By James West
MidasLetter.com
January 17, 2011

Xtierra (TSX.V:XAG) has to rank among the TSX Venture’s best kept secrets. With the advanced Bilboa silver-zinc-lead project in Zacatecas, Mexico in feasibility with a 140 million ounce silver equivalent resource, and trading at a market cap of $14 million, the disparity between the reality and the should-be makes this a nearly too-good-to-be-true story. But while developing the understanding of the project and the company for this piece, the reasons for the low price become clear. (This is all of course my own speculation.)

The company is owned 60% by Minco PLC, and AIM-listed company in based in London, and a further 18.1% is owned by Pacific Road Resource Funds. Pacific Roads has an option to provide construction financing up to $32 million dollars, and I assume Minco would do the rest, since the budget is anticipated at a paltry $50 million. If you were going to finance a mine, would you rather do it at $0.20 a share or $1?

The president of the company, Terrence McKillen, only controls 1.25 million shares, or 1.65% of Xtierra, but he is also CEO of Minco and owns 7.5 million shares of Minco and a further 1.75 million options.

So there is a strong incentive for Xtierra to stay cheap for the principle shareholders, and that fact is the silver lining in this otherwise cloudy picture. Once construction of the mine is fully capitalized, and production begins (expected by Q1-2012 at the latest), the market will probably take these shares much higher – like into the stratosphere where they will soon belong, barring a catastrophe between now and the start of production.

Bilboa also contains lots of exploration blue sky, and recent drill results demonstrates additional mineralization to the south, west and northwest of the defined deposit, and the deposit remains open to the southwest. The additional mineralization discovered will add to the existing resource base. Of particular note are the higher grades of zinc and lead encountered in the southwest area and the discovery of high grade silver and gold mineralization along the western flank of the deposit. Drilling also confirmed the presence of thick zones of oxide mineralization near to

surface and amenable to open-pit extraction in the northern part of the deposit.

Besides this near term production project, the company has a tailings project which is very advanced and likely to follow close on the heels of Bilboa into production.

The La Laguna Pedernalillo silve-gold-mercury project, on the basis of a Measured and Indicated Resource prepared by Micon International, it is estimated the mineral reserve as a total of 6,799,000 tonnes, containing an average of 57.92 grams per tonne silver, 0.31 grams per tonne gold and 328.92 grams per tonne mercury. This reserve includes only that material that is classified in either the proven or probable categories.

Then there’s the El Dorado Gold property 7 kilometers northeast of the historic Pinos gold deposits where veins with reported bonanza grades of more than 200grams per tonne gold were mined historically on northwest striking veins making the Pinos district the largest gold producer in the State of Zacatecas during the Colonial Period. Historic records suggest the average mined grade was 97 grams per tonne silver and 58.26 grams per tonne gold.

Preliminary work completed by Xtierra confirms the high grade nature of the El Dorado vein with channel sampling returning values ranging from 0.5 to 57.0 g/t gold over widths of 0.10 to 1.0 metre with individual grab samples as high as 1,760 g/t gold and 3,590 g/t silver. Such grades indicate the potential for bonanza deposition zone development within an epithermal boiling zone. The property has seen no drilling as of yet and its not clear when Xtierra plans to advance this exploration project.

To summarize, this is one of those dream scenarios that come along every so often that is overlooked by the general market because of its share price. This is a seriously undervalued company that won’t be for long, in my opinion.

DISCLOSURE: MidasLetter subcribers were first alerted to Xtierra on November 7, 2010 when the stock was trading at $0.19. As such, subscribers are likely to exit some or all of their positions in the days ahead based on the 100% appreciation in share price since that time. Midas subscribers typically exit at least 50% of their positions when the stocks we feature double.

MidasLetter Premium Edition identifies 5 stocks on the first Sunday of each month from the TSX Venture Exchange that are expected to double within 12 to 18 months, 9 out of 10 times. Subscribe now for $49 per month, or $499 for one year, at http://www.midasletter.com/subscribe.php. 30 day instant refund period from your first subscription day if not 100% satisfied.

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