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Mercator Minerals Down 6%, Near Yr Lows as Credit Suisse Lowers Estimates, Target on Mexico Update

Credit Suisse lowered its 2013 estimates and price target on Mercator Minerals Limited (ML.TO) after it provided an update on its Mexico operations.

Event: "Mercator yesterday released an updated feasibility study for its El Pilar copper project in Mexico. Accordingly, we have updated our model to reflect the new parameters, as well as our own assumptions, with the net impact being a 9% reduction to our NAVPS."

Capex increases significantly: "Total life-of-mine (LOM) capex (including start-up working capital) was projected at $456 million, versus our initial estimate of $307 million. We have factored in the new estimate, along with a 10% contingency for cost creep and inflation, bringing our new capex estimate to $510 million. We model a $125 million debt financing in 2012, and a $75 million equity financing in 2013 to help finance development of El Creston."

We model increases in both production and cash costs: "The study projects average annual copper production of 73Mlb over the LOM, although slightly higher over the first five years. Unit cash costs are projected to be $1.37/lb LOM, and $1.27/lb over the first five years. We model average annual production of 72Mlb (6% increase), at unit cash costs of $1.50/lb (4% increase)."

NAVPS declines 9%: "As a result of the changes to our operating assumptions, our NAVPS declines by 9%, to $3.90 from $4.29. Our El Pilar asset NAV declines by 45%, to $0.45/sh from $0.82/sh."

Valuation: "We are lowering our 2013 EPS estimate to $0.46 from $0.47. We are reducing our target price to C$3.75, from C$4.00, but maintaining our Outperform rating. Our target price remains based on an 80/20 weighting of 1.0x our NAVPS of $3.90 and 5.0x our 2012 EBITDA estimate."

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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