Australian broker Shaw Stockbroking has outlined a bullish future for Exco Resources (ASX: EXS) in a new report out today.
"Mining in the Midst of Majors" details how the recent rally in copper prices, and renewed interest in the Mt Isa/Cloncurry region following the Merlin discovery by Ivanhoe Australia (ASX: IVA) and advancement of CuDeco's (ASX: CDU) Rocklands project, the market may have overlooked Exco Resources.
EXS has a large copper resource (55 m/t @0.9%Cu, 0.24 g/t Au) located adjacent to Xstrata's Ernst Henry copper mine, which is transitioning to underground mining next year.
Shaw says EXS appears well placed, particulary considering Xstata has recently expanded the Mt Isa copper smelting to 0.3Mtpa, and was running Ernst Henry at only 40% of capacity for the first half of 2009.
Holding a strategic resource, "we feel EXS may come into play in the not too distant future. A Definitive Feasibility Study (DFS) on the Cloncurry copper project is due for completion 1Q 2010, with project approval due mid-2010."
Shaw Stockbroking Valuation and Recommendation
"With an implied value of just A$0.08/lb Cu, Exco's copper resource looks to have both absolute and strategic value, and appears a robust stand along project."
"We believe eventually Xstrata, or major shareholder IVA may find straegic value in EXS as both companies appear to be increasingly interested in securing their future in the Mt Isa region."
"IVA has an implied market capitalisation of over A$1.1b, including 80% held by Ivanhoe Mines of Canada, and plans to develop the Merlin Cu-Mo deposit near Mt Isa."
"In addition to Cloncurry, EXS has 75% of the White Dam gold mine in South Australia, near Broken Hill, with production due by March 2010 at a rate of 50kozpa, generating around A$32m in free cash flow to EXS over the 2.5yr project life on our estimates."
"We currently value EXS at A$0.45ps, and recommend investors comfortable with mine development risk BUY EXS, and we initiate coverage with a price target of A$0.45ps on expectation of ongoing positive developments at cloncurry and White Dam along with exploration news flow over the next twelve months."
Current EXS share price is $0.245.