Six Copper Companies That Could Be Takeover Targets

If gold resources trade at roughly 10% of the price of gold itself, then Blackmont Capital thinks copper should too. Borrowing this rule of thumb from the gold sector, copper resources should be worth roughly US15¢ per pound, based on the firm’s long-term (2012 and beyond) price target of US$1.50.

So if copper resources at development projects are valued at only US9¢ per pound (before capital costs), Blackmont thinks senior producers have an opportunity in advanced-stage large copper and molybdenum deposits. After all, they have the cash and expertise to make these acquisitions, analyst George Topping said in a report.

He has initiated coverage on six copper companies that could stand to gain in this environment.

Augusta Resources Corp. (AZC) is rated a “buy” with a $4.20 price target and 25% projected return.

Its primary Rosemont asset is located in Arizona, near U.S. copper producer Freeport-McMoRan Copper and Gold Inc. (FCX). This location, the low-risk jurisdiction and its key producing mines make Augusta an attractive takeout candidate, Mr. Topping said.

Chariot Resources Corp. [CHD], which has a 70% stake in a copper project in Peru, is also considered relatively low risk given the strength of the local economy, its highly-experienced management team, quality deposit and low cost structure.

Mr. Topping rates its shares a “buy” with a $1.45 price target and 40% projected return. Given that Lundin Mining Corp.’s (LUNCF.PK) purchase of Rio Narcea Gold Mines Ltd. (RNO) will give it 20% of Chariot, as well as its acquisition strategy, it appears a likely potential buyer.

Mr. Topping also pointed to Equinox Minerals Ltd. (EQXMF.PK), which operates in Zambia, where copper, cobalt and uranium targets have been identified. He considers its Lumwana project one of the most advanced large-scale projects in the world.

Copper and molybdenum producer Mercator Minerals Ltd. [ML], African-based gold and copper explorer Teal Exploration and Mining Inc. [TL], and Katanga Mining Ltd. (KATFF.PK), which has its flagship asset in the Democratic Republic of Congo, round out his list.