Mercator Minerals Ltd MLKKF

RE: RE: Excerpt from prospectus

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See my comments in bold and underlined.

My take on this is as follows :-
(1)Feasibility study showedviability on copper price of $1.50 and Moly price of $5. before theproject was commissioned at Mineral Park.            Moly price was $10
(2)Silver already sold up-front to Silver Wheaton for upfront price of US$42 million last year.
(3)New additional copper from new mine already shipped in Dec.'08.
(4)Interest payment per quarter is $3.45 million  Interest expense is $3.45 million quarterly but payments are being made semi annually.
(5)Previousinterest payments were paid from lower copper production figures,whichgoing forward, are larger although at lower prices. The larger volumewill mitigate the lower price and thus allow clearance of futureinterest payments  True. Company will have the cash to pay the interest payments however that is not the issue.
(6)As long as interest payments are met, the default on loan will not be triggered.  Not true.  Not a question of whether the interest payment is paid but whether a covenant ratio is broken.  Interest expense for the quarter has to be lower than EBITDA (Earnings before interest, taxes, depreciation and amortization for the quarter).  If not than a cash sweep is triggered (all free cash paid to noteholders).  If this happens for 5 consecutive quarters than default situation will arise.  At the end of the third quarter September, 2008 this covenant ratio would have been broken and in all liklihood the fourth quarter would show the same situaton.  (Mercator needs to really ramp up production to avoid violating ratio.)  That is why covenants only come into play starting with June 2009 quarter end).  Hopefully they have ramped up to levels by then where EBITDA can exceed the $3.45 million interest expense.
(7)BoughtDeal is invariably an indication of institutional support, henceunlikely for ML to go under.The $23 million addition to the cashposition will be sufficient to take them into later half of 2009.  The $23 million if not spent by June could disappear in a cash sweep to the note holders.  Then additional funds have to be raised.
(8)Ifthe mine operating costs are as low as management has claimed, thiswill help to improve cash margins and tie them over this difficultperiod. Nothing new for other mining companies as well.
In view ofthe above, ML should be able to achieve their long term goals and getto full production of 50 million pounds of copper, 10 million pounds ofMoly. Likely Silver Wheaton will ensure that ML keeps going as thesilver belongs to them as well.  Not sure what Silver Wheaton could do.