Scotia Mcleod holding price-Already modelled dilut Mercator Minerals Ltd. (ML-T C$0.61)
Mark Turner, MBA, P.Eng. - (416) 863-7484
(Scotia Capital Inc. - Canada)
Immediate Pressure Relieved
Event
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ML has entered into a mandate with RMB Resources Inc. (RMB) to arrange a corporate
debt facility for up to $30M. The primary purpose of the new facility is to replace ML's
existing C$25M El Pilar pre-construction facility (PCF), which comes due in early January
2013.
Implications
¦
While we expect improved operations at Mineral Park over the next 12 months to fund
operating expenses and meet the modest capex programs at Mineral Park and El Pilar, we
expect ML's debt servicing obligations to severely limit cash flow available for growth and
to equity holders.
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ML views the refinancing of the PCF as a first step of several in strengthening the balance
sheet. Discussions are ongoing with various parties to refinance/rebalance the remaining
credit facilities and overdue trade payables, with the aim of more closely matching
repayment schedules with the longer lives of its assets.
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We have incorporated the mandated RMB facility in our model, assuming the contemplated
terms and conditions. We continue to model an equity raise of $20M by issuance of 40
million shares in Q1/13. While we believe it is likely that ML will be able to restructure its
credit facilities with its banking syndicate, we believe an equity raise and/or additional
hedging are likely to be negotiated.
Recommendation
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We maintain our 2-SP rating and our target price of C$2.00 per share.
Pertinent Data
Rating:
2-SP
Risk:
Caution
Target:
1-Yr C$2.00
Adj. EPS12E:
$0.04
Adj. EPS13E:
$0.09
Adj. EPS14E:
$0.11
Valuation:
0.58x Minesite NAV + 1.0x Net Cash
Items
Key Risks to Target:
Commodity price, operating, and
technical risks, environmental and legal
risks
Full Story
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