Industry ComparablesMercator Minerals trades with an excellent correlation to the widely followed Steel sector ETF. Yet, as the 5-day and six-month charts below demonstrate, ML has begun to lag that sector.
If anything, ML ought to be towering about this benchmark, for it is a certainty that no one in their industry can match these operating dynamics of its Mineral Park mine: “Cash costs are estimated at US$0.81 per pound copper equivalent, at US $2.00 per pound copper, the molybdenum production is free, or at US$10.00 per pound molybdenum the copper production is free.”
Using that line from Beacon as a point of departure, this might address the point that Bjorn had raised about earnings in the previous post. At $4.00 Copper, ML earns $106 million above its $2.00 cost of operations. To that, add 10 million pounds of "free" molybdenum, at $30, and that would come to a total of $406 million. The effect of taxes would reduce per share earning, under that scenario, to $3.60 per share. Industry multiples for those kind of earnings are reasonably well established at 8X, at a minimum, so that would equal a share price of $28.80. In addition, analysts who are bullish about the secular trend feel strongly that the time will come when these absurdly low multiples for base metal producers are permanently revised upward!
BTW, beginning in September, the LME will begin to offer long-dated futures contracts for copper that extend out to 10 years. There is now some well written analysis on the Internet that demonstrates that the current backwardation price for 10-year dated futures Copper will be in the vicinity of $2.30, and not the silly old $1.50 or $1.60 level (a price that was alluded to by the analysts in my previous post, notwithstanding their more bullish posture for the next several years).
