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. (NYSEMKT: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. (NYSE: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 (OTC:LUNCF) purchase of Rio Narcea Gold Mines Ltd. (NYSE: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. (OTC:EQXMF), 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. (OTCPK:KATFF), which has its flagship asset in the Democratic Republic of Congo, round out his list.