad and the indifferent. If you tried make a chunk of the Florida Everglades into a potato growing region you’d have seven types of hell to pay, but set up a field in Idaho and nobody would bat an eyelid. Same thing here.

But in spite of all the evidence that includes a first pour at the plant, all permits in place and approved and, most importantly, a new mining law that is now on the statute and gives a clear rulebook for all concerned, the investment community still sees risk in DMM as an investment. It worries about a windfall tax being set when the tax cannot be set lower than the current spot price and DMM will absolutely rake in cash at current prices. It worries about the rules being changed when the whole point for going through the last two years was to create a stable law that would be recognized by everyone. It worries about an uncertain state tax burden when the government has made it crystal clear that the total burden (everything, from income tax to VAT to worker participation to royalty and all stops in between) will be around the 51% mark, leaving 49% or so for the company. It worries about indigenous protests when there are no protests whatsoever in the place where it operates.

There is little left to say that hasn’t already been said. But the final point is about how your author operates as a fundamental analyst. When I make a valuation call on a company I do not know when the market will make the same valuation discovery as I, but what I do know is that (this point repeated from a previous rant) that I would be a fool to assume that the rest of the world will discover my great discovery about a week after I personally make it. Sometimes the wider realization comes early and sometimes it arrives late. Those people that crunch numbers of mining companies for a living are sure to know that DMM offers great fundamental value right now, but what I can bring to the table (being quite frank and with no false modesty) is a better understanding of Latin America than the rest. That’s what you’re paying me for, in the end. When you fork out that U$25/month you want to get an edge on the game. And that, dear and esteemed subscriber, is exactly what I am convinced I’m offering you when recommending Dynasty as an investment right now. It may revalue next week or it may need the first quarter results in 2010 before others begin to believe. But they will and I’m staking my professional reputation on that call. Sometimes it might grate on me a little that the stock isn’t moving up on my personally preferred timescale but there’s no way in the world that I’m selling, so my day-to-day emotions are of very little consequence. DMM.to is a strong buy at this current price level and will be higher once people catch up to the fact that Ecuador will allow them to do good business. I don’t know when that moment will be, but it’s coming all right.

Dynasty's IR dept finally bothers to inform the world

One line from IKN16 published two days ago finished off the section on Dynasty Metals (DMM.to) and said:

No matter: Dynasty Metals is still a buy, confirmed by a solid quarterly report. Now if only their IR department would move up from “pathetic” to simply “mediocre”....

And surprise surprise, the IR dep't must have got some pressure and talk of layoffs, because 30 minutes ago the company released this PR to update shareholders on progress. However IKN sends a message to the company right here and right now; Dear DMM IR dudettes&dudes, this PR doesn't mean you can go back into hiding for another three months. I've received various complaints from long term shareholders that you guys can't even be bothered to return calls, so get off yer butts and show some respect to the people that pay your rent. Great company, crappy promo people.

With that small rantette out the way, here's the PR pasted out:

VANCOUVER, BRITISH COLUMBIA--(Marketwire - 08/18/09) - The management of Dynasty Metals & Mining Inc. (TSX:DMM - News) ("Dynasty" or the "Company") has recently completed a thorough review of its operations and hereby provides the following update to shareholders.

Zaruma Gold Project

The Zaruma Gold Project comprises 46 concessions located in the El Oro Province of southwestern Ecuador. The Company has mine development and plant operating permits to mine and process materials from several concessions on which the Company conducted exploration activities, the results of which are included in the gold resources estimate (see Table 1). The Company will make application for additional mining permits in the area as required and as new resources are identified through exploration activities.

Processing Plant Commissioning

The Company has successfully commissioned all sections of its gold processing plant at Zaruma, with the exception of the carbon stripping section where gold, which has been absorbed into the carbon, is stripped and separated from other constituent metals. Once the level of gold absorbed in the carbon has reached capacity, the Company will commence the carbon stripping process and pour its first gold bar, which is expected in the near future.

The plant is currently operating one eight hour shift during the day and is processing lower grade material mined during the development of the declines (see "Zaruma Mine Development Activities") in order to train a sufficient number of employees in the operation of the plant so that it may be operated twenty four hours a day. Training is being supervised by Trevor McLoughlin, who was recently appointed the Project's new Plant Manager. Mr. McLoughlin has 25 years of experience mining, commissioning and operating gold plants and currently resides in Ecuador.

Minor completion and testing delays from previously announced time estimates were primarily the result of a mechanical problem with the main power generator, which has been resolved. Two additional generators are now installed and operating which can be used to provide a back-up power source. The Company is also reviewing several options to determine the most cost effective way in which the plant can be connected to the main power grid.

Although the Company's current target for commercial production is 300,000 tonnes per annum ("tpa"), the installed capacity of the crushing and conveying sections is in excess of one million tpa, the capacity of the milling section is 800,000 tpa and the capacity of the wet (carbon absorption and carbon stripping) section is approximately 400,000 tpa.

The design of the plant is such that additional tanks may be added in the future to expand the wet section capacity firstly to 800,000 tpa and then to one million tpa, while the modular design of the milling section allows for the addition of a third ball mill to increase the milling section capacity to one million tpa. The current estimated capital cost to upgrade the wet section to 800,000 tpa is approximately US$2.5 million and to upgrade the entire plant to one million tpa is less than US$5 million.

Robert Washer, the Company's President and Chief Executive Officer, commented: "The Company's gold plant at Zaruma is a world class processing facility, which was constructed on budget in a country that lacks an infrastructure for large scale mining and a familiarity with modern plant construction. We are extremely proud of this achievement."

Photographs of the Zaruma Gold Project will continue to be updated and are available on the Company's website at www.dynastymining.com.

Zaruma Mine Development Activities

The Company continues with the construction of three declines, which are approximately 15 kilometres or less from the processing plant, and is carrying out further exploration activities to identify sites for new declines. As expected, the material mined during the construction of the declines is of lower average grade than the average grade set out in our resources estimate. Such average grade should increase as Dynasty drives closer to targeted resources, which reside at deeper levels.

The Company has implemented measures to address normal course start-up challenges as well as certain extraordinary circumstances, including the introduction of new mining legislation (see "Exploitation Contract"), which have delayed the commencement of commercially viable mining operations at Zaruma. Specifically:

- The Company has built its own equipment repair and refurbishment workshop, which currently employs approximately ten mechanics and fifteen other employees. Anthony Cadorette, a US citizen with thirty years experience repairing and refurbishing underground mining equipment recently moved to Ecuador and is now in charge of the workshop. The Company was required to do this since there are no modern underground mining equipment workshops or a sufficient amount of suitably qualified mechanics in Ecuador who are able to adequately service the Company's underground mining equipment.

- The Company has opened the Dynasty School of Mines to train employees since there is a shortage of qualified personnel to operate specialized underground mining equipment.

- The Company is now accumulating larger inventories of commonly used mining supplies and equipment spares as well as securing additional sources of supply to avoid future delivery delays from outside the country.

- The Company has made recent changes to its labour scheduling and mining procedures to increase efficiency, which was affected by recent changes to the labour laws in Ecuador.

The Company's President has been in Zaruma for the last month re-organizing the mine operations and has addressed each of these problems. In addition, the Company recently hired Robert Anderson, who has moved to Ecuador, as project manager to oversee mine development. Mr. Anderson has in excess of 40 years of underground mining experience including fifteen years as the owner-manager of an underground mining development contracting company based out of Australia that managed projects in Western Australia and throughout the world. During this time Mr. Anderson acted as lead manager on numerous underground mining projects, the largest of which mined up to one million tonnes of material per annum using narrow vein technology.

Both Mr. Anderson and Mr. Washer are working together to revise systems and procedures to increase production and expedite development using existing assets.

Mr. Washer further commented: "We believe it is only a matter of time before we establish commercially viable operations. All of the prerequisites are now in place and the remaining issues before us are well understood. We are very pleased that Mr. Anderson has joined the Company as project manager to help current management expedite and supervise the implementation of our mine development plans."

Exploitation Contract

The Ecuador government continues to advise that the regulations, under which the new Mining Act will be governed, are due for release in the near future. It remains Dynasty's understanding that the regulations will set out the framework in which exploitation contracts will be settled. As a result of ongoing dialogue with members of the mining ministry and other government officials, the Company is developing a discussion paper for presentation to the government in order to expedite contract negotiations once the regulations have been enacted.

Dynasty continues to work closely with government officials and regularly apprise them of its progress and plans with respect to the Zaruma Gold Project. The Company has not received any indication that such plans are at risk as a result of probable government intervention or policy.

Cash on Hand

The Company currently has approximately $10 million on hand. Management believes that such amount is sufficient to meet its primary objective, which is to establish commercial production at Zaruma. The Company will require additional cash resources in the future, either from future cash flows or from financing, to meet other business objectives including the development of other principal properties.

Other Projects

In addition to the near production Zaruma Gold Project, the Company owns the advanced-stage Jerusalem Project, and a highly prospective exploration project, the Dynasty Copper-Gold Belt, which includes the Dynasty Goldfield.

The combined resources estimate for the Company's three Projects is as follows:

�

Table 1 - Combined Total Resources Estimate for Dynasty Metals & Mining Inc.
---------------------------------------------------------------------------
Estimated                          Ton- Gra-                  Gra-
Gold      Tonnes Grade  Measured   nes   de Indicated Tonnes   de  Inferred
Resources   (000) (g/t)  (ounces) (000)(g/t)  (ounces)  (000)(g/t)  (ounces)
---------------------------------------------------------------------------
Dynasty
Goldfield 3,155   4.6   470,000 3,516  4.8   544,300  7,652  4.7 1,151,700
---------------------------------------------------------------------------
Zaruma     1,568  13.9   702,100   915 13.9   408,100  3,382 12.7 1,383,400
---------------------------------------------------------------------------
Jerusalem    602  12.6   239,730   864 12.5   345,370  1,927 11.5   710,000
---------------------------------------------------------------------------
Total      5,325   8.2 1,411,830 5,295  7.6 1,297,770 12,961  7.8 3,245,100
---------------------------------------------------------------------------


---------------------------------------------------------------------------
Estimated         Gra-            Ton- Gra-                  Gra-
Silver    Tonnes   de  Measured   nes   de Indicated Tonnes   de   Inferred
Resources   (000)(g/t)  (ounces) (000)(g/t)  (ounces)  (000)(g/t)   (ounces)
---------------------------------------------------------------------------
Dynasty
Goldfield 3,155   35 3,560,200 3,516   38 4,340,000  7,652   34  8,337,000
---------------------------------------------------------------------------
Zaruma(i)    n/a  n/a       n/a   n/a  n/a       n/a    n/a  n/a        n/a
---------------------------------------------------------------------------
Jerusalem    602   90 1,760,400   864   95 2,627,000  1,927  101  6,276,470
---------------------------------------------------------------------------
Total      3,757   44 5,320,600 4,380   49 6,967,000  9,579   47 14,613,470
---------------------------------------------------------------------------
(i) No silver (Ag) analyses were done for Zaruma.

For further information regarding resources estimates for the individual Projects, readers are referred to the technical report entitled "Independent Geological Evaluation, Dynasty Goldfield Project" by AJ Maynard, MAIG MAus IMM dated October 30, 2007; the technical report entitled "Independent Preliminary Assessment, Jerusalem Project, Zamora Chinchipe, Ecuador" by WJ Holly, MAusIMM FFin and AJ Maynard, MAIG MAus IMM effective February 27, 2006 (revised January 21, 2007); and the technical report entitled "Independent Preliminary Assessment, Zaruma Project, El Oro Province - Ecuador" by WJ Holly, MAusIMM FFin and AJ Maynard, MAIG MAus IMM dated August 21, 2006, all of which are available on SEDAR.

Jerusalem Project

The Jerusalem Project comprises one 100% owned concession, located in the Zamora Chinchipe Province of southeastern Ecuador, about 40 kilometres east of Zamora and immediately south of Kinross Gold Corporation's Fruta del Norte project.

The Company has presented applications to, and is awaiting a response from, the Ecuador government for both mining and plant operating permits at the Jerusalem Project. These applications were submitted prior to the introduction of the Mining Mandate, which suspended the processing of all such applications.

The proposed plant for Jerusalem will initially be designed to produce approximately 100,000 ounces of gold annually and, although smaller in size, will include similar processing methodologies as those employed at Zaruma. The Company has already purchased the ball mills and crushers for the proposed plant. The timing of the commencement of construction at Jerusalem is currently uncertain and will primarily depend upon the issuance and terms of the yet to be released mining regulations, the timing of the issuance of permits, the economics of the exploitation contract the Company concludes with the Ecuador government and the availability of capital.

Readers are cautioned that a feasibility study has not been completed on the Jerusalem Project and there is no certainty the proposed operations will be economically viable.

Dynasty Goldfield

The Dynasty Copper-Gold Project lies within a mineralized corridor, approximately 90 kilometres long and 20 kilometres wide, in the Loja Province of southwestern Ecuador. To date, the Company has identified eight mineralized porphyry-style alteration zones within this corridor, each associated with a system of gold and silver vein swarms. The total Project area covers 980 square kilometres and consists of 52 100% owned concessions. To date, the drilling and resources have been concentrated in the Dynasty Goldfield, which is one of the eight zones.

In addition to the approvals to undertake exploration and drilling at the Dynasty Goldfield, the Company has also received approval to open two declines and mine the materials at these concessions. Given the proximity of the Dynasty Goldfield to the Zaruma Gold Project, the Company is currently evaluating the economics of mining and transporting materials from the Dynasty Goldfield to Zaruma for processing in the future.

Julian McDermott, a member of AUSIMM (Australian Institute of Mining and Metallurgy) and a "qualified person" within the definition of that term in National Instrument 43-101, has supervised the preparation of the technical information contained in this news release.

About Dynasty Metals & Mining

Dynasty Metals & Mining Inc. is a Canadian based mining company involved in the exploration and development of mineral properties in Ecuador.

The Company has the near production Zaruma Gold Project, the advanced-stage Jerusalem Project, and a highly prospective exploration project, the Dynasty Copper-Gold Belt, which includes the Dynasty Goldfield.

Dynasty Metals & Mining Inc.

Robert Washer, President and CEO

For further information please visit the Company's website at www.dynastymining.com.

Dynasty Metals (DMM.to): Holding pattern

Dynasty Metals (DMM.to) is the Ecuador gold play currently ramping up operations at its Zaruma mine. Commissioning is well underway and as far as newsflow and word goes, the process is pretty much on track. On a personal level, I've owned since the low point late last year, I like the stock very much and I'm happy and very relaxed about holding what I have.

What follows was prompted by an e-mail exchange with a new subscriber (hi HF) who also owns DMM.to, and as is often the case the act of composing my thoughts helped me crystallize them. This is one of the many reasons why I like the e-mail feedback from you guys. So as DMM.to is one of the stocks I follow pretty closely, let's take a step back, have a look at a couple of charts and use them as a vehicle for comment on how the stock has performed recently. Firstly, here's the 12 month chart....

...and after the late '08 swoon, the stock quickly rebounded, touching the $5.50 or so level. But since then it has fallen back to its current $3.50 or so range (right now trading $3.60). The chart looks healthy enough, and if we add the RSI, MACD and Bollyband indicators, after the recent drop things look like they've found a more neutral trading market.

So if we zoom in and check the most recent action in DMM.to via this 10 day chart....

.....we see that, apart from one single trade of 100k, there's really nothing much doing in the stock. So what does all this suggest? It seems to me that all the buyers have bought, all the sellers have sold, those that see fundamental value in DMM.to and know that the political risk factor is overstated are happy to hold through (i.e. myself) and those that have been scared away from Ecuador and won't touch the country with a bargepole are looking in other spaces for junior gold exposure.

What will make things change? That one seems pretty simple, really. Those with a better understanding of the risks in Ecuador will just have to wait until the company starts posting strong revenue numbers and the naysayers are proven wrong. This will take a while.....we're talking months here, not weeks. but gradually, the ignorant about Ecuador will get a lesson in hard numbers. They'll be shown that miners can do business (good business at that) in the country and that's when the stock will move up. Until then we're likely to stay in the current holding pattern, which is ok, too. Sometimes investment do go boring which perhaps doesn't appeal to the MTV attention spans but it's fine by me. What about you?

DYODD, dude.

Dynasty Metals (DMM.to) starts its engines

It took one week longer than this humble corner of cyberspace expected, but hey...one week...no biggie.

The magic moment for any junior miner is when it moves from being just another exploration play to actually owning a working mine and Dynasty (DMM.to) makes that transition officially as of today at its 'Zaruma' operation in Ecuador. Congratulations, CEO Washer and the team over there. Enjoy a glass of champagne tonight because my stars you deserve one.

DMM.to is up at $5.00 at the bell and WILL go higher, be in no doubt. By the way, the NOBS report is still available on Dynasty, but as it was a recommend four months ago and about 300% away from today's price the investment dynamics have changed somewhat (which is a long-winded way of saying "nailed that trade, dude").

Here's the press release with the good news.

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

VANCOUVER, BRITISH COLUMBIA--(Marketwire - April 8, 2009) - Dynasty Metals & Mining Inc. (TSX:DMM - News; "Dynasty" or the "Company") is pleased to announce it has commenced the commissioning of its gold processing plant at Zaruma, in the El Oro Province of south-western Ecuador.

The plant will be commissioned in phases, starting with the crushing section which is currently being tested. The ball mills will be tested later this month and by the end of the month the Company expects to run and test the full circuit. Plant commissioning and mine development will continue for approximately three months, after which time the Company plans to process 800 tonnes of material per day, which is approximately 300,000 tonnes per annum. The installed capacity of the plant, except for the wet section, is approximately 800,000 tonnes per annum, allowing for considerable expansion without significant additional capital cost. It also provides the opportunity for the Company to process material with lower than planned resource grades to generate additional ounces in a rising gold market.

Mine development activities continue as scheduled. The Company has opened two declines, from which material is presently being mined. A third decline is under construction. The mining and delivery of material to the plant will be stepped up in time to meet the Company's planned production schedule.

Recently updated photographs of the Zaruma Gold Project are available on the Company's website at www.dynastymining.com.