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Friday, March 25, 2011

ASX: Marengo Mining Ltd (MGO) – The Best Buy of 2011!!

By: Peter Koay
 
The results of my research are getting much more interesting and exciting than I had envisioned earlier! I decided to compare Rex Minerals (RXM) with Marengo Mining (MGO) after reading an article in Eureka Report that compared SFR and RXM in Oct’10.



RXM & MGO Comparison Table:


MGO
RXM
Copper Resource:


Measured
1 Billion pounds
Nil
Indicated
1.9 Billion pounds
Nil
Inferred
3.6 Billion pounds
2.64 billion pounds
Other resources:
Molybdenum
Gold
Measured
45 M lbs ($540M)
Nil
Indicated
68 M lbs ($816M)
Nil
Inferred
91 M lbs ($1.09B)
1.1 Moz ($1.5B)
Capital Cost:
US$1.6B
Not determined yet
Financing Strategy:
NFC offering to arrange financing of at least 70% of the capital cost of project

Market Cap:
$300M
~$430M
First Production:
2014
Unknown
Completion of DFS:
1Q 2011
Unknown (starting in 2012, but could last for more than a year)
Cash at Bank:
~$70M
$103.7M
Exploration Upside:
Project covers +100km of the highly prospective Bundi Fault Zone. Less than 5% of structural corridor drilled to date.

Operating Cost:
$0.90-$1.00/lb of copper
Unknown

If comparing JUST the inferred category of resource, MGO has $15.5B and RXM has $12.06B worth of resources (based on $4/lb for copper and $12/lb for Mo and $1350/oz for gold). This means that MGO should be at $550M market cap purely on an inferred resource comparison basis, i.e. a share price of $0.56!! We haven’t even factored the resource that MGO has in the measured or indicated category!!

In my opinion, MGO should experience a significant re-rating soon (if not NOW!!). It’s either SFR, RXM and OZL share prices that need to drop to the level of MGO, or alternatively, MGO rising up to the level of SFR and RXM.

In any case, if one is to buy MGO shares now and hold them for 3 years, one will have a stake in a $300M market cap company that will be producing US$600M cashflow per year in 2014! This will be a very attractive takeover target!!

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