Shares Magazine – January 2005 Issue.....bit old but still an...

Shares Magazine – January 2005 Issue.....bit old but still an interesting read.....

Upside Explorers
… by Tim Treadgold

It is four years since patient shareholders of Lafayette Mining saw their company’s share price above the 20¢ mark but, unless the wheels drop off, the stock should be way above that level in early 2005 as the company moves towards production at its Rapu Rapu copper/gold project in the Philippines.

Construction at the $US42-million mine is well advanced, with first gold expected to be poured in the next few months, followed by a base metal brew of copper, zinc and silver around the middle of 2005.

As project construction risk shrinks, investors will continue to develop a more comfortable feel for Lafayette that they demonstrated over the past four months as the stock picked itself up from about 10¢ to trade up to 18¢. That is its highest since early 2000, shortly after the company bought control of Rapu Rapu from the Canadian explorer TVI Pacific. On current plans, Rapu Rapu has a life of about six years, although exploration is confidently expected to add years to the mine’s life as management works toward an initial 10-year target. Production in the first stage is expected to be about 50,000 ounces of gold a year, plus the base metal concentrates containing 10,000 tonnes of copper a year, 14,000 tonnes of zinc and 600,000 ounces of silver.

Adding interest to Lafayette is its status as one of the stocks strongly supported by Lion Selection, which sits on a 22% stake.

Australian stockbrokers, after years of diligently ignoring Lafayette, are getting a taste for the stock. The company’s chief executive, Andrew McIlwain, is being asked to stay a little longer when making his sales pitch when he explains that Rapu Rapu will be producing copper at a cash cost of just US29¢ a pound, and gold at $US125 an ounce, to generate substantial profits.

ABN Amro, in its best guess at future returns, estimates Lafayette will report a net profit of $13.3 million in the year to June 30, 2005, rising to $20.7 million in 2006. If correct, Lafayette is selling on a seriously low prospective price/earnings ratio of less than four times 2005 earnings, and less than three times 2006 earnings – numbers hard to ignore, assuming they are right.