Tuesday, August 23, 2011

Perseus well placed for acquisition as gold sector consolidates

http://www.theaustralian.com.au/business/mining-energy/perseus-well-placed-for-acquisition-as-gold-sector-consolidates/story-e6frg9df-1226120382921


PERSEUS Mining and Teranga Gold could be the next gold miners in corporate activity after the $600 million Adamus Resources deal, as juniors continue to consolidate to fill the "genuine mid-tier gap" in Australia's gold sector.
After Newcrest Mining's $10 billion takeover of Lihir Gold, the gold sector has been one of the busiest for dealmaking, along with coal, as local and international miners scramble to grow through acquisition to increase production and market value amid the soaring gold price.
The spot price of gold this morning touched a fresh high of $US1911.54 as continued global jitters push investors into the safety of the precious metal.
After the Lihir deal, US major Goldcorp swooped on Andean Resources - at the time Australia's second-biggest goldminer - in a $C3.6 billion ($3.49bn) deal, followed by Canada's Anatolia Minerals move on Perth-based Avoca Resources, which created Alacer Gold.
But after Adamus became the latest yesterday as it merged with Canada's Endeavour Mining to form a $US600 million West African-focused gold play listed in Sydney and Toronto, Goldman Sachs analysed other small-cap producers that could be targets.
Analyst Ian Preston said the key reason for the wave of gold activity was driven by a need to diversify operational risk, reduce gold hedge-book commitments and increase both production and market capitalisation.
He said the Adamus deal provided continued evidence West Africa remained one of the most "exciting global postcodes" for resource growth and corporate activity in the gold space, and cited Teranga as a potential target and the larger Perseus as potential suitor.
"It is clear that the market is happy to afford a premium to those companies which have potential, but have not yet disappointed the market through capital blowouts of production disruptions," he said. "Teranga's share price is well below what we think is an appropriate value. Trading at these levels, we would view Teranga as susceptible to takeover."
In contrast to Teranga's market value of about $350m, Perseus is valued at about $1.4bn as investors bet on a smooth ramp-up to full production at its Central Ashanti project in Ghana, which Mr Preston said could make its scrip come under favourable viewing.
"With scrip priced as such, we argue that Perseus is well placed to acquire additional production using paper," he said.
Adamus and Endeavour sold their deal, which is subject to shareholder approval, on synergies of their West African assets, and wider production profile and market value to gain more market recognition and grow through acquisitions.
By 2013, Endeavour intends to grow production from existing assets to 250,000oz from 172,000oz, which could more than double with acquisitions and as exploration projects come online.
The deal, which will see Adamus shareholders receive 0.285 Endeavour shares for each share, also enabled Adamus to use Endeavour's much greater cashpile to pay down $US160m of debt at its Nzema project in Ghana.
Mr Preston said reducing the project debt and lowering its hedged gold position, which is typical of project finance, allowed it to put the cash towards the development of its next project.
"We view the deal as a positive for Adamus shareholders with the combined entity having a strong balance sheet, two producing assets, an additional development project providing production growth and a significant landholding...in West Africa with substantial exploration upside," said UBS analyst Jo Battershill.
Other analysts have suggested Kingsgate Consolidated, Medusa Mining and Saracen Mineral Holdings could also be targets.
By late morning, Adamus shares continued yesterday's rise, up 3.5 per cent to 73.5 cents, while Teranga was up 0.87 per cent to $2.32 and Perseus rose 2.45 per cent to $3.34. The broader market was up 1.16 per cent.

Saturday, August 13, 2011

Quintessential Resources Ltd - IPO

A New IPO
This is also a gold play IPO in PNG. 
Managing director is Paige Mcneil, which is Peter Mcneil's wife (Frontier resources limited)
Successfully raised $6m in the past week.
Might be an interesting company to watch in terms of its future development.
http://www.quintessentialresources.com.au/quintessentialresourceslimited-home.html



Monday, April 18, 2011

Another Copper Mining company being taken over

KORES, Capstone Reach Joint Deal to Acquire Canadian Copper Mining Company

The Korea Resources Corp. formed a consortium to acquire Canadian copper mining firm Far West for US$700 million on Sunday.

KORES, which will manage the company, invested $400 million and Capstone Mining of Canada the rest. It is the first time that KORES has acquired a business specializing in overseas resource development.

Far West has three mines in Chile and Australia. It recently completed exploration of Chile's Santo Domingo mine with estimated deposits of 540 million tons of copper and is taking legal procedures to start mining operations there.

KORES hopes to produce some 75,000 tons of copper a year from the Chilean mine starting in 2015 and holds the rights to sell half the output.


(http://english.chosun.com/site/data/html_dir/2011/04/18/2011041800701.html)

__________________________________________________________________

Another takeover offer has been launched for a copper-iron miner in Canada yesterday by a Korean company! As I mentioned in my earlier post, all these takeovers where Copper is above US$4/lb are helping to build the case that future copper demand is robust. This takeover also provides us with some interesting reference point for value comparison.

(Note: I have been using MGO as a ruler to measure all the other copper mining companies so we can have a reference case for comparison.)


Some characteristics of FarWest Mining's copper/iron project with comparison to MGO:

1. Low-grade copper: 0.32% for the Indicated Category and 0.19% for the Inferred Category. (similar to MGO)

(refer to: http://www.farwestmining.com/i/pdf/2010-07-12_NR.pdf)

2. Total resource at 0.2 CuEq% cut-off:
Indicated Category: 3522M lbs of Copper (worth US$14.1B) ; 138Mt of Iron (worth US$15.9B)
Inferred Category: 268M lbs of Copper (worth US$1.1B); 17Mt of Iron (worth US$1.95B)


A total resource value of approx US$33B based on iron ore price of $115/tonne and $4/lb copper price. FarWest Mining's resource is less compared to MGO's ~US$40B worth of resource value at 0.2 CuEq% cut-off).

Note that Citigroup Inc. of New York this month raised its 2014 iron- ore price forecast by 15 percent to $115 a metric ton and the 2015 estimate by 38 percent to $110 a metric ton.


3. Production rate at 60% of the initial rate of MGO (MGO's initial production rate at 125ktpa).

4. First Production Timing: 2015 (later than MGO).

Note that MGO's market cap is A$330M at today's price. FarWest Mining has been taken over for US$700M market cap. In my opinion, MGO is still considered cheap by comparison with FarWest Mining.


By: Peter Koay





Friday, April 8, 2011

Marengo Mining (MGO): A Future Takeover Target?


By: Peter Koay

With the news of the US$6.5B bid for Equinox from MinMetals hitting the markets a few days ago, timed at a point where copper price is still hovering above $4, this helps provide confidence to the markets that there is a brighter future to copper beyond the immediate future. This suggests that copper price may well be set to be above $4 in the years to come (this confirms my earlier assumption of $4/lb average copper price for the years to come). Demand for copper is forecasted to be outstripping the supply for this year and the following year, and it seems that this scene won’t be changing in the near-term as it does take quite some time to prove and bring out copper resource from the ground.

I’ve done some comparisons of Equinox and Marengo considering that Equinox is a pure-copper play.

A summary of the comparison:

§ MGO’s M&I copper resource is about 50% of Equinox’ Lumwana Project

§ MGO’s capital cost is twice the capital cost of Lumwana (this may be due to cheaper construction costs in Africa compared to PNG).

§ MGO has the potential to become the top 15 largest copper producer in the world when it ramps up to 50Mt (at ~0.5% Cu), i.e. production rate of 250ktpa, making it to be in the league of Equinox.

§ MGO and EQN’s operating costs are similar.

§ Note the ratios (highlighted in green) to compare Yandera Project with Equinox’ Lumwana or Jabal Sayid projects. This indicates that MGO in 2-3 years time shall at least be 8-10 times the market price of today.

§ Note the comparison of Jabal Sayid’s project with Yandera project: This shows the potential that MGO has to become at least a $1B mkt cap company (even before achieving production). My thoughts is that it’ll reach $1B market cap when DFS is released, EPC Lump Sum contract signed, project financing completed(targeted for Nov’11) and offtake arrangement contracts signed. So, $1/share for MGO by end of this year is not an unrealistic target.

Note that MGO share price has been hovering between $0.30-$0.32 over the past week, with a breakout today to finish at $0.335. The share price was consistently capped by ~1M shares buying at $0.31 and 1M shares selling at $0.32. It is believed that some big funds are accumulating MGO shares to force out weak holders of the share in anticipation that the share price shall go up when the DFS is released.

These two caps have been removed today, with dad & mum investors to provide the next push to $0.40. The share has recently been also reported on the HeraldSun newspapers, promoting public awareness of this share. Refer to:

http://www.heraldsun.com.au/business/in-the-black/another-twist-on-copper-story/story-e6frfinf-1226034986286

Friday, March 25, 2011

ASX: Marengo Mining Ltd (MGO) - The BEST buy of 2011


The results of my research are getting much more interesting and exciting than I had envisioned earlier! I decided to compare Rex Minerals (RXM) with Marengo Mining (MGO) after reading an article in Eureka Report that compared SFR and RXM in Oct’10.

RXM & MGO Comparison Table:



MGO
RXM
Copper Resource:


Measured
1 Billion pounds
Nil
Indicated
1.9 Billion pounds
Nil
Inferred
3.6 Billion pounds
2.64 billion pounds
Other resources:
Molybdenum
Gold
Measured
45 M lbs ($540M)
Nil
Indicated
68 M lbs ($816M)
Nil
Inferred
91 M lbs ($1.09B)
1.1 Moz ($1.5B)
Capital Cost:
US$1.6B
Not determined yet
Financing Strategy:
NFC offering to arrange financing of at least 70% of the capital cost of project
Unknown (No clear financing strategy so far identified from presentations.)
Market Cap:
$300M
~$430M
First Production:
2014
Unknown
Completion of DFS:
1Q 2011
Unknown (starting in 2012, but could last for more than a year)
Cash at Bank:
$70M
$103.7M
Exploration Upside:
Project covers +100km of the highly prospective Bundi Fault Zone. Less than 5% of structural corridor drilled to date.
Multiple large scale and shallow targets on the Yorke Peninsula near Hillside.
Operating Cost:
$0.90-$1.00/lb of copper
Unknown


If comparing JUST the inferred category of resource, MGO has $15.5B and RXM has $12.06B worth of resources (based on $4/lb for copper and $12/lb for Mo and $1350/oz for gold). This means that MGO should be at $550M market cap purely on an inferred resource comparison basis, i.e. a share price of $0.56!! We haven’t even factored the resource that MGO has in the measured or indicated category!!

In my opinion, MGO should experience a significant re-rating soon (if not NOW!!). It’s either SFR, RXM and OZL share prices that need to drop to the level of MGO, or alternatively, MGO rising up to the level of SFR & RXM.

In any case, if one is to buy MGO shares now and hold them for 3 years, one will have a stake in a $300M market cap company that will be producing US$600M cashflow per year in 2014! This will be a very attractive takeover target!!


By: Peter Koay



ASX Marengo Mining Ltd (MGO): A better value proposition than Sandfire Resources (SFR)


If one has to understand the value of MGO, one has to compare it with all the other copper producing companies. Based on the most recent SFR reported resource statement and its pre-feasibility report, the following comparison is made.

Resource comparison:



MGO (Cu)
SFR (Au)
SFR (Ag)
SFR (Cu)
Measured
1000M lbs ($4B)
47k oz  ($63.4M)
-
52.8M lbs
($211.2M)
Indicated
1900M lbs ($7.6B)
491k oz  ($662.8M)
                    
3750k oz ($112.5M)
1078M lbs
($4.31B)
Inferred
3600M lbs ($14.4B)
186k oz ($251.1M) 
1305k oz ($39.1M)
286M lbs
($1.14B)
Total
6500M lbs ($26B)
724k oz ($977.3M)
5055k oz ($151.6M)
1416.8M lbs
($5.67B)



*Conversion using copper price of US$4/lb, silver price of $30/oz, and gold price of US$1350/oz.



MGO Resource Value
SFR Resource Value
Measured
$4B
$274M
Indicated
$7.6B
$5.08B
Inferred
$14.4B
$1.43B
Total
$26B
$6.78B



Capital Cost comparison:

MGO: US$1.6B

The capital cost of MGO is 4 times SFR’s. In the right ball park considering that MGO’s resource is approx 4 times of SFR.

Operating Cost comparison:

MGO and SFR’s operating cost is almost the same, i.e. ~$0.90-$1.00 per lb.   

Production Timing:
MGO 1st ore concentrate produced: 2014
SFR 1st ore concentrate produced: Q3, 2012

Note also that DFS completion for SFR is 2Q 2011 whereas MGO’s DFS report is targeted to be released to the market by 1Q 2011.   


NPV Analysis:

Basic NPV analysis of SFR project gives us a price of $7.80/share with the following assumptions:

  1. 70kt/Cu and 45koz of Gold production/year.
  2. Mine life of 7 years (as per PFS report)
  3. 1st Production in 3Q 2012.
  4. Net Cash Flow: Gross Cash Flow ratio: 0.56
  5. Cost of capital: 10%
  6. Capital cost: $400M
  7. 150M issued shares
  8. $4/lb copper price and $1350/oz gold price

Based on NPV analysis, it seems that the value of SFR’s project is almost fully factored into the share price.

Based on market cap comparison,
Current market cap of SFR is $1.02B (@$6.90/share) with 148.3M shares issued. 
Current Market Cap of MGO is $300M (@$0.30/share) with 994M shares issued.

Based on “Net Profit before tax, depreciation and interest” comparison, SFR is saying that it’ll have $330M-$350M cash flow. MGO will have ~ $600M cashflow per year. Almost doubling SFR’s cashflow!!

Basically, this comparison between MGO and SFR tells us that MGO should have at least $1B market cap NOW, which means that it’s share price should be about $1/share NOW. And in 2-3 years time, it should be ~$3/share when it’s producing copper at a similar rate of OZ Minerals.

  
Note: This comparison is done assuming that SFR has no value factored into the share price from all its other projects/investments.


SFR’s most recent upgraded Resource report: