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Gold/Mining/Energy : Copper - analysis -- Ignore unavailable to you. Want to Upgrade?

To: Gofer who wrote (1086)	1/14/2005 10:29:56 PM
From: jimsioi	Read Replies (1) \| Respond to of 2131

Gofer, re your work on ARG.to Saw your post originally over on the StockHouse board and came over here...I think you've done a credible job figuring what ARG's earnings might look like certainly a year from now.. Given the increase revenues and earnings from Copper and Moly this item ought to experience a move to higher ground. A ten PE on the earnings you calculated would double the shares... I'm an owner too. What concerns do you have about their "Codelco dependence" other than it being one mine in a foreign land...

To: Gofer who wrote (1086)	2/7/2005 12:14:11 PM
From: baystock	Respond to of 2131

Gofer, your analysis looks reasonable. But why pay a forward PE of 6.7 for Amerigo when you can buy another copper stock for a much lower forward PE ? For example take a look at Mercator Minerals (ML.V). Mercator is currently producing 1 million pounds Copper per quarter and is expanding production to 1 million pounds per month in second half of 2005. It has already raised the financing needed to do this. Cash cost is expected to be around 56 cents per pound. Unlike Amerigo, they own the mine property in Arizona and so there is no dependency on a Codelco nor royalties to be paid. Using similar assumptions to yours: 12M lbs copper * (1.35-0.56) cash cost * 1.2 exchange rate/22.6M shares = Can$0.50 cash flow/ share or approx Can$0.35 in earnings/share also. So Mercator is selling for a forward PE of only 1.6 as compared to Amerigo's forward PE of 6.7 Also here is the newsletter writer Ted Slanker's analysis of Mercator. Note that the shares outstanding is now 22.6 million shares instead of the 17.5 million shares used by him: 10/04 update from Slanker: Mercator Minerals Ltd. is a mining and exploration company focusing on copper production and exploration in Arizona, Chile, and Mexico. It became an emerging copper company in 2003 with growing cash flow from operations with its purchase of the producing Mineral Park Copper Mine from Equatorial Mining Ltd. in June 2003 for 4.6 million shares. Since then Mercator has initiated a mine expansion at this Arizona property that will significantly improve the fundamental value of the mine and the company. Mercator is listed on the TSX Venture Exchange under the trading symbol ML. It has 17.5 million shares outstanding. The mine expansion is expected to increase copper production from about four million pounds annually to 15 million pounds. Consequently, copper production will end up being about 0.86 pounds per share. After attaining the 15-millionpound production level all of ML¡¦s current operating costs (production, management, etc.) will have been reduced to about $0.56 per pound¡Xbased on current operating costs. At $1.30 copper, ML¡¦s per share earnings B/T will be 74 cents x 0.86 pounds = 64 cents. The stock is currently at US$0.44. This makes Mercator's shares look like a significant value to me. But I think copper may be $2.40 per pound next year when ML has reached the 15-million-pound production level, and that should support per share earnings B/T of maybe $1.58 per share. At five times earnings and a 20% tax rate ML could sell at $6.32. At 10 times earnings and the same tax rate it would sell for $12.64. ML's copper production is currently increasing 15% to 20% per month. By April 2005 ML could be producing over one million pounds of copper per month. Based on this I think ML remains a buy at current levels. Projected costs and production rates were gleaned from a recent conversation with management. The company's Web site has posted the same fundamental information that I¡¦ve used to project the earnings and potential stock prices.