Report by scotia dated Nov 29Don't know how this will post but copy and paste the link below for a full clear report.
https://www.seanfahy.com/reports/Daily_Edge/dailyedge.pdf
Investment Views Scotia Capital
Monday, November 29, 2010
Mercator Minerals Ltd. (ML-T C$3.37)
Mark Turner, MBA, P.Eng. - 416-863-7484
(Scotia Capital Inc. - Canada)
mark_turner@scotiacapital.com
Est. NTM Div. C
.00
Div. (Current) C
.00
Yield 0.0%
Rating: 2-Sector Perform Target 1-Yr: C$4.00 ROR 1-Yr: 18.7%
Risk Ranking: Caution Warranted 2-Yr: C$4.00 2-Yr: 18.7%
Valuation: 1.3x Operating NAV + 1.0x Net Cash Items
Key Risks to Target: Commodity price, operating, and technical risks, environmental and legal risks
Amended Q2/10 and Q3/10 Financials
Event
¦ Amended Q2/10 and Q3/10 financial statements filed on Friday after
market close.
Implications
¦ Q3/10 financial statements were amended to correct for an
overstatement of revenue from the sale of copper concentrate and
to include realized and unrealized losses on the copper hedge book.
¦ Reported net income in Q3/10 was negative $75.9 million, which
included an unrealized loss on the copper hedge book of $81.3 million.
Adjusted net income for the period was $5.5 million or
.02 per FD
share. Operating cash flow was $9.5 million or
.04 per FD share.
¦ Q2/10 net earnings were restated to include realized and unrealized
gains on the copper hedged book in the period.
Recommendation
¦ No change. We maintain our 2-Sector Perform rating of the common
shares of Mercator and our one-year target price of C$4.00 per share.
Capitalization
Shares O/S (M)(FD) 233.3
Total Value (C$M) 786.1
Float O/S (M) 231.9
Float Value (C$M) 781.4
Next Reporting Date Mar-11
Qtly Adj EPS (FD) Q1 Q2 Q3 Q4 Year P/E
2009A $-0.11 A $-0.04 A $-0.01 A $-0.01 A $-0.13 n.m.
2010E $-0.06 A
.01 A
.02 A
.05
.04 82.69
2011E
.06
.06
.06
.08
.25 13.23
2012E
.07
.09
.11
.11
.38 8.70
(FY-Dec.) 2008A 2009A 2010E 2011E 2012E
Adj Earnings/Share $-0.37 $-0.13
.04
.25
.38
Cash Flow/Share $-0.29 $-0.01
.15
.44
.49
Price/Earnings n.m. n.m. 92.4 13.5 8.8
Revenues $29 $89 $186 $343 $411
EBITDA $-13 $4 $-5 $137 $174
Current Ratio 0.4 1.8 3.1 5.2 4.5
EBITDA/Int. Exp n.m. 0.3 n.m. 19.1 26.1
IBES Estimates BVPS10E
.69
CFPS 2010E:
.17 NAV $2.93
CFPS 2011E:
.56 P/NAV 1.13x
Historical price multiple calculations use FYE prices. Source: Reuters; Company reports; Scotia Capital estimates.
All values in US$ unless otherwise indicated.
Amended Q2/10 and Q3/10 Financials
¦ Mercator filed amended Q2/10 and Q3/10 financial statements on Friday (November
26, 2010) after market close. The company previously indicated, on November 18, 2010,
that it would be restating Q3/10 financials after a clerical error was discovered that caused
reported revenue from copper concentrate sold during Q3/10 to be overstated.
¦ We have updated our model to reflect the revised Q2/10 and Q3/10 financials. We
maintain our 2-Sector Perform rating and our one-year target price of C$4.00 per
share.
¦ Q3/10 production levels and reported site operating costs were unaffected ($9.61/ton
milled). However, reported co-product cash costs were revised to $2.11 per lb copper
and $9.57 per lb molybdenum, from $2.12 per lb and $10.65 per lb, respectively.
Revised costs are now closer to being in line with our co-product C1 costs of $2.13 per lb
copper and C$9.15 per lb molybdenum.
The Amendments
¦ Restated Q3/10 financial statements were also amended to reflect the copper hedge
book that was entered into in Q2/10 in connection with credit facilities arranged in May
2010. The amendment to include the copper hedge book was not discussed in the November
18 press release, and consequently the restated financials differ from what was indicated in
the press release.
¦ Net result – Q3/10 reported net income was negative $75.89 million (negative
.39 per FD
share), which included an unrealized loss on the copper hedge book of $81.26 million.
Adjusted net income for the period was $5.46 million or
.02 per FD share. Operating cash
flow was $9.48 million or
.04 per FD share. Cash balance at the end of the quarter was
$46.7 million, in line with our expectation of $49.5 million.
¦ Q2/10 financial statements were also restated to reflect the copper hedge book. While net
income was increased to $23.44 million to reflect the realized and unrealized gain on the
copper hedge book in the quarter, adjusted net income was unaffected at $3.08 million or
.01 per FD share. Operating cash flow, unaffected, was $9.48 million or
.04 per FD
share.
¦ Our NAVPS10% has decreased slightly to $2.93, from $3.00, reflecting our lowered
estimate of cash and cash equivalents at the end of Q4/10 to $74 million, down from $79
million.
Exhibit 1 - Updated NAV Breakdown
Net Asset Value (US$M) NAV8% NAV10% NAVPS10% (%)
Operating assets (after taxes)
Mineral Park $630 $565 US$2.50 85%
El Pilar $213 $174 US
.77 26%
Total operating assets $843 $739 US$3.27 111%
Equity investments
US
.00 0%
Other assets
US
.00 0%
Total other assets
US
.00 0%
Corporate adjustments
Cash and cash equivalents $74 $74 US
.33 11%
Cash from exercise of warrants $46 $46 US
.20 7%
Debt and capital leases ($159) ($159) (US
.71) (24%)
Corporate G&A and hedge book ($37) ($36) (US
.16) (5%)
Total corporate adjustments ($76) ($76) (US
.34) (11%)
Net asset value
Total NAV $767 $663 US$2.93 100%
NAVPS (US$/share) US$3.39 US$2.93
NAVPS (C$/share) C$3.46 C$2.99
Source: Scotia Capital estimates.
xhibit 2 – Financial and Operational Summary
November 26, 2010 Mercator Minerals Ltd. (ML-TO C$3.37)
Q1/10A Q2/10A Q3/10A Q4/10E 2009A 2010E 2011E 2012E
Per share data (US$ per share)
Net Earnings per share - FD (
.06)
.10 (
.39)
.11 (
.13) (
.20)
.34
.45
Adjusted Net Earnings per share - FD (
.06)
.01
.02
.05 (
.13)
.04
.25
.38
Operating CFPS (pre WC) - FD (
.03)
.06
.04
.07 (
.01)
.15
.44
.49
Net Free Cash Flow per share (basic) (
.03) (
.14)
.03
.14 (
.47) (
.00)
.26 (
.46)
Dividend per share (basic)
.00
.00
.00
.00
.00
.00
.00
.00
Book Value per Share (basic)
.94 $1.08
.69
.82
.99
.82 $1.26 $1.90
Financial Ratios
Price/Earnings (P/E) (FD) nm 94.2x 13.7x 8.9x
Price/Cash Flow per Share (P/CF) (FD) nm 23.0x 7.6x 6.8x
EV/EBITDA 109.6x nm 5.2x 4.5x
EBITDA Margin 5% (2%) 40% 42%
Debt/[debt+equity+MI] 39% 50% 38% 28%
ROE (9%) (25%) 31% 26%
ROIC (6%) (12%) 19% 19%
Dividend Yield 0% 0% 0% 0%
Income Statement (US$M)
Revenue $23.9 $53.0 $49.7 $59.4 $88.7 $185.9 $342.6 $411.4
Operating Costs ($24.0) ($28.2) ($34.2) ($35.5) ($71.6) ($121.9) ($179.8) ($223.1)
Depreciation and Amortization ($2.8) ($8.4) ($2.8) ($3.4) ($8.6) ($17.5) ($15.4) ($18.2)
General and Administration ($2.7) ($3.1) ($4.2) ($2.0) ($7.5) ($12.0) ($8.0) ($8.0)
Exploration (expensed)
.0 (
.1) (
.0) (
.1) (
.1) (
.1) ($11.1) (
.2)
Stock Based Compensation ($1.9) ($2.2) ($1.0) ($1.0) ($5.4) ($6.2) ($4.0) ($4.0)
Other ($4.2) ($7.9) ($2.0) ($4.4) ($16.5) ($18.5) ($32.1) ($24.8)
Operating Earnings ($11.7) $3.1 $5.5 $13.0 ($21.0) $9.8 $92.3 $133.1
Total Taxes
.0
.0
.0 ($1.5) $3.2 ($1.5) ($35.3) ($45.6)
Other
.2 $20.4 ($81.3) $13.0
.2 ($47.8) $22.1 $16.4
Net Earnings ($11.6) $23.4 ($75.9) $24.5 ($17.6) ($39.5) $79.1 $103.8
Adjusted Net Earnings ($11.7) $3.1 $5.5 $11.5 ($17.8) $8.3 $57.0 $87.4
Shares O/S (million; basic; EOP) 194.8 194.9 195.1 196.4 193.7 196.4 199.4 208.8
Shares O/S (million; FD; EOP) 230.7 231.3 232.0 232.0 231.0 232.0 232.0 232.0
EBITDA ($4.6) $39.8 ($71.1) $31.3 $4.4 ($4.6) $136.9 $174.4
Cash Flow Statement (US$M)
Operating cash flow (pre WC) ($6.0) $13.0 $9.5 $17.4 ($1.2) $33.9 $102.6 $114.6
Change in non-cash working capital $7.9 ($39.4)
.7 $1.4 ($22.7) ($29.4) ($10.4) ($3.0)
Cash from operating activities $1.9 ($26.4) $10.1 $18.8 ($23.9) $4.4 $92.1 $111.6
Cash from investing activities ($6.4) ($3.4) ($7.5) ($10.0) ($39.1) ($27.3) ($26.5) ($184.7)
Cash from financing activities (
.2) $17.0 $2.5 $18.5 $122.2 $37.7 ($7.2) $16.1
Increase (decrease) in cash ($4.7) ($12.9) $5.1 $27.3 $59.2 $14.8 $58.4 ($57.1)
Free cash flow to equity ($5.8) ($27.5) $5.8 $27.3 ($65.8) (
.1) $50.7 ($94.8)
Cash and equivalents at end of period $57.6 $44.6 $46.7 $74.0 $62.2 $74.0 $132.4 $75.3
Scotia Capital Forecasts
SC Copper Price Forecast (US$/lb) $3.29 $3.18 $3.29 $3.75 $2.32 $3.38 $3.85 $3.70
SC Molybdenum Price Fore. (US$/lb) $15.98 $16.66 $15.26 $15.50 $11.33 $15.85 $25.00 $20.00
SC Silver Price Forecast (US$/oz) $16.92 $18.35 $18.98 $20.00 $15.17 $18.56 $26.00 $32.00
Operations Parameters - 100% Basis
Copper production (M lb) 6.2 9.0 9.0 10.6 27.0 34.9 44.4 50.7
Molybdenum production (M lb) 0.6 0.9 1.2 1.1 1.7 3.9 6.3 10.0
Silver production (000 oz) 65.0 117.0 135.1 117.2 203.5 434.4 578.0 766.9
C1 Copper co-product cash cost $1.97 $1.57 $2.13 $2.04 $1.70 $1.93 $1.84 $1.87
C1 Moly co-product cash cost $15.58 $7.24 $9.13 $8.89 $8.63 $9.65 $12.88 $10.68
C1 Cu cash cost, net of Mo and Ag $1.93
.48 $1.39 $1.32 $1.46 $1.23
.05 (
.05)
Net Asset Value (US$) 8% NPV 10% NPV Balance Sheet (US$) 2009A 2010E 2011E 2012E
Mineral Park $630 $565
El Pilar $213 $174 Current Assets $92 $118 $193 $141
Total operating assets $843 $739 Long-Term Assets $289 $311 $322 $488
Total Assets $381 $428 $515 $629
Equity investments
Other assets
Current Liabilities $51 $38 $37 $31
Total other assets
Long-Term Debt $89 $157 $156 $155
Cash and cash equivalents $74 $74 Other Liabilities $49 $73 $70 $46
Cash from exercise of warrants $46 $46 Shareholders' Eq. $192 $161 $251 $397
Debt and capital leases ($159) ($159) Total Liabilities & Eq. $381 $428 $515 $629
Corporate G&A and hedge book ($37) ($36)
Total Corporate Adjustments ($76) ($76)
Enterprise Value (US$)
Net Asset Value (C$) $767 $663 Market Capitalization $420 $643 $689 $708
NAVPS (US$/share) $3.39 $2.93 Net Debt $60 $85 $24 $80
NAVPS (C$/share) $3.39 $2.99 Other Assets
Multiple to NAV 1.0x 1.1x Enterprise Value $479 $728 $713 $789
Reserves & Resources (100% Basis) Sensitivity (2012E) % Change in parameter for 10% change in Rating and Target
Cu (M lb) Mo (M lb) Cu Price Mo Price Ag Price Rating 2-Sector Perform
Reported Reserves 2,880 340 EPS 5.7% 14.4% 0.0% Risk Ranking High
Reported Resources (M&I) 3,163 401 CFPS 5.1% 11.8% 0.0% 1-yr Target C$4.00
Modeled Resources 2,926 343 FCFEPS 6.0% 14.0% 0.0% 1-yr ROR 18.7%
NAVPS (10%) 21.0% 13.6% 0.0% Valuation Method: 1.3x Operating NAV + 1.0x Net Cash Items
Source: Company Reports, Reuters, Scotia Capital Estimates Mark Turner - Metals & Mining Analyst - mark_turner@scotiacapital.com - (416) 863-7484
Production and Cost Profile
0
10
20
30
40
50
60
2009A 2010E 2011E 2012E
Cu and Mo Production
(
.60)
(
.40)
(
.20)
.00
.20
.40
.60
.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
C1 Cost
(US$/lb Payable Cu)
Copper production (M lb)
Molybdenum production (M lb)
Cu C1 Cost, net of Mo and Ag
Share Price History (ML.TO, C$)
.00
.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
Nov-08 May-09 Nov-09 May-10 Nov-10
Relative Share Price Performance
0.0
2.0
4.0
6.0
8.0
10.0
Nov-08 May-09 Nov-09 May-10 Nov-10
ML.TO
S&P/TSX Metals & Mining
S&P/TSX
Minesite NAV Distribution
Mineral
Park
76%
El Pilar
24%
Source: Company reports; Scotia Capital estimates.