rio and bhp, page-17

THIS is such a good idea we wish it was one of our own.

Instead the kudos must go to the people at Foster Stockbroking who have come up with a novel idea on how to build your own BHP Billiton.

Now this is obviously out of reach for 99.999 per cent of the population, but anyway it is good to dream.

So if you were to go about constructing your own little brother version of the world's biggest diversified miner, then this is maybe the way to go about it.

All of the companies Foster has used are pure play producers/explorers which the broker believes offer “significant upside”.

The coal production will be covered by Aquila Resources, which should be producing 2.8 million tonnes in the 2009/10 fiscal year from its Isaac Plains mine in the Bowen Basin. Foster has a price target of $13.94 on Aquila, valuing the company at $2.357 billion.

As for the iron ore component, that would be covered by Mt Gibson, which is already in direct ship production unlike many of its peers and has already proved a winner in the merger and acquisition stakes. Price target of $3.00, valuing the company at $2.379 billion.

On the zinc front, Foster recommends that Terramin would make a handy addition in the creation of a mini-BHP. The company is on the verge of production at the Angas mine near Adelaide where zinc output, at its peak, should be close to 65,000 tonnes with a further 24,000 tonnes of copper/lead concentrate. Terramin's 30 million tonne Tala Hamza project in Algeria could also be something of a “company maker,” according to Foster. With a price target of $7.00, the market cap for Terramin at that level would be close to $700 million.

The copper component would be filled by Equinox, which has fully financed its Lumwanna project with a production start-up predicted for next year. Share price target of $7.00 for a market cap of $3.950 billion.

As for nickel, while Mirabela Nickel is never going to be a decent substitute for the WMC Resources assets, it would make a suitable entry point into the area. Foster has opted for Mirabela over Sally Malay because of the recent surge in Sally's share price and the fact that Mirabela is about to begin construction of its Santa Rita project in Brazil. “A 19 year mine life with 500,000 tonnes of resource makes it one of those rare greenfield large sulphide projects,” writes Foster.

At a price target of $13.00, Mirabela has a market cap of $1.650 billion.

For the gold component of Foster's imaginary diversified mining house, Centamin Egypt is the preferred pick. Centamin has finished financing its Sukari gold project in Egypt which has a 10 million ounce-plus resource, including 3.6 million ounces in the inferred category.

With a price target of $2.00, Centamin has a market cap of $1.514 billion.

Platinum Australia would also be included and with a Foster price target of $3.30, the market cap is $635 million.

Back to energy again and Foster prefers ERA - price target $31.46 for $6.0 billion market cap - and Santos for its leverage to oil and pursuit of LNG and coal seam methane projects.

With a price target of $20.00, Santos would have a market cap of $11.71 billion.

So there you have it, the right components to build a mini-BHP.

And the price?

Based on the target share price supplied by Foster and the addition of a 15 per cent takeover premium for each company, the total bill comes to a very tiny $35.52 billion.

It's cheap when compared to what you would have to fork out if you were to say, buy Rio Tinto for example.

Wouldn't you agree BHP Billiton folk???