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





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