According to Haywood Securities:
Production start-up at El Pilar, currently modelled in 2019, arguably shifts the focus driving Mercator’s market valuation from production towards development, as the project accounts for approximately 25% of the Company’s fully financed after-tax corporate NAV in our model. We acknowledge that, in time, El Pilar (and El Creston) will significantly increase Mercator’s annualized cash flow per share (CFPS). (Our fully financed valuation includes 2020E CFPS of US$1.03, corresponding to El Pilar’s first full year of production in our model.) Comparable established base metals producing peers typically trade at +5.0x 2013E CFPS. However, we anticipate that the market will focus on a NAV-based valuation for the Company’s organic growth pipeline, versus a premium CFPS-based valuation, until El Pilar (and El Creston) production start-up approaches. As a result, the underlying mechanics of our target price of $1.00 per share are based on a hybrid valuation that acknowledges Mercator’s production and development components; namely, a 75% weighting to a 5.0x multiple to 2013E CFPS of US$0.12 and a 25% weighting to Mercator’s fully financed after-tax corporate NAV of $2.10 per fully diluted, fully financed share. We continue to recommend Mercator Minerals Ltd. (ML-T) with a SECTOR OUTPERFORM rating, with an emphasis on patience given anticipated development timelines at El Pilar (and El Creston). That said, we also remain cognizant of the corporate opportunity Mercator may represent to a number of other mid-tier base metals companies looking to grow their production profiles. This potential is suggested in part by current litigation between Mercator and Nevada Copper, which has revealed a confidentiality agreement (CA) signed by the two companies in May 2012.