Friday, April 8, 2011

Stocks Unleashed (ASX): Marengo Mining (MGO): A Future Takeover Target?

By Peter Koay

Comparison of Marengo Mining (MGO) and Equinox (EQN)
With the news of the US$6.5B bid for Equinox from MinMetals hitting the markets yesterday, timed at a point where copper price is still hovering above $4, this helps provide confidence to the markets that there is a brighter future to copper beyond the immediate future. This suggests that copper price may well be set to be above $4 in the years to come (this confirms my earlier assumption of $4/lb average copper price for the years to come). Demand for copper is forecasted to be outstripping the supply for this year and the following year, and it seems that this scene won’t be changing in the near-term as it does take quite some time to prove and bring out copper resource from the ground.

I’ve done some comparisons of Equinox and Marengo considering that Equinox is a pure-copper play.

A summary of the comparison:

§  MGO’s M&I copper resource is about 50% of Equinox’ Lumwana Project

§  MGO’s capital cost is twice the capital cost of Lumwana (this may be due to cheaper construction costs in Africa compared to PNG).

§  MGO has the potential to become the top 15 largest copper producer in the world when it ramps up to 50Mt (at ~0.5% Cu), i.e. production rate of 250ktpa, making it to be in the league of Equinox.

§  MGO and EQN’s operating costs are similar.

§  Note the ratios (highlighted in green) to compare Yandera Project with Equinox’ Lumwana or Jabal Sayid projects. This indicates that MGO in 2-3 years time shall at least be 8-10 times the market price of today.  

§  Note the comparison of Jabal Sayid’s project with Yandera project: This shows the potential that MGO has to become at least a $1B mkt cap company (even before achieving production). My thoughts is that it’ll reach $1B market cap when DFS is released, EPC Lump Sum contract signed, project financing completed(targeted for Nov’11) and offtake arrangement contracts signed. So, $1/share for MGO by end of this year is not an unrealistic target.
Note that MGO share price has been hovering between $0.30-$0.32 over the past week, with a breakout today to finish at $0.335. The share price was consistently capped by ~1M shares buying at $0.31 and 1M shares selling at $0.32. It is believed that some big funds are accumulating MGO shares to force out weak holders of the share in anticipation that the share price shall go up when the DFS is released.

These two caps have been removed today, with dad & mum investors to provide the next push to $0.40. The share has recently been also reported on the HeraldSun newspapers, promoting public awareness of this share. Refer to:

So far, Eureka and HeraldSun have reported on this share. I’m expecting to see ‘BRW’, ‘AFR’, ‘The Age’ and ‘The Australian’ to report on this share shortly. This will provide some additional boost to the share price ahead of the DFS announcement.

1 comment:

  1. I like how you compared both Marengo Mining (MGO) and Equinox (EQN). These interesting facts about them gave me an idea on how it works on both sides.

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