Lumina Copper Corporation is offering the biggest mining companies a chance to acquire one of the world’s largest deposits of the metal for 26 cents on the dollar.
Lumina, owner of the Taca Taca copper project in Argentina put itself up for sale last week after plummeting more than 50% from its all time high of CAD 17.01 per share three months ago. As investors avoided Argentine assets after the government seized oil producer YPF SA in April, Vancouver based Lumina’s slump left it trading at a 74 percent discount to its net asset value.
Raymond James Financial Inc said that While the Taca Taca mine won’t start producing until 2017 and will cost USD 3 billion to develop, Adrian Day Asset Management says Lumina is now cheap enough to lure BHP Billiton Limited or Rio Tinto Group as copper reserves are exhausted and deposits become harder to find. Lumina sells for less than 2 cents per pound of copper resources and buyers in similar deals have paid twice as much. Yamana Gold Inc agreed to buy Extorre Gold Mines Limited which ceded control of its own Argentine project after it became too costly.
Mr David Strang CEO of Lumina said that the company is an attractive takeover candidate because there’s been a distinct lack of good quality projects being discovered that can help offset the growing demand in the copper market.
Lumina’s Taca Taca development, comprising 25 square kilometers is located in northwestern Argentina and contains deposits of copper, gold and molybdenum. The project is 120 kilometers east of BHP’s own Escondida mine which is the worlds largest copper mine and located in Chile.
Before Lumina said that it would review options to boost returns, the stock had tumbled 54% from its high in March as the nationalization of YPF, Argentina’s largest oil company and measures by President ms Cristina Fernandez de Kirchner’s administration to limit the sale of pesos for dollars prompted investors to sell assets tied the South American nation.
Mr Adrian Day, who oversees about USD 155 million as president of Adrian Day Asset in Annapolis of Maryland said that Lumina is an appealing takeover candidate because it controls one of the world’s five biggest copper deposits that isn’t already owned by a global mining company.
According to data compiled by Bloomberg, that’s more than the 2011 production at any of BHP’s own copper mines, except for Escondida, which had about 473,000 tonnes of output last year. Global production of the metal which is used in electric cables and plumbing also increased by just 0.5% in 2011 the smallest gain in five years.
Mining companies haven’t kept pace with demand because reserves are becoming harder to find and the quality of ore is declining, meaning that less copper is extracted from each ton of rock. BHP’s copper output last fiscal year fell to the lowest level since at least 2004 while Rio Tinto’s 2011 copper production slumped to the lowest in more than a decade.
Mr John Goldsmith who helps manage about CAD 5.1 billion at Montrusco Bolton Investments is skeptical that Lumina will ultimately be acquired. He said the cost of turning an undeveloped deposit into a copper producing mine in Argentina is too great and that mining companies will be wary of operating in a country where their assets can be nationalized.
He said that “I don’t think anybody is going to be knocking at the door anytime soon. Anyone who wants to purchase Lumina is going to have to sink a boatload of money into this.”
Source - Bloomberg.net
(www.steelguru.com)
