CIBC sees more downside risk at Mercator Minerals (T.ML)

Peter Kennedy Peter Kennedy, Stockhouse
0 Comments| November 1, 2013

CIBC World Markets says there is still plenty of downside risk for investors in Mercator Minerals Ltd. (TSX: T.ML, Stock Forum), even after the stock lost 13% of its value Friday in the wake of concerns about the company’s ability to successfully restructure its debt.

Tom Meyer, the CIBC analyst who this week slashed his stock price target to 3 cents from 30 cents, is not alone in taking that view.

A number of Stockhouse Bullboard writers are currently wondering if the company can survive in its current state after seeing the stock trading at 6.5 cents on Friday, leaving Mercator has a market cap of $20.5 million, based on 315.7 million shares outstanding.

That’s down from a 52-week high of 64 cents.

Surviving is clearly not an option,’’ wrote Materialsgirl in a Mercator post.

“It’s surprising that investors still have $20 million invested in it. The only question is who will buy the various assets or how will the company be broken up.’’

Mercator is a Canadian mining company that is down to one producing asset – the wholly-owned Mineral Park copper-molybdenum-silver mine in northwest Arizona – after shelving two development projects in Mexico.

The company reported a net loss of US$128.7 million in 2012 after taking a US$119.8 million on the El Creston project in Sonora State, Mexico as a result of weak molybdenum prices, which plunged to US$11.17 a pound at the end of last year.

That was down from US$16.50 when the asset was acquired in June 2011, prompting the company to postpone construction.

At Mineral Park, the company has struggled with throughput problems as it grapples with a complex orebody, while trying to reach a production target of 93 million pounds of copper equivalent this year.

After adjusting for non cash items, Mercator posted a net loss of $10.7 million or 3 cents a share in the second quarter ended June, 2013, compared to a loss of $3.5 million or 1 cent in the same period last year.

While revenue in the second quarter rose to $64.2 million, from $61.3 million a year earlier, primarily as a result of higher shipments, the increase was offset by the fact that its realized prices for copper and molybdenum fell 11% and 18% respectively from year ago levels.

In light of the commodity price environment and drop in the value of its shares, the company said it is currently reviewing strategic alternatives including a possible sale of the company, a merger, asset sales, or bringing in a strategic investor.

The company has also said it can’t be certain that any of these alternatives will come to fruition.

Meanwhile, Mercator said late last month it will not be making a principle payment of $4.8 million on US$86.8 million worth of outstanding debt, which was due to be paid on September 30, 2013.

CIBC’s decision to drop its stock price target  to 3 cents coincides with this week’s announcement that the company has entered into amended agreements with lenders. Certain covenants were waived on October 31, CIBC wrote.

Under the agreement, Mercator’s Mineral Park subsidiary can withdraw up to US$1 million from restricted cash in a debt service reserve account through to and including November 15, 2013 to fund ongoing operations.

The company is due to release its third quarter 2013 financial and production results on November 14.


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