Mercator Minerals Ltd MLKKF

Ml revisited

[seriousinvest]

I was revisiting my ML position. My motivation had nothing to do with Ml in particular but a general concern that I might have too much exposure to the base metals if the US slowdown does in fact spill over to China(a distinct possibility but IMO probably won't happen but I'm not sure I want tobet on my hunch). Before selling I did some research which I thought I'd share with you. There is a 1/09/08 report from Jennings Capital that I found particularly helpful. I first learned of ML from reading a report by the same analyst(Ron Coll) who was recommending ML in early '06 when it traded around $1(I think the first target was around $2-3).IMO the report is pretty thorough. It contains financial projections using current metal market prices and assumed lower prices over the next few years. I think the assumed prices are conservative but in either case this does not seem like a stock you want to sell. At current metal prices it will earn $3/$4 in '09/'10. Even with a modest 8 P/E the stock would be worth around 3x its current value in a year or so . If you use the lower metal prices in the report i.e.Cu $1.88/$1.49 in'09/'10(currently around $3.20 with future prices for'08 and '09 essentially at or above $3-BTW Cu has been above $3 since the beginning of '06) and Moly $18/$15(note that Moly has averaged around$30 in '07-started '07 at around $25 and ended around $33-one of the only base metals whose price did not decline in '07) which seem incredibly conservative;ML would earn $1.07/$1.71 in'09/'10. 8X $1.71 gets you to around $14(50+% above the current market). ( The Moly may be the real key here because the Cu costs around $.80/lb to mine and the Moly around $10 so if Cu were to decline to $1.50 but Moly declined to only $25 it would derive around $50M in profits from Cu and $150M from Moly(pre tax EPS of around $2.35 in '10-I can't model the taxes but I assume they would reduce earnings by around 20% which would still justify a price of around 1.67-2x the current market). Of course, I have no particular insight into the Moly market but I note that prices were higher in '05(around $45) declined in the beginning of '06 to around $25 and have been basically flat to up since then. Could they decline from here? Of course, but Moly seems far more resistant to an economic slowdown then other metals.