AZC's Balance Sheet Strengthened

GEORGE TOPPING, Blackmont Capital (08/18/2009)
Analysis & Forecasts: Highlights from Q2/09 include:
  • Economic Impact Study completed by Arizona State University suggests a $745mm pa contribution to the local economy for 20 years. Additionally, the Arizona Mine Inspector approved AZC's land reclamation plan.
  • AZC signed an $82mm agreement to purchase 23 Caterpillar 793F trucks and related equipment.
  • At quarter-end, AZC had US$1.2mm in cash and US$45mm in debt. Subsequently, a C$25mm bought deal financing was announced in July. We estimate AZC has approximately US$21mm in cash currently.
To be conservative, we expect permitting to be complete by mid-2011, one year later than management's guidance. Production should begin in late 2013, ramping up to 230mmlbs Cu per annum at a cash cost of about $0.65/lb net of by-product moly and silver.

Valuation & Recommendation: The Rosemont deposit is one of the few remaining senior-sized (5.5bln lb Cu in 550mm tons grading 0.45% Cu, 0.015% Mo, and 0.012oz/t Ag) deposits with a feasibility study. We believe the impact of the U.S. recession on jobs and taxes will trump environmentalist concerns. Our C$4.00/sh target is based on 0.7x NAV using a $2.15/lb copper price. Maintain Outperform.

Primary Reasons for Recommendation:
  • Large and well-defined copper resources
  • Low risk location with depreciating currency support
  • Permitting remains the only foreseeable issue

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