Good Write Up on SMC GoldinFinancial Review - Smart Investor...

Good Write Up on SMC Gold

in

Financial Review - Smart Investor April 2006

++++++++++++++++++++++++++++++
Small Caps - Out of the Shadows

by Trevor Hoey

SMC Gold

Last December, Citigroup highlighted the mega¬-manufacturing powerhouses of China and India when considering the global outlook for metals and mining commodities. It noted that both countries are in the process of doubling copper smelting capacity, but ongoing shortages of copper concentrate will result in the two being net importers.

The copper price has continued to set records this year and UBS recently upgraded its 2006 and 2007 forecasts by about 7 per cent.

Unlike most of the majors, SMC Gold, which has a market capitalisation of about $35 million, has benefited little from the mining boom. In some respects, this is reasonable given that production from its main asset, the Punitaqui copper project in Chile, achieved profitability for the first time during the quarter to last December. Research analyst Chris Brown, of ABN Amro Morgans, likes the look of SMC Gold as a speculative copper play with a great asset.

ABN Amro Morgans forecasts SMC earnings per share to increase from 1.6c in 2005-06 to 3.6c in 2006-07.

Brown believes that the value of the Punitaqui asset, which he estimates is worth about 15c per share, is the best means of establishing fair value, and this is his target price.

SMC's share price suggests that there is a fair degree of risk built into its valuation. Brown thinks that the main challenge is getting Punitaqui up to full production. However, the low-grade, long-life mine has fairly simple geographic features that should result in ¬low-cost production. This scenario suggests that an injection of cash could be the main hurdle.

+++++++++++++++++++

Cheers,
IHS