Panoro’s Cotabambas could attract a buyer

Christopher Chang of Laurentian Bank Securities believes Panoro Minerals’ (PML-V) Cotabambas copper-gold project in Peru could become an acquisition target, and has initiatied coverage of the junior with a “buy” rating and a one-year target price of $1 per share, up from its current 62¢ per share.

The mining analyst notes that Panoro completed a 24,400-metre drill program at Cotabambas and says management anticipates the resource will more than double without meaningful dilution in grade. A resource update is expected before September.

The project, 48 km southwest of Cuzco, has inferred resources of 90 million tonnes grading 0.77% copper for 1.5 billion contained lb. copper and 0.42 gram gold per tonne for 1.2 million oz. gold. On a copper-equivalent basis this works out to 2.1 billion lb. copper “at an impressive copper-equivalent grade of 1.06%,” he writes, based on US$2.50 per lb. copper and US$1,200 per oz. gold.

On the exploration front an additional 30,000 metres of drilling at Cotabambas are planned before 2013, and Chang notes that the property includes at least four porphyry centres — Ccalla, Azulccaca, Huaclle and Ccarayoc — with only two drilled to date. “Currently the resource model only incorporates drilling from Ccalla and Azulccacca,” Chang writes. “Approximately 80% of the property remains essentially unexplored.”

Cotabambas, which Panoro acquired in 2007,  could be an appealing acquisition target because of its relatively high copper grade, low political-risk jurisdiction and access to improving infrastructure, Chang says, arguing that Hudbay Minerals (HBM-T, HBM-N), Lundin Mining (LUN-T), Oz Minerals (OZL-A) and First Quantum Minerals (FM-T) all could be potential suitors. Hudbay would be the most logical, he reasons, given its 8.4% ownership stake in Panoro. Goodman & Co. Investment Counsel owns a 7.2% stake and Panoro chairman William Borden holds a 5.9% stake.

“We view the likelihood of an offer emerging in the very near-term to be low,” Chang concedes, noting the early stage nature of the project. “However, we would not be surprised to see an offer emerge as the company continues to de-risk the project, either through resource delineation or completion of economic studies.”

On a preliminary basis, the company believes that Cotabambas would be an open-pit operation that would use a conventional mill and flotation to process sulphide ore.

As for Panoro’s Antilla copper-molybdenum project, the company expects arbitration over its joint-venture partnership agreement with Centauro should be resolved in the third quarter of this year. The dispute dates to September 2010, when Panoro terminated the joint venture because Centauro didn’t make its US$4-million payment. The project remains on hold until arbitration process is completed.

If Panoro wins the case it would keep 100% of Antilla “and likely look for other joint-venture partners to advance the project towards completing a feasibility study,” Chang says. If it loses, Centauro would keep its 70% earn-in interest as described in the original April 2010 agreement, with the balance of payments owed to Panoro. Either way, Chang says, “given that the company plans to ultimately divest Antilla, we would not be surprised to see Panoro and Centauro renegotiate its joint-venture agreement and resume work on the property.”

Antilla, which is 140 km southwest of Cuzco,  has inferred resources of 154 million tonnes grading 0.47% copper for 1.6 billion contained lb. copper and 0.009% molybdenum, for 30.6 million lb. ­molybdenum. The total copper-equivalent resource equates to 1.8 billion lb. on ­long-term metal prices of US$2.50 per lb. copper and US$15 per lb. molybdenum.

Both properties are in Peru’s Andahuaylas-Yauri belt, an area that is home to Xstrata’s (XTA-L) Las Bambas project, Hudbay Minerals’ Constancia project, First Quantum’s project and Southern Copper’s (SCCO-N) Los Chancas project.

Panoro has a market capitalization of $104 million with 168 million shares outstanding, and over the last year has traded within a range of 34¢–84¢. The company has $21 million in cash and no debt.