There's value in Exco, takeover or not Barry FitzGerald June 1, 2011 - 8:53AM
It?s not every day that a company?s share price goes up when a suggested takeover bidder rules itself out as a predator.
So it?s worth noting that is what happened to Exco Resources on Tuesday when its 22.8 per cent shareholder Ivanhoe Australia (ASX:IVA) said that despite speculation to the contrary, it had no takeover designs on the company.
Exco shares promptly popped 1.5 cents or 2.3 per cent higher to 67 cents a share. The reason for that is simple enough. Exco is considered a value proposition, with or without a bid from IVA, 62 per cent-owned by Canada?s Ivanhoe Mines which is headed up by billionaire mining financier Robert Friedland.
Advertisement: Story continues below IVA has been stirring the pot at Exco following a long awaited deal under which Exco is to sell its Cloncurry copper project in north-west Queensland to the mighty Xstrata for $175 million, allowing Xstrata to keep its adjacent and ??hungry?? Ernest Henry treatment plant well fed.
The deal is subject to Exco shareholder approval on June 9 and IVA has stopped well short of saying it will cast its vote in favour. It has said it wants to ensure that ??all Exco shareholders receive an appropriate return on their investment in Exco??.
That?s just want Exco reckons it is doing by striking the deal with Xstrata, although it has hinted that it might increase the cash it plans to return to shareholders from the sale to something more than $100 million.
It?s a fair bet that is what IVA wants. Whether Exco gives ground on that point ahead of the shareholder vote remains to be seen. What is known is that now that the value of Exco?s Cloncurry copper project has been established, the market is undervaluing the company.
Analysis by Shaw Stockbroking reckons that is the case. It has got a valuation on the stock of 82 cents a share (22 per cent higher than yesterday?s close) ahead of the Cloncurry copper project sale to Xstrata.
The (current) $100 million that Exco plans to return to shareholders after the Xstrata deal is worth a little more than 28 cents a share. So Shaw is saying that after the distribution, Exco should be worth about 53 cents a share.
That valuation reflects the fact that Exco is more than the Cloncurry project. It?s got a stake in the highly profitable, albeit short-lived, White Dam gold mine in South Australia, as well as a current cash position of $35 million.
Then there is the royalty stream from the unlisted CopperChem?s Great Australia copper project and a remaining exploration footprint in the Mount Isa-Cloncurry region that attracted the likes of IVA on to the group?s share register in the first place.
The remaining portfolio comes with 117,000 tonnes of copper and 116,000 ounces gold in resources. More to the point is that a cashed up Exco will be able to step up its exploration effort on its reduced portfolio.
IVA would still have exposure to that through its current shareholding. Its argument looks to be just how much cash Exco should retain from the Xstrata deal to fund its regrowth. For lesser shareholders than IVA, there is no harm in having the likes of Friedland on the case.
