www.excoresources.com.au
Exco Resources Ltd has a clear development strategy for its highly prospective project portfolio. The portfolio currently includes the White Dam Gold Project in South Australia and the Cloncurry Copper Project in NW Queensland.
Exco Resources: Fox Davies maintains BUY recommendation after Xstrata sale
The following is an extract from the latest Fox Davies report on Exco Resources (ASX: EXS).
Price target: $0.88.
Last trade: $0.66.
Recommendation
We retain a buy recommendation with an unchanged target price of A$0.88/share.
We have not modelled the sale of the Cloncurry Copper Project yet and will not do so until shareholder approval has been granted.
Event
Exco has announced that it has entered into an agreement with Xstrata (LON :XTA) to sell the Cloncurry Copper Project for A$175M.
The sale is subject to approval by Exco’s shareholders and requires 50% plus one vote of those voting for approval.
Comment
The sale price is below our net present value for the project, which was $331M.
However, one has to contend with the fact that there is really only one logical buyer, and by selling the project as is there are none of the risks inherent with building and financing the project, or concerns over future metal prices.
The sale has to be approved by the shareholders, and a notice of a meeting to seek approval for the proposal will be distributed to shareholders in due course. For any third party wishing to bid, this gives a window of opportunity, and of course, they know what the starting price is.
It is worth noting that Ivanhoe Australia, the largest shareholder in Exco, with approximately 22.8%, have issued a press release stating that the views expressed in the Exco press release do not necessarily reflect the views and conclusions of Mr Reeve (Ivanhoe's appointed nominee to the Exco Board) nor Ivanhoe.
No assumptions should be made as to how Ivanhoe will vote its 22.8% shareholding in relation to Exco's proposed transaction.
Assuming the sale proceeds, Exco plans to distribute up to A$100m of surplus funds to the shareholders. Since approximately A$55M of tax will be paid following the sale, this could amount to a fully franked dividend of about A$0.29/share.
Exco would be left with its very profitable but short life gold mine in South Australia, the Great Australia copper royalty entitlement and some highly prospective copper-gold exploration projects in north-west Queensland.
Having struck one such deal with Xstrata, one could assume that if any of these exploration tenements were turned into ore reserves, then another deal could be struck with Xstrata.
