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)

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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