Exploration and mine development company Equinox Minerals’(TSX, ASX: EQN) share price is set to climb on the back of the concentrate sale and purchase agreement for 55% of copper concentrates from its major Lumwana project in Zambia. Or so reckons Florida-based Raymond James Equity Research, which said in a recent report that the company’s shares were undervalued and the removal of uncertainty over concentrates should result in a positive re-rating of the stock.
The research organization pointed out that Equinox is trading at a Price/Net Asset Value (NAV) of 0.45x compared to its peer group of copper developers trading at 0.82x.
Tom Meyer, base metals and mining analyst, said the share was a “strong buy” as the share price was expected to climb from its current C$2.10 to C$3.80 within six to twelve months.
“Our target price is based on a Price/Net Asset Value multiple of 0.8 - a net asset value multiple of 0.9 to 1.0 would apply once the mine starts commercial production.”
Equinox is constructing what will be one of Africa’s largest copper projects at Lumwana. Lumwana, owned 100% by Equinox, is located in the North Western Province of the Zambia. The Lumwana mine will produce an average of 169,000t of copper metal per year contained in concentrates for the first 6 years of its 37year mine life and construction is on schedule for commissioning in Q2 2008.
Meyer said he believed that another concentrate offtake agreement with Glencore’s Mufulira smelter in Zambia was not far off, as a large smelter would not ignore quality concentrate from a mine with a likely life of 37 years.
According to estimates Mufulira would be able to handle 100,000t of Lumwana’s concentrate.
Lumwana – still in the early stages of development – is making good progress and on track to start production in July 2008.
The mine with “proven and probable” reserves of 321 million tonnes of ore, grading at 0.73%, is situated to the west of the world-renowned copper belt in Zambia and fully owned by Equinox.
Meyer also highlighted the fact that there was significant uranium and copper exploration potential in Equinox’s “extensive land package” and said the company’s exploration team had both strength and depth.
“The potential for value creation on the uranium and copper exploration front is high and has yet to be reflected in the share price.”
The Lumwana concentrate sale and purchase agreement involves a take or pay contract with Chambishi Copper Smelter for 100,000 t of copper contained in concentrates annually for the first five years of production at Lumwana.
Chambishi will charge Lumwana copper treatment and refining charges to be based on global benchmark terms.
According to Equinox’s website, Lumwana is one of the largest fully permitted copper projects in the world currently under construction.
source:www.mineweb.net
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