Its now .30 such a deal.
00000000000000000000000000
Mercator Minerals Ltd. (TSX: ML)
The Race to the Finish Line: Mercator's Equity Value
Questionable
Underperform (prev: Outperform)
Speculative Risk (prev: Above Average Risk)
Price: 0.41
Shares O/S (MM): 74.8
Dividend: 0.00
NAVPS: 9.33
BVPS: 0.73
Price Target: 1.00 ¯ 4.00
Implied All-In Return: 144%
Market Cap (MM): 31
Yield: 0.0%
P/NAVPS: 0.0x
P/BVPS: 0.4x
Our EPS and CFPS estimates assume Mercator operates as a going concern in the future.
Event
We have downgraded Mercator to Underperform, lowered our target price to
C$1.00 and changed to a Speculative risk rating.
Investment Opinion
The Race is On: In our view, there is a race between Mercator's ability to start
up its Phase I sulphide expansion at Mineral Park and receive cash from
customers, and its cash balance heading to zero.
High Risks in a Tough Market = Speculative Risk, Underperform: We think
the risks to Mercator's equity are significant and are, for the most part, already
reflected in its share price. To properly reflect these risks, we have lowered our
rating to Underperform from Outperform and changed our risk rating to
Speculative from Above Average. Also, we have applied a 75% discount to our
valuation of the company, again to reflect the elevated risks.
Option Value, the Silver Lining: We have taken the view that Mercator has a
high probability of finding itself in financial trouble. However, we think that if it
is able to pull through, its share price could increases substantially from current
levels. We believe that at its current share price, Mercator's common shares are
effectively a call option on its future.
Changes to Our Outlook: Given Mercator's current cash balance and future
capital requirements (as per our estimates), we have modified our model to push
out capital spending on the Phase 2 expansion (which brings throughput from
25,000 tons per day to 50,000 tons per day) from Q4/08 and Q1/09 to Q4/09 and
Q1/10. Based on our forecasts, the company does not have sufficient funding to
carry out the expansion sooner. Additionally, we have eliminated all revenue
from concentrate sales from our Q4/08 forecasts and implemented a ramp-up in
Q1/09 and Q2/09 of 50% and 75% of capacity, respectively.
Valuation: We have modified our valuation to reflect the risks we discuss in this
comment. We are maintaining our 9.0x multiple of 2010E EPS ($0.36) using
long-term commodity forecasts ($1.50 per pound copper and $10.00 per pound
molybdenum); however, we are applying a 75% discount to accommodate for the
risks. Our target price is C$1.00 per share, down from C$4.00, previously.
Priced |
