Copper Mountain Tempts With Canadian Stability: Real M&A – by Tara Lachapelle and Brooke Sutherland ( – November 26, 2012)

pper Mountain Mining Corp. (CUM) is offering buyers a potentially irresistible combination: the cheapest valuation in three years and the ability to extract metal without the threat of civil unrest in such places as Indonesia and Peru.

Lower-than-estimated copper production drove the company’s price-earnings ratio down to 16.7 in October, the cheapest since 2009, according to data compiled by Bloomberg. Copper Mountain has tumbled 43 percent since this year’s peak, giving the business the lowest price-sales multiple using estimated 2012 revenue among Canadian base metals stocks with a market value exceeding C$250 million ($252 million), the data show.

The location of Copper Mountain’s main mining project in British Columbia may prove alluring to acquirers seeking assets where there’s low risk of social disorder, Laurentian Bank of Canada said. While initial copper production levels were disappointing after extraction began in 2011, the Vancouver- based company seems to have turned the situation around and a buyer should strike now before Copper Mountain’s shares rebound, according to Haywood Securities Inc. Jennings Capital Inc. said companies such as Teck Resources Ltd. (TCK/B) could offer C$8 a share in a deal, more than double yesterday’s close.

“There’s a lot of reasons why it would be attractive to potential acquirers,” Adam Low, a Toronto-based analyst at Raymond James Financial Inc., said in a telephone interview. “The valuation is attractive at current prices,” and “it’s in Canada, so it’s got low political risk, which in the mining world is an important attribute,” he said.

Restarting Production

Jim O’Rourke, the chief executive officer of Copper Mountain, declined to comment on whether the company has been approached by suitors.

Copper Mountain owns 75 percent of the namesake mine in British Columbia, while Mitsubishi Materials Corp., Japan’s third-largest copper producer, controls the rest. In June 2011, production resumed at the site, which was closed in 1996. Copper Mountain says the mine should produce 100 million pounds (45.4 million kilograms) of copper annually during its first 12 years.

Mining in Canada presents fewer challenges than those seen in other nations, where protests and rioting are more common and there’s greater risk that governments will nationalize assets or impose hefty taxes, said Christopher Chang, a Toronto-based analyst at Laurentian Bank.

‘Extensive Repairs’

Freeport-McMoRan Copper & Gold Inc.’s Grasberg mine in Indonesia was halted for more than two weeks in the first quarter and required what the company called “extensive repairs” after violence flared among employees in the aftermath of a three-month strike last year. Workers at First Quantum Minerals Ltd.’s Kansanshi copper project, located in Zambia, went on strike in January, barricading the entrance, halting production and demanding that their pay be doubled.

Peru’s mining industry, the world’s third-largest copper producer, will cut investment by 33 percent next year as social unrest delays projects, according to the National Society of Mining, Petroleum & Energy. Barrick Gold Corp. suspended operations in September at one of its Peruvian projects after villagers blocked a road and clashed with police.

The Fraser Institute Policy Potential Index shows British Columbia is more attractive to mining companies in terms of taxation, regulation and other public-policy factors than places elsewhere in the world. Its 2011 rating of 62.5 on a 100-point scale topped Indonesia at 13.5, Zambia at 46.1 and Peru at 43.4.

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