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
Peter/Irene,
ReplyDeleteGood job on the writeups.
What do you think the MGO share dilution will be like to raise funds for the capital cost of US$1.6B?
How will MGO raise their portion of the funds for the capital costs? If MGO has other projects generating cashflow, then this wouldn't be an issue.
Just a thought here. If NFC is to cough out 70% of the cost, it would not be for free that I am sure. I would imagine they would want a humongous stake in MGO at a discount say at A$0.25 which works out to 4480m shares for the amount they'll put up. This works out to almost 5.5b shares fully diluted.
Or MGO only ends up with having 25-30% of the mine if they were to choose this way instead.
How does this change the value of the MGO shares? Pls share your thoughts.
Thanks.
Check out the MOU and read it carefully.
ReplyDeleteDo you think that the CEO will be stupid to give the whole equity stake to the Chinese? That won't happen. I'll say that 60-70% will be debt-funded and can be repaid quite quickly...the rest in the form of equity.
Worst case scenario, all of project cost is paid with equity - if they issue 5b shares in total..MGO being in the league of OZL, it should be $5B mkt cap company when it's producing...so, the share price shall be $1.00/share. It's only $0.315 today..
I'm not worried yet...
The Chinese will participate in the equity offerings by MGO for sure...but they won't own a huge portion...
ReplyDeleteGeorge Soros, Sentient Fund and OMERS won't let their equity stake diluted so easily...and they've got huge bargaining power with the MGO board as they together own about 48% of the total mkt shares...
I guess there will be a few rights issue down the road to maintain the shareholding %.
ReplyDelete