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More on upside in mining takeovers from Canaccord. This one includes Breakwater which would be valued at 72% above the current price using the cashflow multiplier that rio offered for Alcan:
When Rio Tinto (RTP) launched a friendly US$101/share all-cash bid (US$38.1 billion) for Alcan (AL) last week, it marked the second takeout announced at roughly 10x CFPS in less than a month.
Canaccord Adams Metals & Mining Analyst Orest Wowkodaw believes a new valuation level has been established for producing assets. Applying a 10x multiple (this would be equivalent to having invisibility or shape-shifting powers) to CFPS estimates for First Quantum (FM), Inmet Mining (IMN), HudBay Minerals (HBM) and Breakwater Resources (BWR), you would get potential takeout values of C$138, C$136, C$40, and C$6 per share, respectively, representing potential upside of roughly 27%, 42%, 46%, and 72% from current levels.
Industry consolidation is expected to continue, as most producers are flush with cash and in many cases have limited internal growth opportunities, while facing continuing delays and cost overruns in developing their own assets
Lots of upside in mining takeouts
Leonard Zehr, today at 10:32 AM EDT
Getting asked “what’s a company worth on a takeout?,” especially in the consolidating mining sector, has prompted analysts at Desjardins Securities to apply the valuation metrics of the Rio Tinto PLC bid for Alcan Inc. as an exercise to other target prices in the sector.
To recap, Rio’s bid of $101 (U.S.) a share values Alcan at 16.4 times and 16.7 times estimated per-share profits in 2007 and 2008, and at 10.5 times and 10.3 times estimated per-share cash flow in 2007 and 2008. In addition, the bid represents 3.2 times Alcan’s existing book value.
Desjardins works out Teck Cominco Ltd.’s ultimate takeout value to be in the range of $60-to-$70 (Canadian) a share, versus a recent TSX price of $52. And even though it has voting and non-voting stock, the brokerage doubts the capital structure “will be an effective long-term deterrent,” if an international giant decides to take a run at Teck.
HudBay Minerals Inc., trading around $28, gets a potential takeout range of $45-to-$50 a share that Desjardins calls “quite exciting.”
Cameco Corp. delivers a wide takeout range of $30-to-$60 a share, compared with its current TSX price of around $50.
Thompson Creek Metals Co., a pure molybdenum play, has a takeout value of $25-to-$30 a share, Desjardins figures, compared with its nearly $22 TSX price.
Sherritt International Corp. warrants a takeout in the mid-$20 a share range, notwithstanding its flagship assets are in Cuba, compared with a nearly $17 TSX price.
Lundin Mining Corp., which prides itself as an acquirer, would be worth in the $25 a share range, if things turned around, up from its nearly $15 TSX price.
Quadra Mining Ltd., also on the acquisition trail, gets a range of $25-to-$30 a share from Desjardins, well above its nearly $17 TSX price.
And running against the trend is FNX Mining Co. It warrants a takeout range of $25-to-$30 a share, which is below its $34 price on the TSX.
BRLC...Great guidance...Company is now projecting $1.2 billion+/- in sales this calendar year. Sales in the march quarter were $162 mil and they estimate that sales in the June qrtr will be about $200 million. In other words they expect sales in the next six months to be $1.2 billion - $362 million= $838 million. That is a huge increase from last year at $329 million.
Even better, they have been brought current on A/R (nothing over 120 days) so CF should be strong this quarter. A kicker is that BRLC has a huge short interest with 17 mil shares short vs a 39 million share float and I now expect those shorts to start throwing in the towel.
IMO, BRLC is still very cheap with the strong guidance and I'm thinking that it will likely revisit old highs ($11/share) by Christmas.
ZYNX...I addressed my concerns over the 21% interest rate they are paying on a loan 1 1/2 months ago. The stock has done well since then so either it is a non-issue OR most stockholders are not aware of it.
The way I continue to see it is that anyone who will pay 21% interest is either not watching out for the stockholders interest or they are desperate and need the cash no matter what the cost is. They are dealing with loan sharks from what I can see...Why? It is not a good scenario in my book...
http://investorshub.advfn.com/boards/read_msg.asp?Message_id=20074114&txt2find=zynx
Tax deductions..What test does the IRS use to determine whether a person is a professional investor or trader? In other words what are the general rules for one to qualify for filing all expenses on schedule C rather than having to meet the 2% threshold for itemized deductions?
Even though I recently renewed, I took the 3 year special deal as well. Ihub adds the 3 years onto the end of your current subscription.
Wow! DJIA gained 283 points today, its' biggest increase in over 4 years according to news reports. Now I'm wondering: Does anyone know what the Dow's biggest one day point gain was in history?
Sorry cl, I didn't realize you had won two contests, although I do recall you beat me in the semifinals of PS4.
BRLC- I'm with you on this one, checkmate. Looking forward to next fall, I expect that high def LCD and plasma TV's will be the huge sellers going into the fall and christmas season. Should bring a lot more interest to this one. I'm looking for a double by Christmas.
Cramer would give me an "F" in diversification. All of my current picks are mining stocks which are rather weak today, so it should tighten up and there is lots of time left. Besides, I won this contest last time (in PS5) and lightning never strikes twice. Good luck, Stan.
FNI. New buy recommendation from canaccord. Target $2.05. Note that they expect to start the new mine by march of 2008 and also expect FNI to have 56c cash in the till by year's end. Cha-ching...
First Nickel Inc.
FNI : TSX : C$1.31 BUY
Target: C$2.05
Orest Wowkodaw, CA, CFA 1.416.869.3092
orest.wowkodaw@canaccordadams.com
Christopher Chang (Associate) 1.416.869.7299
christopher.chang@canaccordadams.com
Metals and Mining -- Base Metals and Minerals
POSITIVE FEASIBILITY STUDY FOR PREMIERE
RIDGE RELEASED
First Nickel released feasibility study results for its proposed Premiere Ridge nickel-copper
project in Sudbury. Premiere Ridge has a probable mineral reserve of 1.15 million tonnes
grading 1.33% nickel and 0.53% copper. The project is anticipated to produce an average
of 230,000 tonnes of ore per annum over a five-year mine life, with an anticipated start-up
in March 2008 and peak production of 291,000 tonnes in 2009. Premiere Ridge has a
projected capital cost of $42.8 million and operating unit costs of US$5.49/lb of nickel
based on a US$2.19/lb copper by-product price credit. The feasibility study estimated a
project 10% NPV of $14.3 million and an IRR of 37.1% based on an average US$7.62/lb
nickel price. The feasibility study was delivered July 1 to Xstrata, the company’s joint
venture partner, fulfilling a condition of the company’s amended option agreement. A final
project development decision is anticipated by the end of this year.
The results of the feasibility study were largely in line with our expectations. While the
capital cost of $42.8 million was lower than our estimate of $50.0 million, average
operating costs were approximately US$0.50/lb higher than we had anticipated. Near-term
production levels, particularly in 2009, were higher than we had forecast, as we had
assumed relatively flat production over the five-year mine life. Overall, the results of the
feasibility study have modestly increased our 8% NPV for First Nickel to $1.28 per share
from $1.25 per share. We anticipate a positive development decision for Premiere Ridge in
the coming months.
We reiterate our BUY recommendation and $2.05 target price. Our $2.05 target is based
on 4.5x our 2008E CFPS plus year-end 2007 forecast net cash of $0.56 per share.
2=2=1? Copper inventories show another big drop and striking miners have forced a big mine in Chile to close down...and...copper prices greet the news by dropping 7c today. Sometimes the markets sure don't seem to make much sense.
Red Dog is the "big dog" of zinc miners. I'm thinking that it may be time to watch out when its' production comes online They can only ship ore in the late summer after the arctic ice breaks up so I'm thinking that it will start appearing in early Q4.
I also see that zinc prices are nowhere near their highs of last winter or even last spring while inventories are very close to new lows. Apparently the market is anticipating the new supply that will be coming. It may not be soon enough to stop a price surge later this summer as inventories dwindle to nearly nothing.
My ADA is still showing as N/A in my TD Ameritrade acct. It seems to be taking a l-o-n-g time for them to get the symbol changed.
BN...Nuts, I don't have the powerpoint software loaded on the computer I am at today but I saw the info in there. The company commented that their objective is to convert current resources to current reserves at the mine next year which will increase the mine life to about 9 years. Here is a recent analyst recommendation from Octagon too:
Caribou: Ready for Zinc Production
Blue Note is a Canadian junior exploration company with a focus on
the acquisition, exploration, and development of base metals
properties. With its production-ready Caribou and Restigouche zinclead
mines set to commence operation in Q2/07, the Company has
exceptionally strong leverage to zinc, and is thus well-positioned to
benefit from the strong, long-term fundamentals of the zinc market,
well ahead of competitors still in the exploration stage.
The Caribou and Restigouche properties contain total proven and
probable reserves of 4.9 million tonnes grading 6.60% zinc and 3.45%
lead, along with 0.34% copper, and 86.4 g/tonne silver. The properties
also contain inferred resources totalling 3.9 million tonnes averaging
7.36% zinc, 3.59% lead, and 107.0 g/tonne silver.
The Company is well-financed, with a viable, updated operating plan
for the Caribou operations and no debt, as well as all related
infrastructure in place to recommence production. There is potential
to add to mine life within the known deposits, as well as potential for
exploration in various nearby, 100%-owned properties. In addition,
due to the Caribou operations’ proximity to the city of Bathurst, via a
paved highway, the Company should have no problem attracting a
well-skilled labour force.
During the first five years of the new millennium, average zinc and
other base metals prices were not conducive to sustaining a healthy
mining industry. The result was that few new mines were developed,
and the mines that were in operation suffered from budgets that
provided insufficient capital to replenish reserves or sufficiently
develop the mine infrastructure past the short-term production needs.
Recently, most metal prices were at all-time highs, and in the short
term, we expect that zinc and lead prices will increase further. The
acquisition of the Caribou and Restigouche properties has accorded
Blue Note high leverage to zinc, with some additional leverage to
lead. With zinc production at the Caribou properties expected to
average 100 million lbs per year, we believe that Blue Note is poised
to capture peak zinc prices, creating significant potential upside for
investors.
We are initiating coverage on Blue Note Mining Inc. with a
SPECULATIVE BUY recommendation and a target price of $1.00
BN-Blue Note...Company has a powerpoint presentation on their website for investors. They point out that they expect to increase current reserves substantially in 2008 by converting current resources to reserves with additional drill testing results being done this year. That will increase Caribou from a 5 year to a nine year reserve life. Also there are 3 other properties they own in the nearby area that can also be served by their mill.
An analyst said that BN has invited him and other analysts up to their newly reopened Caribou mine next week. The thought is that operations are going well and they want to attract more interest. There is also talk that they may increase their target production rate by 25%. Main output is zinc but there also is substantial lead. I believe that the market has been waiting for positive results before the SP heads north. Those results are starting to come in now.
I have sold about 1/3 of my BWR recently but I believe that BN is only getting started. I hope to see $1 by fall.
Top buyout candidates: Here's a computer generated list that I had posted a couple of months ago. Aur Rescources was on that list and I credit much of the fire that was lit under mining stocks this last week to that recent news. Now I wonder who is next? It includes miners that we often discuss including BWR, HBM, QUA, ARG, Blue Pearl and others:
"In a report thats sure to thrill hedge fund clients, CIBC quantitative analyst Yin Luo showed acquired companies share a number of characteristics, all of which show up on an investors screens. This latest instalment in a 16-month-old research project also named 50 potential targets...
Companies that get taken out tend to show lower growth than rivals, along with positive short-term earnings momentum and negative earnings surprises. They also tend to be viewed negatively by analysts. Compared with peers in their sectors, targets have lower price-to-earnings ratios and are relatively small, but their stocks tend to be more liquid.
All of these factors can be plugged into a computer, which will then sort out who fits where in corporate Canada. So who are the targets? Well, one quick caveat: The list did not knock out dual-class stock structures, or companies that would kick up anti-trust issues if acquired by rivals. The CIBC warning label said: We recommend investors use this list as the first screen for more in-depth research...
The hot sectors for M&A are mining, forest products, telecom, information technology and consumer discretionary companies. There are also a handful of income trusts on the list.
Among S&P/TSX 60 companies, the quants see Nova Chemicals, Agrium, Lundin Mining, Teck Cominco and BCE as targets. Obviously, BCE is already in talks, and Teck Cominco has a dual class share structure. Moving down the list, S&P/TSX composite companies that show takeover-friendly characteristics are: - Blue Pearl Mining - HudBay Minerals - Northern Orion Resources - Methanex - Equinox Minerals - Anvil Mining - Aur Resources - Great Canadian Gaming - Eastern Platinum - Manitoba Telecom - Ivanhoe Mines - First Quantum - ATS Automation Toooling - Inmet Mining
Among the income trusts, the list includes five S&P/TSX composite members: - Consumer Waterheaters - True Energy - Daylight Resources - Labrador Iron Ore Fund - GMP Capital The smaller trusts that show up on CIBCs screens are:- Strongco Income Fund - Chemtrade Logistics - Sun Gro Horticulture - Atlantic Power
The final group here are companies that arent in the S&P/TSX composite index, and they are: - Ainsworth Lumber - Tembec - Fraser Papers - Bear Ridge Resources - Aurelian Resources - Birch Mountain Resources - MKS - Quadra Mining - Collicutt Energy Services - New Gold - Magna Entertainment - Amerigo Resources - Atna Resources - Global Alumina - Constellation Copper - Velan - Seamark Asset Management - Breakwater Resouces - North American Palladium - Vasogen
CIBCs work shows the small-cap companies are being bought out at a far faster clip than the larger rivals
Interesting, I had not heard about the end of month cycle before. I also heard a comment that the market goes up about 80% of the time on the day before a holiday. I think there are also studies that ties the markets to the presidential cycle too. As I recall the first two years after a presidential election are the worst and the third year is the best (which is where we are now).
BN- Very nice opening. Interesting that "firecracker" was on Yahoo RNO board yesterday saying this is the best buy he has ever seen. I have liked this one since I dd'd it in early May.
They have reopened Breakwater's old caribou mine and expect to produce 100+ mil lbs of zinc annually at a cost of 53c/pound (less now with high prices for lead). At that rate they will cashflow $120 mil/year. The mine has an estimated 9 year life plus they own 3 other properties in the same area with excellent prospects which can be served by the same mill, including Canoe Lake which appears to have several times the ore in Caribou based on old drill test results. Estimated P/CF for next year is well under 2.
cl...firecracker has posted here and on VMC on occasion, most recently about 6 months ago so there's no doubt that person has checked out our ideas.
XNN..Now I see the supervision night vision unit even uses Sony lenses. I remember a poster on Yahoo a while back claiming that he used his Sony nightshot digital camcorder to do the same thing as supervision does. Plus the camera is about$700-$800 cheaper, although I guess it would be tough to fit a camcorder on a gunsight.
SMTX...Len, pulling the trigger on SMTX cost me 20c as it closed at very near a new high on huge volume. As hweb commented, I sure would like to know who is buying it all! Maybe news is coming but still I'm a happy camper as it has already had a huge runup lately.
Happy 4th to all!
SMTX- Just sold my position, it does appear to be getting ahead of itself. Also it now has a gap to fill.
Miner buyout...Teck is paying $4.1 Billion for Aur which produces 200 mil lbs of copper per year. Right now, QUA produces 125 mil lbs of Copper per year and has a $700 million market cap (includes the recent secondary). So QUA currently produces 63% of AUR's production with only 17% of the market cap. By the end of next year, QUA will have the Carlota mine in production and will then also be producing 200 million pounds of Copper per year. It will be a great day for AUR but should also be a pretty good trading day for QUA.
>When you see stocks that simply toggle between the bid and ask where there is an 8 lane spread, free money is possible. Simply park yourself in between it leaving enough room so that they don't want to overcut or undercut you. As long as you have 1,000 shares, they can't ignore your bid or ask.<
Len, that is an interesting strategy in trading wide bid and ask spreads. But my understanding has been that bbs and pinkies are unlike listed and nasdaq stocks in that the mm can simply ignore bids and offers between his spread. Or has that changed?
Weren't analysts just talking about how moly would be sustituted for nickel in making stainless steel? There goes that scenario and nickel demand should continue to increase.
I continue to like ARG.to. They expect to produce 60 mil lbs of Copper and 1 mil lbs of moly this year vs 25 mil lbs and 675,000 lbs last year. Trailing PE of 6 and they also pay a nice dividend as well.
At least let us know who it was that made you cease and desist from playing the online music that we all have enjoyed.
BRLC, I'm sure you are right about the commoditization of HD LCD and plasma TVs. It will happen eventually, but I don't plan on holding BRLC that long. Maybe a year or so and then I'll hopefully have LTCG and save some taxes.
BRLC...I have also taken a good sized position in this one recently. Seller of value priced "Olevia" HD tv's. This one has been weak as the shorts pile on due to secondary offering and negative cash flows. Sales have been booming, more than doubling from a year ago. Negative cashflows are common in that situation.
Most tv's will be unusable without digital converters as the FCC has mandated that tv transmissions must be all digital by feb 09. Digital converters will be available but I believe that many people will toss the old tvs and buy new High def tvs.
Company expects to turn cash flow positive in the current quarter while sales continue to boom. Analysts expect the company to earn 55c this year and 75c next year. Not bad for a $5 stock. Stocklemon did a negative report on this one last year but I expect that when BRLC goes CF positive that the shorts will head for the exits. Could be an easy double, IMO. We shall see.
BWR- I am surprised that they didn't apply for an amex listing as I am sure they qualify now. Instead they went the opposite direction and are moving from the bb to the pinks. Perhaps they are also looking at some possible acquisitions which are easier to accomplish without S/O.
Canroys have been doing very well lately too. Two that I own, AAV and HTE, are providing me with strong capital gains of late while they pay high dividends every month to boot.
cl, I thought about your fatherinlaw's comments about buying nickel yesterday and decided to unload a bunch of LBE yesterday. That is looking like an excellent decision considering what is happening today. Be sure and thank him for his "fatherly" advise and let us know what he recommends next time.
BWLRF- Hit a new high today. I certainly have no complaints but I am scratching my head as to why it is so strong when nearly all of the miners are in the red today. Good news on the horizon that is not released yet or perhaps a buyout offer is coming????
TAM- I think the price spiked last friday afternoon because the third and last aboriginal tribe in the area has signed a letter of agreement supporting the R-190 project. The feasibility study should be out soon now.
HSOA, I can't imagine anyone issuing a PR for a huge contract without permits being approved, at least not without saying that the permits have yet to be issued. And they say it is too big a headache for the addresses on the 2 projects with the building permit applications to be given?? Or maybe they just don't want anyone to know the problems they are having trying to get those permits??? One needs an address to be able to look up the permit status at the NYC website.
The one project they do have a permit for and gave the address to certainly has a colorful history with 19 complaints, 13 violations, and several work stoppage orders already issued. That property has had 3 stop work orders against it since last year that were all just resolved yesterday (probably after they became aware that the street.com reporter would have a story about it). Here's a couple of links to the NYC building dept's info for that project:
http://a810-bisweb.nyc.gov/bisweb/ComplaintsByAddressServlet?requestid=5&allbin=3062184&fill....
http://a810-bisweb.nyc.gov/bisweb/PropertyProfileOverviewServlet?requestid=5&bin=3062184
We've seen over a 40% drop in LME copper inventories in about 4 months. Most amazing is that 4 months ago so many pundits were saying the copper shortage is over and that inventories were only going to increase going forward. Those anal-ysts have an even worse track record than fund managers.
HSOA, Wade I don't think this story is nearly as clear as you picture. While I don't think that HSOA fabricated those contracts out of thin air, I do believe that they stretched the truth just like they have done in the past. Also the market isn't convinced either as the SP was still down for the day yesterday and it is also down again this morning. Here's my post as to why I think they were premature in announcing the FL contract:
http://www.investorshub.com/boards/read_msg.asp?message_id=20226179
I was looking at the banter on HSOA's board over at Yahoo. One comment that several made is why would HSOA mgmt announce those contracts if they were not true since insiders haven't sold any stock this time like they did after those controversial pump and dump announcements last year? Interesting thing is that some insiders including the CEO and CFO bought stock early last December. Fradella filed the notice with the SEC of his purchase on 12/04. After getting burned by it last time, I am sure that they are well aware that under SEC regs they need to wait 6 months minimum between buying and selling stock at their company. That 6 months period ended just about the same day that lemon's blog came out. Maybe lemon squashed their plans to sell stock again??? I don't know but they sure can't sell now after all this. Bottom line- mgmt can't sell but I sure would if I still owned it.
Once again, inventories of zinc and copper have declined and so are prices. I wonder what happened to that finance professor who spent so much time lecturing about price curves based on the law of supply and demand?
:-}
For some reason, Lundin has a history of locking in low silver prices. As I recall from back when they were proposing to acquire EZM, the lion's share of their projected silver output was hedged at very low prices back then. Now they are doing the same with the former EZM mine silver output.
curlews, Wow! those guys at Citigroup were so far off before that I am surprised that they are still metal analysts there much less that investors are paying heed to them today. I'll bet they didn't do much better in predicting prices of other metals either. Didn't I see somewhere recently that China, the biggest user of nickel, expects its consumption of nickel to grow by 40% over the next 3 years?
OT- Anyone shopping for a new barbecue? I bought a stainless steel barbecue 2 years ago. I read somewhere that one should take a magnet with them to the store when shopping for one as a magnet will not stick to the better quality of stainless steel. The cheaper grade that the magnet sticks to will rust over time. I discovered that the magnet did indeed stick to some barbecues but not to others. I bought a barbecue that the magnet did not stick to and the stainless steel still looks like new today despite being outdoors year round.
I stopped by the barbecue dept at the local Lowes just last week just to see how much prices have gone up due to cost increases of stainless steel. I was surprised to see that SS barbecue prices have apparently not increased at all in the last two years. There also seems to be even more stainless steel in the average barbeque than there was 2 years ago. So much for high prices choking off demand, at least for barbecues. Also the vast majority of mid to high level kitchen appliances are made with stainless steel. Again, demand in that area has only increased despite higher prices.