Profiling: Alsons Consolidated Resources, Inc. (PSE: ACR)

Alsons Consolidated Resources, Inc (ACR, the Company) has major investments in power generation and property development.

Power Generation

ACR’s interest in power generation is through Conal Holdings Corporation (Conal) and Alsing Power Holdings, Inc. (Alsing).

ACR1

WMPC operates a 100 MW diesel-fired electricity generating facility in Zamboanga City under an 18-year “Build-Operate-Own (BOO)” agreement with National Power Corporation (NPC) until December 2015. SPPC operates a 55 MW diesel-fired electricity generating facility located in Alabel, Sarangani Province, also under a BOO agreement with NPC for 18 years until May 2016.

The Company through SEC is presently developing 200 MW Coal-Fired power plant in Maasim, Sarangani which is expected to be in commercial operations in 2015. ACR is also developing a 100 MW coal-fired power plant in Zamboanga City through a subsidiary, SRPI.

On May 18, 2012, ACR increased the authorized capital stock of SEC from P5 million to P4.25 billion. On July 6, 2012, ACR infused P265 million to SEC representing payment in the initial subscription. As of November 13, 2012, ACR is in the process of finalizing local banks for a P9 billion project loan to finance the construction of SEC.

The Company, through MPC, is also working to acquire from the Iligan City government the 102 MW bunker-fired Iligan Diesel Power Plants I and II (IDPP).

Property and Utility

ACR2

ACR is engaged in property development through its subsidiary, Alsons Land Corporation (ALC). ALC has interests in Eagle Ridge Golf & Residential Estate (Eagle Ridge) and LiMA Technology Center (LTC).

Eagle Ridge is a joint venture project with Sta. Lucia Realty Development, Inc. (SLRDI). Eagle Ridge is a 700 ha project located in Gen. Trias, Cavite and the first 72-hole golf course development with a residential component in the Country. It is the only golf club in the Philippines with four completed signature golf courses and three fully operational clubhouses.

LTC is a 440 ha industrial estate located between the Lipa City and Municipality of Malvar in the Province of Batangas. The techno-park is a joint-venture with Marubeni Corporation of Japan under the corporation LLI.

To maximize the use of its landholdings, ALC launced “Campo Verde,” a joint venture with Sunfields Realty Development, Inc. The 11 ha property is located within LTC and an hour away Makati via the South Luzon Expressway.

To ensure the reliability of power and the quality and availability of water supply and wastewater treatment at LTC, LLI organized LUC and LWC.

Other Investments

ACR mining projects are pursued by a wholly owned subsidiary ACR Mining Corporation (ACRMC). ACRMC has a mining claim covered by MPSA 094-97-XL for 25 years or until 2022. Detailed work revealed an estimated resource of 2.7 million tons containing 2.8 g/t gold, 26 g/t silver, 0.09% copper, 0.85% lead, and 1.58% zinc.

On December 23, 2010, ACR purchased 29,149,000 shares or 2.46% interest of Indophil Resources, NL (Indophil) in the amount of P1.316 million. Indophil has 37.5% interest in the Tampakan Project as of December 31, 2011. [1]

 

 

Source:

  1. Indophil 2011 Annual Report, Note 19, p. 71, http://www.indophil.com/documents?category=Annual
  2. ACR Sec filings

 

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

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Oriental Peninsula Resources Group, Inc. (PSE: ORE)

Oriental Peninsula Resources Group, Inc. (the “Company”, “ORE”) derives 100% of its earnings from its 94% interest in Citinickel Mines and Development Corporation (Citinickel).

Citinickel was granted with a Mineral Production Sharing Agreement (MPSA) on January 3, 2007 for their Toronto and Pulot Nickel Mining Projects located in Narra and Sofronio Espanola, Palawan respectively.

On March 9, 2011, Citinickel was registered with the Board of Investments which entitles Citinickel to the following incentives:

  1. Income Tax Holiday for four years from March 9, 2011 to 2015
  2. Exemption from wharfage dues, export tax, duties, and imports and fees for 10 years.

The Company started commercial operations in the third quarter of 2011 ending the year with 20 shipments or 1 million WMT of nickel ore sold. As of the 3rd quarter of 2012, ORE performed 56 shipments with a total of approximately 2.8 million WMT.

Comments:

Nickel mining companies went out of favor mid-year of 2012 and with a very valid reason:

ORE3

Nickel prices went plunging from a high of $21,000+ a ton to as low as just over $15,000 in the 3Q of the year. A sudden drop in price should translate to a sudden drop of net income for any nickel producing company.

Below is Nickel Asia’s (PSE: NIKL) earnings chart, the largest nickel miner in the country:

ORE4

But ORE defied the trend:

ORE5

This is possible because the Company has a huge capacity for growth in terms of production. ORE compensated the decline in nickel prices through increase in shipment volume. According to the interview done by First Metro Securities [1] with ORE’s CEO, Ms. Caroline Tanchay, ORE is shipping a minimum of 3.5 million WMT for 2012 and 4 million WMT for 2013.

As of 3Q ORE has a total of 56 shipment or 2.8 million WMT sold ore. Assuming that ORE will be able to complete 10 more shipment for the quarter or an additional of 500,000 ore sold for $16,000/t we can expect ORE to report an EPS of 0.39/sh. That makes ORE trade with a single digit PE ratio of 8x at P3.10. Even at 3Q EPS of 0.36, ORE is already trading at 9x PE ratio.

ORE stands at numerous advantages that will enable them to generate growth:

  1. Income tax holiday until 2015
  2. Young MPSA rendering it unaffected with EO 79
  3. Exemption from wharfage dues, export tax, duties, and imports and fees for 10 years.
  4. The Company still has room for increasing its production.

A Company with a growth potential and competitive advantages but trading in a single digit PE ratio is definitely undervalued.

Other data:

ORE1 ORE2

Sources:

  1. The Bellwether, “Oriental Peninsula Resources Group, Inc.”, http://fami.com.ph/wp-content/uploads/2012/07/Bellwether-1-5.pdf
  2. SEC filings

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Investing in Lepanto Consolidated Mining, Inc.

As indicated in the charts above, Lepanto Consolidated Mining (LC, the “Company”) experienced two declines in share price, on May and on July. May decline was caused by removal of LC from the PSE index while July was due to the release of Executive Order (EO) 79. The EO 79 that was rleased in July served as a huge blow for LC’s share price. LC’s Mineral Production Sharing Agreement (MPSA) will expire in 2015 and originally, EO 79 states that there are no renewal of MPSA until new tax rates are approved by congress.

LC’s story is their interest in Far Southeast Gold Resources, Inc. (FSGRI). On September 20, 2010, the Company approved an Option on Shareholder’s Agreement (Agreement) with Gold Fields Switzerland Holding AG (GFS), a wholly owned subsidiary of Gold Fields Limited, for a non-refundable option fee of $ 10 million.

The Agreement requires GFS to:

I.      Fund the exploration and feasibility study of the FSGRI mining project

II.      Contribute $110 million into FSGRI

III.      Contribute proportionate share of the development cost

The Agreement grants GFS an eighteen-month option to subscribe to new shares of stock of FSGRI representing 20% interest in FSGRI. However, as of to date, GFS is yet to exercise their right pending the acquisition of Financial or Technical Assistance Agreement (FTAA) license—which allows a foreign corporation to legally own and control a majority stake of large-scale mineral resources in the Philippines. If the option is exercised the Company’s interest in will be reduced from 60% to 40%.

The Far Southeast project is covered by MPSA No. 001-90 which is granted on March 3, 1990 and is believed to have 19.8 million oz. of gold reserve.[1] On October 08, 2012, a revised rules and regulations to the implementation on EO 79 was signed which allows the renewal of expired mining contracts even before the congress approves new tax rates for mining. [2][3] This latest developments suggests that the story of LC is still substantially intact. GFS may proceed with the MPSA and increase their interest to 60% in FSGRI as soon as they will be legally allowed to have FTAA.

Risk in investing in LC

Take note that the conversion of MPSA to FTAA is still not allowed until the approval of new mining tax rates. Since FTAA allows ownership of more than 50% in Philippine mining operations, GFS may opt to cease their operation and wait for the new mining tax rates.

Sources:

  1. Update on Far Southeast Project, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6671_LC.pdf
  2. Rules and Regulations to the Implementation on EO 79, http://www.mgb.gov.ph/Files/Policies/DAO%202012-07.pdf
  3. Department Administrative Order 2012-7-A, http://www.rappler.com/business/special-report/whymining/whymining-latest-stories/13865-paje-signs-final-mining-rules?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rappler+(Rappler)

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

COAL Prospectus At A Glance

Coal Asia Holdings Incorporated (the Company, COAL) was incorporated on June 11, 2012 as a holding company. The Company has only one subsidiary, Titan Mining and Energy Corporation (TMEC) and was incorporated on November 11, 2008.

TMEC is a holder of coal operating contracts (COC) in Davao and Zamboanga-Sibugay. All COCs are not yet in the development phase.

Below is the Company’s estimated resource: [1]

TMEC commissioned an independent mining engineer, Engr. Rafael R. Balalad, to conduct a pre-feasibility study in the Davao Oriental project. The result of this study states that the Davao Oriental has total reserves of 7 MMT, as follows:

In the past three years, TMEC generated revenue through sale of steam-grade coal purchased from small-scale mining conducted in its COC areas in the Zamboanga-Sibugay Project. All of TMEC’s sales were made to local canneries and food manufacturing companies.

Among the three COC that the company owns, the Davao Oriental project is at the most advanced stage. The Company plans to spend 74% of the net proceeds from their sale of 800 million IPO shares to put the Davao Oriental project in development and production phase by second half of 2013. The upgrade of TMEC’s COC from exploration to development and production phase depends on the approval of the Department of Energy (DOE) on TMEC’s work program and feasibility study and issuance by the Department of Environment and National Resources (DENR) of Environmental Compliance Certificate (ECC).[2] In order to mitigate this risk, the Company claims to have continually complied and fulfilled the conditions set by the DOE.

Executive Order 79 (EO 79) which states reforms from the old mining act of 1995 affected mining companies since its signing in July 2012. Although EO 79 pertains about mining, it does not cover coal mining operations as it is under Presidential Decree 972 (PD 972). Rendering coal miners immune from regulatory encumbrances currently encountered by their mineral counterpart.

TMEC claims to have high quality of coal deposits. See the values below:

Strip ratio or stripping ratio refers to the volume of waste materials required to be hauled in order to obtain one cubic meter of resource. In the case of TMEC, TMEC needs to move 10 cubic meters of waste materials in order to obtain 1 cubic meter of coal. The same goes with the Zamboanga-Sibugay operations.

Heating value is the amount of heat that would be produced upon complete combustion of the material. The energy given off is measured in British thermal unit (BTU). A single BTU is equivalent to the energy of one match. One pound or TMEC’s Davao coal is equivalent to lighting 9,500 matches.

Ash, sulfur, and moisture contents in coal affect boiler efficiency. Ash is a non-combustible component of coal. Coal ash consumes heat energy and reduces overall generating capacity of a power plant. The effect of moisture is the same as that of coal ash. Sulfur decreases boiler efficiency because of the need to maintain high temperature to avoid condensation of sulphuric acid that results to corrosion of power plant equipments.

To place the figures in perspective, Semirara Mining Corporation (SCC)’s coal quality are as follows:[3]

The Company believes that they have the advantage in coal quality in the domestic market particularly in the Zamboanga-Sibugay project which can be sold in raw form.

TMEC entered into a memorandum of agreement (MOA) with Huanzhou Fuyang Gaoquiao Thermal Power Plant Co. on January 28, 2010 where TMEC agreed to deliver 50,000 MT of coal every month or 600,000 MT per year. The delivery schedule will commence in January 2014.

Comments:

Assuming that the coal prices will not go below P3,000 / MT, the Company is bound to earn P1.8 billion revenue in 2014 and a profit of approximately P540 million [1.8 billion x 30%] assuming that TMEC will have the same profit margin as that of SCC’s coal operation. Current reserve only allows five years of commercial operations however, the management expects to realize the potential deposit feasible for extraction.

Note/Sources:
1.   There are two classifications of mineral deposits, namely: Mineral resources which are reasonable prospects for economic extraction and Mineral reserves which are valuable and feasible to extract.

The Company presented mineral resources estimate, mineral resources can be sub-classified as:
I.   Indicated resources are estimates that can be relied on at a reasonable confidence.
II.   Measured resources are acceptable estimates that can be relied upon at a high degree of confidence.
III.   Inferred resources are estimates that can be relied upon at a low level of confidence.

Mineral resource classification,
http://en.wikipedia.org/wiki/Mineral_resource_classification

2.   Coal Model Contract,
http://www.doe.gov.ph/PECR4/coal/coal%20operating%20contract/COAL%20MODEL%20CONTRACT.pdf

3.   Semirara Mining Corporation Coal Product,
http://www.semiraramining.com/CoalProduct.php

Disclosure: This article is published with the permission of the client. No position in any stock mentioned.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Everything About Philex

Philex Mining Corporation (PX) was incorporated on July 19, 1955 and went public on November 25, 1956. The company derives its revenues from sale of gold, copper, silver, and petroleum. Gold, copper, and silver contributes 96% of the Company’s revenues net of marketing charges through their operation of Padcal Mine in Benguet. Petroleum which provides approximately 4% of the Company’s revenue is sourced from their interest in the Galoc oil field through their interest in Philex Petroleum Corporation. Below is the Company’s corporate structure:

PX’s Padcal Mine in Padcal, Tuba, Benguet Province produces copper concentrates containing copper, gold, and silver.  The Company has an existing long-term gold and copper concentrates sales agreement with Pan Pacific where at least 60% of the total annual production is committed since 2009. The uncommitted balance was subject to a contract with Louis Dreyfus Commodities Metal Suisse S.A. The value of the shipments is initially determined based on prices during the final quotation period.

The final quotation period for gold and silver is one month after month of arrival in Japan while quotation period for copper are two months after month of arrival in Japan for the period April 2010 to March 2011 and three months after month of arrival in Japan for the period April 2011 to March 2012.

Padcal mine is covered by two mineral production sharing agreement (MPSA), MPSA 156-2000-CAR and MPSA 276-2009-CAR valid up to 2025 and 2034 respectively.

As of December 31, 2011, the Padcal Mine’s mineral resources and proved reserves are estimated as follows:

In August 2011, the economic life of Padcal Mine was extended to year 2020 from 2017. A total area of 13,729 hectares within the municipalities of Tuba and Itogon in Benguet is covered by the following mining agreements:

The Company spent P324.2 million and P271.7 million in 2011 and 2010 respectively for environmental compliance.  The Company and its subsidiaries have been consistent winners in environmental contests. Padcal mine has been ISO14001 Certified since 2002 for Environmental Management System and won several environmental contest namely, Best Mining Forest first runner-up in 2010 and 2009, and champion in 2008, 2007 and 2011[1].

The Company is currently exploring and developing mine sites which is done internally or through drilling contractors incurring P2.022 billion, 1.246 billion and P855 million for 2011, 2010, and 2009 respectively.

The Silangan Project which is owned by the company through Silangan Mindanao Mining Co., Inc. (SMMCI) covers Boyongan and Bayugo deposits in Surigao which are currently under pre-feasibility stage. Anglo American Exploration (Anglo) completed a prefeasibility study of the Boyongan deposit in December 2007 and concluded the project to be not feasible which PX disagree. In November 2008, Anglo offered to sell their 50% interest in the project. In February 2009, Anglo’s interest in the project was purchased by PX for $55 million.

As of August 5, 2011, Boyongan and Bayugo which is covered by MPSA-149-99-XIII (to expire on 2024) and EP-XIII-03 Lot-B located in Surigao de Norte has the following estimated mineral resources:

In May 2011, the Company executed a Farm-In Agreement with Manila Mining Corporation through the purchase of 5% interest in Kalayaan Gold-Copper Resources Inc. (KGCRI) for $25 million[2] where the Company should conduct exploration activities in the Kalayaan properties (adjacent to Bayugo deposits) for three years. Should it declare commercial feasibility within the period, PX will have the right to increase their holdings in KGCRI to 60%.

Other mining projects of the Company that are at advance stages are the Bulawan mine in Negros and Sibutad mine in Mindanao. Bulawan mine and Sibutad mine operated on 1996 and 1997 respectively and both ceased their operations in 2002 due to unfavourable metal prices. As of December 2011, the Company is contemplating in reopening the Bulawan mine and conducted diamond drilling to come out with a resource estimate. Sibutad mine which has a remaining resource of 17.1 million tonnes with 0.84 g/t is temporarily at standby due to the standing open-pit ban in the province that they are operating.

Another source for revenue for the Company is the sale petroleum. Petroleum revenues came from their ownership of Philex Petroleum Corporation (PXP) which has a minority interest in Galoc oil field. An interesting business development for the Company is the commencement in commercial operation of their subsidiary Brixton Energy & Mining Corporation (BEMC) in 2010. BEMC previously engaged in buying coal products from small producers and selling it by bulk since 2005.  On January 16, 2012, BEMC entered into purchase agreement with Republic Cement Corporation for the delivery of 50,000 MT with a base price of P3,200/MT. On May 21, 2012, PXP expressed their confidence to be able to sell 100% of BEMC’s output of 100,000 MT of coal and plans to expand operations through bidding for the six coal blocks near existing Brixton coal project. [3]

Other Data

Source:
1.   “MINING FOREST PROGRAM REFORESTS 88% OF DISTURBED MINING AREAS”; http://www.mgb.gov.ph/art.aspx?artid=320
2.   “Agreement with MA for exploration and development of Kalayaan Project; Lifting of trading suspension” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3577_PX.pdf
3.   Clarification of news article: “Philex expects to sell off full Brixton output” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3916_PXP.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Lepanto Consolidated Mining Co. (PSE: LC) (PSE: LCB)

Business Profile

Lepanto was incorporated in 1936 and shifted to gold bullion production in 1997 through its Victoria Project. Lepanto continues to produce gold from its Victoria and Teresa operations, both located in Mankayan, Benguet.

The Company sells gold bars to Haraeus Ltd. in Hong Kong under a contract that is renewable annually.

The following schedule indicates the percentage of sales and net income contributed by foreign sales in the last three years:

The Company’s subsidiaries and affiliates and its percentage of ownership are as follows:

Diamond Drilling Corporation of the Philippines (DDPC)

DDCP was incorporated and registered with the SEC on August 8, 1971 primarily to provide technical, engineering and management services for the purpose of engaging in mining, mineral or oil exploration construction or other business activity, particularly but not limited to drilling, boring and sinking holes for the purpose of mineral exploration.
DDCP primarily provides drilling services to the parent company and Manila mining Corporation (MMC), an associate.

Shipside, Incorporated (SI)

SI was incorporated on November 12, 1958 primarily to engage in handling all kinds of materials, products and supplies in bulk and maintaining and operating terminal facilities such as pier and warehouses.

Lepanto Investment and Development Corporation (LIDC)

LIDC was incorporated and registered with the SEC on April 8, 1969 and is in the insurane business, It owns 23.14% of Philippine Fire and Marine Insurance Corporation (Philfire) and 100% of DBPI. Its income principally is from Philfire and does not contribute more than 10% of total revenues.

Far Southeast Gold Resources, Inc. (FSGRI)

FSGRI was incorporated and registered with the SEC on July 20, 1988 primarily to operate mines and prospect, explore, mine and deal with all kinds of ores, metals and minerals. LC has 60% interest in the Company through LIDC.
On September 20, 2010, the Company approved an Option on Shareholder’s Agreement (Agreement) with Gold Fields Switzerland Holding AG (GFS), a wholly owned subsidiary of Gold Fields Limited, for a non-refundable option fee of $ 10 million.

The Agreement requires GFS to:
i.   Fund the exploration and feasibility study of the FSGRI mining project
ii.   Contribute $110 million into FSGRI
iii.   Contribute proportionate share of the development cost

The Agreement grants GFS an eighteen-month option to subscribe to new shares of stock of FSGRI representing 20% interest in FSGRI.  If the option is exercised the Company’s interest in will be reduced from 60% to 40%.

As at March 19, 2012, FSGRI is still in the pre-operating stage.

Diamant Boart Philippines, Inc. (DBPI)

DBPI was registered and incorporated in September 7, 1972 and is primarily engaged in manufacturing of industrial diamond tools for mining exploration, marble cutting and the construction industry. Most of its raw materials are imported from an affiliate, Diaboart Brussels, and are readily available. LIDC owns 100% of DBPI.

Comments

The company forecasts their 2012 earnings to reach P300 million which I believe is very achievable due to the substantial reduction of finance costs or interests paid on loans. However, even if the company achieve an earnings of P400 million, LC will still be trading at 155x PE ratio.

A potential revenue stream for the Company will be the commercial operation of FSGRI which makes LC a company to watch for.

Apex Mining Company, Inc. (PSE: APX) (PSE: APXB)

Business Profile

Apex Mining Co., Inc. (the “Company”) was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on February 26, 1970 and listed its shares on March 7, 1974. On August 24, 2005, Crew Gold Corporation (Crew Gold), an entity incorporated and doing business in Canada, and its associated Philippine company, Mapula Creek Gold Corporation (Mapula), acquired 28.03% and 44.88% of the Company’s shares, respectively, by virtue of the Share Purchase Agreement (SPA) entered into by both Crew Gold and Mapula with the previous majority shareholder (Puyat Group).

In October 2009, Crew Gold completed its divestment in the local mining industry and sold its equity share in the Company, as well as to local affiliates including Teresa Crew Gold (Philippines), Inc. (Teresa) and Mapula to Mindanao Gold Ltd. (Mindanao Gold).

As of December 31, 2009, the Company’s majority shareholder is Mapula Creek a Philippine incorporated company.

The Company is a holder of two Mineral Production Sharing Agreements (MPSA) namely, MPSA No. 225-2005-XI, approved on December 15, 2005 with a total area of 679.02 ha located within the Municipality of Maco and MPSA No. 234-2007-XI, approved on June 8, 2007 with a total area of 1,558.53 located within the Municipalities of Maco and Mabini. All mining Tenements are in the Province of Compostela Valley. On April 12, 2012, they disclosed an increase total gold resource potential of 1.118 million troy ounces from 588,000 troy oz. on 2009. [1]

In 2011, the Company milled 202,580 tonnes of ore producing 26,257 troy oz. of gold and 146,295 oz. of silver. Although the increase in the tonnes milled from previous year was only 5%, the increase in gold prices boosted their revenue growth as compared to 2010 by 31% narrowing their net losses to 39 million from 120 million in 2010.

On a disclosure on February 3, 2012[2], the Company announced their plans to expand their current mining operations in Maco and reopening of historic mining areas. The Company also plans to migrate the current ore processing facility to a new expanded facility with a threefold increase in milling capacity by 2013. The Don Calixto, Don Fernando, and Wagas veins are undergoing access rehabilitation and development as future sources of ore production by the 3rd quarter of 2012 which they expect to add 30% to the existing plant’s capacity. [3]

On November 18, 2011, Monte Oro Resources & Energy Inc. (Monte Oro) initiated a private placement to APX equivalent to 5% of the total outstanding shares of the company for a consideration of approximately 3.28 per share. [4] Monte Oro increased their interest in the Company for another 7% on July 3, 2012 for a consideration of 4.40 per share. [5]

On December 1, 2011, SEC approved the merger between Apex Mining Co., Inc. and Teresa Crew Gold Philippines, Inc (Teresa) effective January 1, 2012. [6]

On May 9, 2012, the Company disclosed significant potential of the Maco Porphyry System which they are committed to fund its exploration for the next two years. In the first quarter of 2012, they purchased two additional high-capacity diamond drill rigs which are scheduled to commence drilling on June.[7]

On July 16, 2012, the Company’s board approved the issuance of shares to the following: [8] [9]

Other data:

Comments:

Based on a conservative estimate of $1,600/oz. of gold at an exchange rate of P42/$ and an average milled ore of 695 tonnes/day, I expect APX to realize an earnings per share of .05. The reversal of 2012 results from a loss on 2011 would be largely due to the rent savings that will be generated on the merger between Apex and Teresa and the income tax holiday which is effective until 2013. Prior to the merger, Apex pays 15% of gross revenue to Teresa as payment for the rental of Teresa’s assets for milling operations. Rent expenses paid to Teresa on 2011 and 2010 are 306 million and 244 million respectively.

With the expected opening of historical veins in the third quarter of 2012, increase in milling capacity and increase in free cash flows due to rent savings, I believe that an average ore milled of 1,150 tonnes/day for 2013 is achievable considering that the company aims to expand production to 2,400 tonnes/day by 2013. Assuming that the price of gold remains above $1,500/oz. at an exchange rate of P42/$, I expect the company to realize .53 earnings per share.

The average price that Monte Oro paid for the 12% interest in Apex amounts to 3.97 per share which is only 7.49x estimated earnings for 2013. Apex is currently trading at 9x of estimated 2013 earnings at P5.00. To put the figures in perspective, Philex Mining Company, the largest mining company in the Philippines currently trades at 18x earnings.

Apex’s huge room for growth through increase in ore milled, promising mineral resource, favorable gold prices, stable forex rates, and the Company’s conservative use of leverage makes APX a company good for holding in the next 18 months.

Sources:

1.   “Press Release: Apex Mining Reports a Substantial Increase of Gold Resource Potential to 1.12 Million Troy Ounces at its Mining Operations ” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-2678_APX.pdf
2.   “Board approval of management business plan re: Maco Mining Operation, election/appointment of director/officer” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-1036_APX.pdf
3.   “Press Release: “Apex Mining Posted P50 million income in Q1 of 2012; Readies Expansion Program” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-4592_APX.pdf
4.   “Press Release re: Monte Oro Investment into Apex” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8120_APX.pdf
5.   “Board approval of issuance of additional shares of Monte Oro Resources & Energy, Inc.” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5074_APX.pdf
6.   “SEC approval of Articles and Plan of Merger between APX and Teresa Crew Gold Philippines, Inc.” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8918_APX.pdf
7.   “Press Release: Apex Mining Company Initial Exploration Drilling Confirms Significant Potential of the Maco Porphyry System” http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-3531_APX.pdf
8.   “Board approval of additional share issuances to Viscal Development Corporation, Mindanao Gold Ltd. And Mapula Creek Gold Corporation; Trading Halt”  http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5363_APX.pdf
9.   Results of Organizational Meeting of Board of Directors: resignation/election of directors/officers/committee members, issuance of Class A shares to Solar Securities, Inc., amendment of issuance of Class A shares to Viscal Development Corporation http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5478_APX.pdf