Amerigo Resources Ltd T.ARG

raymond james

[greatemailslob]

Amerigo Resources Ltd.

ARG-TSX

4Q09 EPS In-Line – Investment Case Intact

Event

Amerigo reported in-line 4Q09 EPS of US
.03 versus our estimate of US
.03.

Action

We reiterate our MARKET PERFORM rating and C$1.10 target price.

Analysis

Balance sheet in good health. Subsequent to the exercise of 36.4 mln warrants

in 1Q10, ARG has US$17.9 mln in cash. We estimate ARG will exit 1Q10 with

US$-7.7 mln in net debt compared to US$14.1 mln in 4Q09.

Investment case summary. Our neutral investment case is predicated on 1)

higher commodity prices, 2) production growth and 3) declining operating

costs. However, we retain our cautious of view on the existing hedge book and

Chilean Peso strength. Amerigo stands to benefit from rising molybdenum

prices. We estimate a US
.02/lb, or 1%, decline in cash costs for a 10%

increase to our 2010E moly price forecast of US$21.00/lb and 14% increase in

2010E EPS assuming a 10% increase in our US$3.56/lb copper estimate. We

forecast copper production to increase by 20% to 21,100 tonnes in 2011E over

2009E production volume of 17,700 tonnes. A stronger Chilean Peso relative to

the U.S. dollar works against Amerigo as Chilean Peso denominated costs

grow faster than U.S. dollar denominated revenue.

Modest changes to our forecast. Our EPS estimates decrease due to the higher

number of shares outstanding after the exercise of 36.4 million warrants in

1Q10. ‘10E and ‘11E EPS decrease to US
.29 (prev. US
.37) and US
.38

(previously US
.49), respectively. Our NAV remains unchanged at C$1.82.

 Valuation

Amerigo’s shares trade at a P/NAV of 0.38x vs. the peer group of copper

producers’ weighted average of 0.66x. Our target price is based on a 0.60x

P/NAV multiple (in-line with risk and liquidity adjusted historic producer

target multiples).