Mart Resources Inc MAUXF

Update from Chen

[tor27]

Letter # 543
May 4, 2011

Update:

The market is rough. Silver got hit hard, now finding some support at 40. As I put in my previous letter, 40 dollar is the first target of shorts. Let's see if it holds. I mentioned many times this year to be careful. I hope everyone is well prepared for the correction. At least you need to be psychologically prepared. Panic is the worst thing that could happens to you, especially right now, you need to keep your eyes open for opportunities.

Mart Resources Inc. (MMT.v) announced that they are going to delay filing the annual report yesterday, the stock took a dive. The company explained that it is due to "unable to secure certain documents and confirmations from third parties located in Nigeria necessary to complete the audit". Given the current Nigeria situation, I think it is a reasonable explanation. Today came the good news that UMU-7 is producing with good testing results. It is producing from two zones with only 50% of the tested capacity. I think it is good and conservative approach. MMT production starts to add up. You may notice that it mentioned about upgrading the facilities to 30K bpd "in order to accommodate additional volumes from development drilling". My 300 million/year cashflow is based on only 20K bpd production. From the 5/2 filing on Sedar, you can get another clue,

"The central production facility is scheduled to be expanded to a 35,000 – 40,000 bopd capacity in 2011 and can be expanded further if necessary. Continued expansion of the central production facility is planned for 2011 and 2012 to handle additional production from the UMU-7 well and from future wells scheduled to be drilled on the Umusadege field."

The company don't upgrade the facility just for fun. If they don't think they have a solid chance to get to production of 35-40K bopd, I don't think they will bother to do all these upgrade this year. Remember my 300 million annual cashflow is based on 20K production. You are looking the company that will continue drill a well every 3-4 months and cashflow could reach 500 million in a year. All these will be done organically and there is no need to raise money. Company like that trades at 5-10 times cashflow. Given it is Nigeria, we apply 3-5 times cashflow, that still could be a 10 bagger from here. That's why MMT is my largest position. It is slow, it is frustrating, but I can see the oil and cash coming unless there is all out civil war in Nigeria.

I will go to the hard assets conference in NY next week. I am going to be with my partner Jay Taylor at his section from 7:40 to 8:20 on Tuesday, May 10th.