Minotaur Resources Ltd (MNR) – Just How Much Is MNR Worth ?

• This report determines a potential value for MNR of A$2.70/share according to perhaps its base case worst scenario. Applying seemingly realistic copper price sensitivities soon enhances the underlying value to beyond A$3.00 per MNR share.
• On 9 November 2004, Oxiana Limited (OXR) announced that it had reached an agreement to takeover MNR by a “scheme of arrangement” in which MNR shareholders would receive 1.85 OXR shares –for- 1 MNR share (representing the Prominent Hill assets and liabilities), and 1 MinEx (Minotaur Exploration share, representing the rest of Minotaur, at an estimated IPO of 40c/share)
• Although we do recommend that MNR shareholders vote in favour of OXR’s offer when it occurs on its expected date in January 2005, it does beg the question as to what MNR is actually worth through OXR and MNR’s remaining assets. ( Note : We have never been commissioned to visit OXR’s operations. Consequently this report is based mainly on presentations, ASX releases, a visit to Pan Australian in Laos, and general knowledge).
• MNR has been ascribed a value of A$2.29 per share in the OXR merger offer based on A$1.89 for OXR at about A$1.02 per share and 40c for MNR Exploration. However, our analysis infers that very little if anything has been included for Prominent Hill and instead the value appears to be closer to A$2.70/share.
• OXR is a growth story, which MNR shareholders can access effectively from the first day of Sepon’s new copper production building up to 60,000tpa Cu at cash costs ~US$0.37/lb and a gold expansion to 230,000ozpa at cash costs of ~US$180/oz. Excluding Prominent Hill, OXR has 5-year targets of 400,000ozpa gold and 100,000tpa copper which appear to be attainable. Hence valuing OXR at A$1.02/share just on its Sepon assets appears to be conservative, especially if copper prices >US$1.10/lb are achieved.
• Minotaur Exploration’s ascribed 40c (actually 42c) value is based mainly on its investment holdings in Mithril and Petratherm, plus the cash to be raised and net cash left within the company, hence valuing the exploration assets at a cost of only A$2.5m. Given the scope and expenditure being incurred on these numerous exploration properties, this appears to be very conservative.