March 09, 2011The Upside In Mincor May Be Greater Than You...

March 09, 2011

The Upside In Mincor May Be Greater Than You Think
Source: Minesite.com


Ever had the feeling that you?ve been looking the wrong way? ? like missing a try at one end of a rugby ground because you?ve been watching a spot of biffo at the other? - or that the company you?ve invested in is really turning out to be something different to what you thought it was? Mincor Resources, the nickel miner which inherited the best bits of the fabulous Kambalda Dome that was discovered by Western Mining Corporation some 50 years ago, is one of those ?wrong way? experiences. Most of the stories written about Mincor, and most of the research reports written on Mincor by analysts, start with the latest production figures from the company?s Kambalda mines, the tonnes produced, the cost of nickel per pound, and the handsome pile of cash in the bank.

Wrong! Wrong! Wrong! Mincor is all of those things, but the real value in the company lies not in what it?s digging up, it lies in what it?s exploring for. Mincor is an exploration story, backed by A$100 million cash in the bank, no debt, and a suite of nickel mines which will produce profitably for the next five years, and almost certainly for a lot longer. Oh, and it also pays dividends, which is another reason why investors are being blind-sided by the company. Or to put it another way, it?s a reason why Mincor has attracted risk-averse investors, when it should really be appealing to risk takers.

Minesite?s Man in Oz was led into this re-appraisal of Mincor?s sex appeal after a brief conversation with the company?s long-serving chief executive, David Moore, at an explorer?s conference in the port city of Fremantle last week. In hindsight, the clues were there from the outset - here was a steady-as-she-goes nickel miner manning a booth at an event clearly marked ?for explorers?. And the conversation with David was not about Kambalda, it was about Tottenham - not the North London football club of the same name, but a copper and gold exploration project in central New South Wales. Another hint that changes are afoot is the new, slimline version of David ? he?s shed a fistful of kilos, perhaps in preparation for a new and more exciting life, as an explorer.

?We?re pretty pleased with the results we?re seeing at Tottenham?, was David?s understated way of describing what look to be outstanding assays from the second diamond drill hole at this historic, but long abandoned, mining centre. The best was a two metre section of core grading 11% copper and 2.77 grams of gold a tonne from a depth of 184.6 metres. That came from a hole that tested one of eight electro-magnetic (EM) anomalies that have been identified underneath a copper deposit called Carolina. None of the other seven EM anomalies have yet been tested. ?We started looking at Tottenham back in 2007, but stopped work during the financial slowdown?, David said. ?Ground EM was conducted last year, and now we?re on site drilling. The plan is to test all of the currently-known EM anomalies.?

Tottenham is just one of the exploration projects that Mincor has on the go. Others are a pure gold prospect under Lake Cowan, a salt lake south of Kambalda, and zinc and lead exploration in the Bonaparte and Georgina Basins of Australia?s far north. There?s also ongoing exploration for nickel around Kambalda, which aims to boost current mine life, and possibly find additional orebodies, either as extensions to what is being mined, or at depth.

Most investors ignore the exploration side to Mincor, assigning it little value. At its current share price of A$1.66, Mincor is capitalised on the ASX at A$334 million. That valuation is roughly 30 per cent covered by cash. Then comes the revenue from nickel, which is running at close to A$180 million a year, according to the latest piece of research on the company from RBC Capital Markets. Profit will be a depressing A$7 million this year, thanks to a series of one-off costs, but will then rebound to A$32 million next year. Around A$18 million a year will be paid out in dividends. That combination of earnings from ongoing operations, cash, and zero debt comfortably underpins the current market capitalisation. Nothing is left over for Tottenham, other discoveries, or any takeover premium should the company attract the eye of a suitor in a market which appears to have developed a touch of merger mania.

Given that tipping takeovers is a mug?s game, the interesting way to follow Mincor will be through its exploration work, both at Kambalda, and at projects such as Tottenham where much more drilling is required - and scheduled. David noted in a drilling news update on February 17th that early work at Tottenham had focussed on the near-surface copper oxide potential. The latest work is to test what lies at greater depths. ?The company?s exploration target at Tottenham is high-grade copper-gold in volcanogenic massive sulphides?, he wrote. ?The Tottenham project is remarkable for the limited scale of previous exploration. Despite a long and honourable history of small-scale copper mining, very little previous exploration has focussed on the depth potential beneath the surface mineralisation.? Mincor is busy correcting that historic oversight, and an 11% copper hit, with 2.77 grams of gold, is a very promising start.