I found this article which looks good for EQN as a take over target. I thought I would post
OFFERING HIGH RETURNS Copper developers ripe for consolidation Near-term development projects offer better returns compared to producers, says Raymond James.
Copper companies with advanced development projects could offer investors high returns compared to cash flowing mining companies as consolidation in the copper development sector is pending.
Advanced stage projects in the development sector will become more of a takeover focus in the next few months as the need of mid-cap to large cap metal companies to expand their project pipeline becomes more pressing, said Raymond James analysts Tom Meyer and Miroslav Vukomanovic.
Meyer said in an Equity Research note that the project development group of copper companies now traded at a discount of 30% to the group of copper producers compared to a 20% discount in mid-July.
This comes on the back of the reversal in base metal equity prices from July peaks.
Copper producers trade at a weighted average P/NAV of 0.91 times and copper development companies trade at 0.64 times.
Meyer said deeper discount could be found in development companies with a production time line beyond the liquid end of copper forward curve, which remains in steep backwardation.
Increasing development constraints, such as permitting, political issues or sourcing of equipment or labour, which could expand the typical eight to ten year mine implementation timeline, should boost the valuation of the more advanced of these projects.
The estimated payback on the acquisition of the more attractive development projects ranges from five to nine years, if a flat forward copper price of US$2.50/lb is assumed.
This estimation is based on the cost of acquiring the shares in the market without a premium, cost of developing the project and waiting for production to start.
"Considering that exploration to production typically takes eight to ten years, depending on the size and political jurisdiction of a project, we believe advanced stage projects will become more of a focus in the coming months."
Meyer said a number of companies were possible take-out targets in the pending consolidation in the small and mid-cap copper space.
Inca Pacific (TSX.V:IPR) tops the desirable acquisition list on the basis of valuation, acquisition payback and overall risk profile criteria and is followed by Northern Peru Copper (TSX:NOC) and Chariot Resources (TSX:CHD).
Inca Pacific is an inexpensive development company, with shares trading at a P/NAV of 0.13 times. It has a five year acquisition payback and the prospect of 30% of future revenues derived from molybdenum production.
Northern Peru's Galeno copper project is the second largest copper project not yet owned by a major mining company. It has potential for infrastructure sharing with the neighbouring Michiquillay recently acquired by Anglo American.
Chariot Resources' probability of acquisition increases as the feasibility study on its 70% owned Marcona project is due for release in first quarter of 2008.
Equinox Minerals (TSX:EQN), Northern Dynasty (TSX.V:NDM, AMX:NAK) and African Copper (TSX:ACU, AIM:ACU) are respectively ranked in the fourth, fifth and sixth places of desirable acquisitions.
Equinox is an attractive takeout target on the basis of its current share valuation of P/NAV of 0.56 times, an estimated 6.2 year payback in a takeout scenario and its Lumwana copper project is expected to start production in second quarter 2008.
Northern Dynasty is fully financed from an equity perspective for its 50% share of the world-class Pebble project in Alaska. And African Copper is expected to start production at its wholly owned Dukwe mine in first quarter of next year.
Meyer believes positive cash flow from Dukwe along with the extensive Matsitama exploration land package could be an attractive combination for a small to mid-cap copper producer to consolidate into an existing portfolio of producing mines.
EQN Price at posting:
0.0¢ Sentiment: Hold Disclosure: Held
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