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Market:	ASX
Sector:	General Mining
Epic:	CUO
News:	Latest news
Web Site:	CopperCo Limited
Other Articles:	18-07-200815-07-200806-06-2008

Mineral Securities: another friendly merger

by Harry Norman

So AIM and ASX listed Mineral Securities (Minsec) is to merge with ASX listed CopperCo – well, this should go smoothly! Minsec, in its current form, was created when AIM listed Scarborough Minerals and ASX listed Minsec joined forces; Scarborough Minerals was formed from a three way merger of LSE listed Greenwich Resources and ASX listed Buka Minerals and Danae Resources - so those involved in the current merger have had plenty of practice with AIM-ASX mergers. A quick look at the track records of the movers and shakers in this merger shows they are serious and established players in the mining sector.

Of the three key players - Robert Champion de Crespigny, Keith Liddell and Brian Rear - UK investors will be least familiar with Brian Rear, Managing Director of CopperCo and Managing Director designate of Minsec-CopperCo. He has decades of experience in the mining industry with companies that have included Rio Tinto & Barrick Gold, and was a founder of Straits Resources, overseeing its development into a mining company with revenues of A$140 million.

Keith Liddell, CEO designate of Minsec-CopperCo, made his name as the MD of Aquarius Platinum, one of the great success stories of both the South African platinum industry and the AIM market. Starting life in 1996, Aquarius Platinum now enjoys a market capitalisation of around £2 billion. In 2001,Keith Liddell was one of the founders of Minsec, which merged with Scarborough Minerals last year.

Robert Champion de Crespigny, Chairman designate of Minsec-CopperCo, built up the Aussie gold mining company, Normandy Mining, until it became a takeover target and, in 2002, it was gobbled up by the giant Newmont Mining for US$2.2 billion He has a talent for finding undervalued assets, injecting capital and expertise, and extracting maximum value.

The merger will create a mid-tier mining house with a market value of approximately £249 million (about A$530 million) with interests in precious and base metals, plus cash flow from production at the Lady Annie Copper mine. In today’s environment, well- run companies with minimally-hedged free cash flow from producing tangibles, such as metals, are likely to become increasingly attractive, especially as base and precious metals continue to demonstrate long-term up-trends.

CopperCo came into existence after Keith Liddell and Brian Rear spent a couple of years consolidating mining leases in the prospective Mount Isa Region of Queensland, Australia. CopperCo now holds about 2,500 square kilometres of exploration permits and mining leases, including the Lady Annie project. Under the auspices of Brian Rear, mine development at the Lady Annie copper project began in November 2006 and the first copper cathode shipment was made in October 2007. The Lady Annie Project is currently producing copper cathode at 19,000 tonnes per annum (tpa) and will increase copper production to 30,000 tpa during the second half of 2008. CopperCo is also building up reserves and resources, which stand at 16.37 million tonnes of proven and probable copper bearing ore reserves – and 39.96 million tonnes of measured indicated and inferred copper ore resources. The production upgrade to 30,000 tpa provides an increase in net present value of US$188m, for a capital outlay of only US$34 million; and the 11,000 tpa of increased capacity was achieved at a unit cost of only US$0.64/lb, against a copper spot price of US$3.85/lb.

At 19,000 tonnes per year, Lady Annie can be expected to generate revenues of around A$140 million, and make gross profits of around A$70 million a year. With production ramped up to 30,000 million tonnes, a gross profit of around A$120 million a year can be expected. As both these profit figures are based on a conservative copper price, the Lady Annie project could become a very important source of finance for other projects.
 
Adjacent to the 100% Minsec-CopperCo owned Lady Annie copper mine, is the Lady Loretta lead/zinc project, currently 25% owned by Minsec and 75% owned by Xstrata, which contains more than 23 million tonnes of zinc metal. A decision is expected this year for a project to develop a mining centre that will produce 140 thousand tonnes of zinc concentrate per year plus silver and lead. So Minsec-CopperCo could, in a few years time, be receiving an income stream from producing 35 million tonnes of zinc concentrate per annum. A go-ahead decision to develop Lady Loretta would bring about a clear and almost immediate synergy from the merger. To the west of CopperCo’s projects, Minsec-subsidiary, Australis Exploration owns 34,000 square kilometres of exploration licenses and applications, which are prospective for base metals and uranium, giving the merged company a massive presence in the prospective Mt Isa region.

Also in Australia, Minsec holds a 58% interest in Buka Gold (ASX: BKG) which recently made a gold, silver and base metals discovery at Mt Scotchy, in Queensland. Buka Gold, through its fully owned subsidiary Gympie Eldorado Mining, has over 760 square kilometres of tenements, covering the entire historical Gympie goldfield. Before Buka spun out its copper prospects, it was called Buka Minerals and was headed up by …Brian Rear. Buka Gold’s current board consists of David Hillier - Executive Chairman - who served for six years as CFO of Normandy Mining, Paul Dowd - Non-executive Director - previously Managing Director of Newmont Australia, and John Richards - Non-executive Director - who worked with Normandy Mining for eleven years, was a director of Scarborough Minerals, and then served as Chief Strategy Officer for Mineral Securities. So, in due course, we can reasonably expect some heavy hitting from Buka Gold and an ongoing close relationship with Minsec-CopperCo.

Minsec’s investment portfolio includes stakes in other assets in Australia including a 40% stake in NiPlats (ASX: NIP) which holds tenements that not only contain high grades of fluorite, but are prospective for vanadium, platinum group metals and gold. Minsec also holds a 34.6% stake in Mineral Sands (ASX: MSN) which has tenements covering 11,000 square kilometres across Australia, that are prospective for titanium, zirconium, uranium and, in particular, gold.

Minsec’s other investments include a 46% stake in Herencia Resources (AIM: HER) based in Chile, an 18% stake in Platmin (AIM & TSX: PPN) based in South Africa, and a 28% stake in the Tianshan Goldfields (AIM & ASX: TGF) based in China. In Greece, Minsec owns the Sappes high-grade (20 grams per tonne) gold project outright, and in China, a 75% stake in a joint venture for gold prospects in Qixia, where initial sampling results have been promising.

As Minsec is currently trading below its net asset value, CopperCo shareholders will acquire an attractive deal whilst Minsec shareholders will acquire a stake in a company with cashflow. Minsec shareholders will receive 2.2 CopperCo shares for each Minsec share they currently hold. This is a premium of 2.1 % to the price at which Minsec shares traded at the close on 25th January. Approval of the merger will be sought from shareholders in late March, with the hope that it will be completed before the end of May.

The new company will also create an enlarged pool of highly skilled people which, in today’s environment of skills shortages in the natural resources industry, will be a huge benefit.  The merger will also further solidify the company as a serious diversified mining house.

So what can we expect next?

We can expect the Minsec-CopperCo merger to be complete by the end of May. We can expect a mining house that always aims to own direct stakes in mineral projects from early exploration through to production. We can expect these projects to be in base metals and precious metals. We can expect these projects to be highly prospective and/or large. We can expect a reduction in the holdings of non-core stakes in listed companies. We can expect things to be well thought through with an eye on the medium and the long term. We can expect Minsec-CopperCo to keep one foot firmly in Australia and, in due course, we can expect more mergers and acquisitions action.

 It is reasonable to expect that Minsec-CopperCo will eventually become the kind of success story that people talk about over their cappuccinos and muffins in fashionable eateries ...but that’s a little way off…

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