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Equinox Continuing to Deliver for Investors

By Michael J. DesLauriers
23 Jul 2007 at 11:12 PM GMT-04:00

TORONTO (ResourceInvestor.com) -- Back in early February of 2006 your correspondent profiled an emerging copper producer which seemed to tick most of the fundamental boxes to qualify as a handsome value-oriented investment. Equinox Minerals [TSX:EQN] was going for C$1.37 when we initially profiled it; shares are trading hands at C$4.16 as of today’s close, having recently been as high as C$4.64. The stock is regularly one of the most active issues on the big board, and is now very much on the radar screens of major traders and institutions.

Last February, it was our firm conviction that, “with spot copper prices barrelling ahead in this commodity super-cycle bull, investors and analysts are starting to realize that these prices will be here to stay, as new mine production can’t keep pace with the voracious demand of our rapidly industrializing Chinese and Indian friends. In that vein a handful of emerging copper producers look incredibly cheap, and the strength in the forward curve, indicates that even if prices fall from here (spot is currently $2.30/lb), strong support exists going forward.” Clearly, with its strong management team and world-class deposit, Equinox qualified then as a terrific risk to reward speculation in the context of that mindset.







Our view on copper and base metals in general has panned out perfectly despite a strong pullback earlier this year which had the doubters and shorts claiming victory; pyrrhic as usual for the bears in this secular commodity bull. Prices for the red metal are strong as ever, with spot firmly north of $3.50/lb and the forward curve looking fairly robust as far as one can see. This is unlikely to change for some time and smart investors should continue to uncover overlooked opportunities, though likely not nearly as easily as one might have twelve to 18 months ago.

Equinox has been steadily chipping away at its milestones despite a tough operating environment – this is a testament to management and one can’t always rely on this scale of effective result. Indeed, in the construction phase many issues can’t be foreseen, and delays are par for the course given shortages of equipment, machinery and manpower.

At the time of our last write-up, with Equinox at C$1.37, we noted that the company was “a great play on copper and institutions control more than 80% of EQN, making it a very tightly held play. This situation would appear to have 5-bagger potential within the next 18 months or so assuming things go as planned and there isn’t a need for too much further dilution (there doesn’t appear to be). Given the truly world-class nature of the project it would be ironic if a Phelps Dodge or BHP decided to come in and buy it out, considering that the short sighted majors gave it up to begin with.”

Reviewing the situation today it is clear that a lot of leverage has come out of the play, and that the company may have diluted a little more than we would have liked. That being said, copper prices should remain lofty for sometime to come and this story is a clear take-out candidate, potentially in the very near-term. On balance, while the upside is not what it was, we think it would probably still be hard to lose from these levels.