RE: New Target : 13.5Jennings has always been too conservative in its evaluation of ML. Last week, I set forth an analysis that values ML at 16.875. Taking another approach, that number can be verified easily enough.
Jennings makes the assumption that the long-term values of copper is $2.00 a pound (up from $1.50, now there’s a shocker!) and molybdenum, $16. To illustrate just how far behind the curve Jennings has been on this matter, that $16 long-term assumption one that I had projected here a year and a half ago!
Jennings is not alone in the analyst community in talking down the value of commodities. Other do the same. In reality, it is their job to do just that, because it creates a more favorable business climate for themselves. As an example, prior to last years debt offering, Jennings was clamoring for a financing that was more heavily skewered towards equity. And obviously, Jennings would just loved to have gotten a big piece of that! Instead, ML made the judgment (correctly) of the sustained viability of the commodity they had in the ground, and went heavily towards debt financing, and thereby prevented a substantial amount of dilution. Sorry to disappoint you, Jennings, but that was obviously the right move.
In the not too distant future (but not immediately at hand) copper will break out solidly and substantially above $4.00, and that will forever shatter the pessimistic assumptions that continued to be made for copper, and for molybdenum, as well. Even now, it is realistic to make these baseline assumptions for the long-term values of copper and molybdenum of $2.25 and $22 per pound.
One of the more important impacts of those numbers would be to expand the viability of including ML’s inferred resources into probable reserves.
For molybdenum, it’s current proven and probable reserves of 343 million pounds should then also include its additional inferred resource of 231 million pounds, with an in situ value of $12.628 Billion at $22 per pound.
For copper, it’s current proven and probable reserves of 1.4 billion pounds (0.15 billion of which are leach reserves) should then also included its additional inferred resource of 430 million pounds, with an in situ value of $4.117 Billion at $2.25 per pound.
$12.628 Billion plus $4.117 Billion equals $16.742 Billion.. Discounting that to its NPV of 8% equals $1.34 Billion. Divide that by 79 million shares, and it yields a share value of $16.96 a share. That is almost exactly the same value that I had ascertained by a different approach last week. Throw in the silver, and that adds another dollar per share.
If anyone is going to acquire ML in a take out offer just now, it would probably cost them $18 per share. The upside to that is that if commodity prices stabilize near current levels, and ML throws off $4.00 per share in cash flow, then the market would value ML between $25 and $30 per share.
By the way, here is a link to the Jennings report, as the other link that had been given didn’t seem to be working.
https://www.jenningscapital.com/pdfs/ML02212008RevisedMetalPricesBoostsNAV.pdf