broker update

http://www.proactiveinvestors.co.uk/companies/news/54465/metminco-now-well-positioned-to-attract-strategic-partners-54465.html

Metminco now well positioned to attract strategic partners
12:10 pm by John Harrington The plan sees a relatively small open pit with a strip ratio of 2.2:1 securing production and cash flow while the long life block caving operations are developed to ramp up as the open pit production depletes.
The release of the independent mining scoping study of Metminco’s (LON:MNC) Los Calatos project threw out some interesting numbers for Canaccord Genuity to get its teeth into.

“The overall life of the project is 31 years and on our estimates generates ~US$330M EBITDA a year from the open pit and well over US$400Mpa from the higher grade underground operations given ~80 – 90ktpa copper in concentrate on average over its life,” the broker notes.

“Cash costs also look compelling on the current industry cost curve at US$1.30 including royalties and by-product credits, suggesting that the project should be very cost competitive once into operation,” Canaccord Genuity added.

On balance, the project economics for the copper mine look slightly more favourable than the broker had previously estimated, thanks to higher grade zones being mined in the early years of the mine’s lifespan, while there will also be a much faster ramp up of both the open pit and the block cave.

“The outline of a plausible project now being in place means that management is now well positioned to look for strategic partners to come into the project to help secure the upfront capex required to bring the project into operation,” the broker speculated.

That could light a fire under Metminco’s share price, as some investors have steered clear of the shares because of concerns over how the company would go about raising the finance to develop such a large project.

Canaccord Genuity has a 12-month net asset value based price target of 23p for the stock.

“On a resource valuation the shares are currently trading at 0.6cts/lb copper contained versus peers at 2.8. The peer average multiple implies an MNC price of 15p,” the broker notes.

In Canaccord Genuity’s view, the next catalysts for the share price will be the progression of the Los Calatos project through pre-feasibility and feasibility stages over the next two years. News flow over the route the management intends to take in extracting value from the Vallecillo (gold/zinc) and Mollacas (copper leach) projects should also move the share price, the broker believes.