The IMA Exploration Coin Flip (IMR)

The Microcap Speculator submits: How much would you bet on a coin flip if you could gain twice as much on a favorable outcome as you would lose on an unfavorable outcome? Don't worry -- this is not a lead in to a wonkish discussion of the latest Tversky paper on behavioral economics. Its about a small silver stock called IMA Exploration (IMR).

IMA Exploration is a coin flip in the sense that a Canadian court is now considering whether to impose a constructive trust on its only real asset, a huge silver deposit in Argentina called La Navidad. Another Canadian mining company, Aquiline [AQI.TO], claims that IMA used confidential information to find the discovery and that the mine should therefore be turned over to Aquiline. The trial finished at the end of the year, and the only thing left is for the judge to rule.

I think that IMA has a slightly better case legally and factually, but the lawyers for Aquiline were far more skillful, so let's stick with the coin flip proposition and assume a 50-50 probability for winning the case.

If IMA wins, I think that it goes to $6 immediately and above $10 upon the exhaustion of appeals or a favorable settlement. La Navidad, from all indications, could be one of the world's top ten silver deposits and will have a low cost-per-ounce. If IMA loses, the stock price will probably drop to $1-1.50 and stabilize while the company readies an appeal. So, the way I see it, IMA has maybe $2 downside and $6+ upside. I'll take those odds.

DISCLOSURE: I am long IMR. Not a recommendation to buy or sell any security. For informational and educational purposes only.