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Sunday, January 03, 2010
Comparables for q-copper
As a quick sense check on the valuation of Q Copper (q-copper) I looked at some simple comparable data from other firms.
Reuters shows the price to book for the specialty mining and metals industry as 1.4. This is the industry within the basic materials sector that Q Copper will belong to.
Applying these values to the revised pro-forma net assets of 183.1M would yield 256M or $1.32 per share.
I have a concern that the book value of q-copper as presented in the prospectus does not reflect the basis that an ongoing copper company would show. This is because on acquisition you have the opportunity to adjust values on the balance sheet to reflect the acquisition cost. Therefore, adjusting the Q Copper pro-forma balance sheet to reflect the copper co Property Plant and Equipment along with the CopperCo capitalized exploration and development is more likely to provide an apples to apples comparison:
| Source | Adjustment | Amounts |
| Q Copper prospectus | net assets | $183,127,301 |
| Q Copper prospectus | subtract property plant and equipment | -$53,391,638 |
| Q Copper prospectus | minus capitalized exploration | -$100,238,563 |
| CopperCo annual report | add property plant and equipment | $114,607,544 |
| CopperCo annual report | add capitalized exploration | $23,351,576 |
| CopperCo annual report | add capitalized development | $37,619,569 |
| Adjusted Net Assets | $205,075,789 |
Using the adjusted book value and the 1.4 P/B provides a price per share of $1.48. I had a concern that Q Copper had a lot more cash as a % of assets than an average speciality mining and metals company. However, that extra cash is all allocated to further exploration so it will end up becoming capitalized exploration or development expenditure. I would treat it differently if it were going to be returned to shareholders.
Finally I took the Reuters data for speciality mining and metals and looked at the median book value and then the median book value for those firms with earnings. There ratios were P/B of 1.47 and 2.125. (The original 1.4 that Reuters provided, and used above, is cap weighted which disadvantages smaller firms and includes firms with no earnings). Using the adjusted balance sheet would indicate a price per share of $1.56. Using the P/B for firms with earnings yields a price per share of $2.27 .
This is broadly comparable with fundamental valuation of between $1.41 and $2.08. It seems reasonable that Q Copper will trade up to around $1.50 and into the $2’s as the mine life is extended (less distributions).
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Disclaimer and Disclosure
Analyses are prepared from sources and data believed to be reliable, but no representation is made as to their accuracy or completeness. I am not paid by covered companies. Strategies or ideas are presented for informational purposes and should not be used as a basis for any financial decisions.
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