Cash Strapped Mercator Minerals Faces High Risk - RBC Analyst

It is a "race to the finish line" for Mercator Minerals Ltd. (MRCMF.PK), according to RBC Capital Markets analyst Adam Schatzker.

The cash-strapped company is trying to start up its Phase I expansion at the Mineral Park mine in Arizona. However, Mr. Schatzker wrote that there is a risk that its cash balance will reach zero before the expansion is complete and the company starts to receive cash from customers.

Mr. Schatzker wrote in a note to clients:

We have taken the view that Mercator has a high probability of finding itself in financial trouble. However, we think that if it is able to pull through, it's share price could increase substantially from current levels.

He downgraded the stock to "underperform" from "outperform" and cut his target 75% to C$1.00 a share. He called the risks to Mercator's equity "significant," but noted that they are, for the most part, reflected in the current stock price. At about C$0.35 a share, the stock is effectively a call option on the company's future, he wrote.

Mr. Schatzker also assumed that Mercator's Phase 2 expansion at Mineral Park will be pushed back a year (to late 2009 and early 2010), noting that the company does not have the funding to do it sooner based on his forecasts.