Just to conclude my discussion from yesterday regarding corporate activity.
There is discussion about town that Glencore may be a seller of its 50% stake in Minara to XStrata but many think it is far more likely that Glencore will go the other way and take out the minorities.
Glencore has been in this project for a long time already so why exactly should it sell a 30 year minelife asset with earnings growth like MRE is about to have.
Also if Glencore was a seller would XStrata be bidding US$25 billion for Falconbridge of Canada?
Glencore is also really cashed up following the sale of some Columbian coal mines for A$2.2 billion last year to 40% owned subsidiary XStrata.
I understand that at US$10 a pound nickel the 2006 EV/EBITDA multiple of MRE falls to 3.2x - compare that to JBM at 14x plus.
At $3.00 the payback on taking out MRE would be be less than 2 years. Glencore would have to pay around A$693m for the 50% of MRE they don`t own at $3.00 a share. Strip out the $200m in cash or so they will have on hand at years end and they are looking at less than $500 M.
Remember that Glencore also own 40% of the Murrin Murrin project directly so the cashflow out of their private share of Murrin Murrin could easily finance the acquisition of the remaining 50% of MRE.
A leading broker has suggested privately that MRE is worth miles north of current prices as a standalone business over the next 12-24 months - a $6-8 stock. In his view the market hated getting stiffed in the selldown at $2.90 by Matlin 18 months ago and points out that many local funds wouldn`t buy Zinifex at $2.00 because it was the old Pasminco then had to panic in at $10!
His private view - don`t let the Swiss sneak underneath the radar and take out MRE on the cheap at $3.00 in a lowball bid.
This is hard to argue against - Southern Equities released a report yesterday suggesting a valuation for MRE of $8.05 if the LT nickel price remains at US$10 per pound. Not likely but Glencore are in a better position to know the market than you or I.
Regards Eos
MRE Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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