Sunday 26 August 2012

EMED Mining Update

It is not often that the stock market offers up a second bite at a nice juicy cherry. However, EMED mining is proving to be just one of those – allied with Management who, it seems, presenting investors with a possible gift this summer.

Back in July I posted a blog (see here - noting that EMED was about to, finally, get the go-ahead for its copper mine in Spain that was acquired from Rio Tinto. Shortly after this, the penultimate piece of the jigsaw was completed with the acquisition of adjacent land parcels that had been used as ransom strips. Then, a couple of weeks later, the final 5% of this key land element was acquired. All of this has come at a cost to the stock price with nearly 25% additional dilution to existing shareholders. Shares were issued to Inland Trading (the owner of the key land parcel) with an ascribed stock value of 10.61p.

Over the balance of the month, the market has slowly marked down EMED shares with the price slipping from 11.25p down to below 9p. Why? Well the landowners extracted a high price so perhaps, along with low summer volumes, this was not seen as a good deal. Also, with final permitting news now due at the end of September, small traders (of which this stock has quite a few smaller shareholders) have decided to look elsewhere in the short-term – volumes have been miserable which would add credence to this theory. Finally, a small placing was done just last week at 8.5p to find the cash needed to progress to permitting when the finance deals kick-in. 18 million shares issued is not much, but still, it has knocked another penny off the share price.

The upshot to all this however is though that EMED is nearly there; just going through the environmental reporting process in Andalucia - the last hurdle. In a region of high unemployment, it must be inconceivable that the mine is not granted permitting at the end of Q3 2012…
As for prospects thereafter, the mine was closed by Rio in 2001 as with a copper price below $1 per pound at that point, it was deemed uneconomic. Today however copper sits at $3.5 per pound even after a heavy retracement in recent months. In addition, as an old mine site, much of the equipment is already in place - only $150 million is needed to start up again – an off-take agreement with a Chinese company who has taken a stake and a loan from Goldman Sachs (no fools whatever anyone says about them) has secured this.

First year gross profits should be $150 million, handy eh? That is a pretty solid ROI. With a billion shares in issue giving a market cap of £90m, and a 5 year DCF value (with a high discount rate used) of around £350m, a share price of about 40p would be a good target – the four analysts who cover the stock range from 32p to 42p.

Closing on Friday at 9p, there is good cause to be bullish here.

This post is sponsored by Spreadbetmagazine.


Budgie said...

I hold some EMED. It gives me a warm glow in my wallet at the prospect of tripling my meagre portion. But ...

What about the impending eurozone blowup that C@W are convinced will happen soon? Won't that hit EMED? Especially as it is in Spain?

And what about the CAGW hoax? When Cameron (and his pa-in-law), and Uncle Tom Cobleigh, realise that the windmills of their minds will actually turn off the lights, won't the demand for copper drop alarmingly?

CityUnslicker said...

Assets will, after a shock, become important. I would not discount the idea of selling everything into the panic and then buying back a la 2009. However, the timing for that is, well, unpredictable as we know.

As for copper stocks (physical) these have bottomed and it looks like they will consolidate upwards. even now they are at the EMED conservative business plan levels in terms of global prices, plus with the take of agreement this side is covered.

phil5 said...

CU, what about the Alphaville articles describing China having it's own copper 'mine' in the form of vast warehouse inventories? Have these been exhausted yet?

Long term I think EMED will come good (I bought some for my SIPP), but not for a while.