todays press spec. buy rating

Copper glow
CRITERION
Tim Boreham
July 12, 2006
Exco Resources (EXS) 33c, and other copper stocks
CRITERION can't help admiring the cheeky timing of putative producer Exco Resources, which took pains to include the drawcard words "copper" and "Cloncurry" in its project update yesterday. Fortuitously, Exco's tenements are close to Australian Mining Investments' (AUM's) Rockdale prospect, vaunted as a monster copper deposit.
While AUM continued to keep investors in suspense yesterday - its shares have been on trading halt pending detailed exploration results - EXS filled the void.

In truth, EXS added little more to punters' existing knowledge but, given the renewed interest in EXS stock, why not fly the flag?

"We are not a Johnny-come-lately in Cloncurry," Exco chief Michael Anderson says.

"We have spent time and money on an awful lot of drilling and are keen to establish our own credentials."

Exco's progress report also provides a timely excuse to look at relative values in the junior copper sector.

Exco claims indicated and inferred resources of 24 million tonnes of ore containing 240,000 tonnes of copper and 192,000 ounces of gold, across five nearby deposits.

Exco intends restarting a definitive feasibility study - stalled in early 2005 when copper prices were much lower - and wants to start producing in early 2009.

Exco, which is capitalised at $43 million, also boasts the White Dam prospects in South Australia, which has 7.3 million tonnes of ore containing 257,000 ounces of gold.

Anderson describes White Dam as the "company starter", in that the surpluses produced over the short life of the project would fund the longer-term "company making" Cloncurry project.

AUM boasts an inferred resource of 59 million tonnes grading 2 per cent copper equivalent, but has been spoken of as a 100 million tonne deposit.

Let's say AUM is sitting on 2 million tonnes of copper.

Before last Wednesday's trading halt AUM had a market cap of $700 million, so there's little relativity.

Other comparisons support the inconsistency.

Near neighbour Universal Resources (URL, market cap $50 million) has a copper-equivalent resource of 959,000 tonnes and is due to start mining in 2009.

CopperCo (CUO, market cap $185 million) is also near Cloncurry and boasts a resource of 222,000 tonnes.

CUO hopes to produce from next year at a rate of 15,000 to 20,000 tonnes annually.

Elsewhere, Hillgrove Resources (HGO, $47 million) hopes to produce 25,000 tonnes a year from its Kanmantoo deposit near Adelaide, which has reserves of 266,000 tonnes.

So there's little correlation between the market's assessment of the stocks' value relative to the size of their resource and proximity to production.

Other factors such as grades, metallurgical issues and proximity to infrastructure muddy the picture, but we can't help thinking there's no rhyme or reason to junior-end valuations.

Mind you, has anything changed over the years?

Last week, Criterion rated AUM an AVOID and we dubbed Hillgrove a SPECULATIVE BUY at 22.5c on May 23.

We're also happy to rate Exco and Universal Resources SPECULATIVE BUYS.

Exco shares have notched up in recent weeks, but they're still off their July 5 peak of 47c.

CopperCo looks dear, so let's say AVOID.

Something to remember is that these explorers have been on the job for some years.

Many investors would prefer to see them drilling fewer holes and focusing on production to capitalise on prevailing high prices.