Lots of upside in mining takeouts
Leonard Zehr, July 17, 2007 at 10:32 AM EDT
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Getting asked “what’s a company worth on a takeout?,” especially in the consolidating mining sector, has prompted analysts at Desjardins Securities to apply the valuation metrics of the Rio Tinto PLC bid for Alcan Inc. as an exercise to other target prices in the sector.To recap, Rio’s bid of $101 (U.S.) a share values Alcan at 16.4 times and 16.7 times estimated per-share profits in 2007 and 2008, and at 10.5 times and 10.3 times estimated per-share cash flow in 2007 and 2008. In addition, the bid represents 3.2 times Alcan’s existing book value.Desjardins works out Teck Cominco Ltd.’s ultimate takeout value to be in the range of $60-to-$70 (Canadian) a share, versus a recent TSX price of $52. And even though it has voting and non-voting stock, the brokerage doubts the capital structure “will be an effective long-term deterrent,” if an international giant decides to take a run at Teck.HudBay Minerals Inc., trading around $28, gets a potential takeout range of $45-to-$50 a share that Desjardins calls “quite exciting.”Cameco Corp. delivers a wide takeout range of $30-to-$60 a share, compared with its current TSX price of around $50.Thompson Creek Metals Co., a pure molybdenum play, has a takeout value of $25-to-$30 a share, Desjardins figures, compared with its nearly $22 TSX price.Sherritt International Corp. warrants a takeout in the mid-$20 a share range, notwithstanding its flagship assets are in Cuba, compared with a nearly $17 TSX price.Lundin Mining Corp., which prides itself as an acquirer, would be worth in the $25 a share range, if things turned around, up from its nearly $15 TSX price.Quadra Mining Ltd., also on the acquisition trail, gets a range of $25-to-$30 a share from Desjardins, well above its nearly $17 TSX price.And running against the trend is FNX Mining Co. It warrants a takeout range of $25-to-$30 a share, which is below its $34 price on the TSX.
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