The recent brokers note on MOD Resources indicated a target, giving an uplift of 50% to the current share price (see here).
This target is based predominantly on the T3 prospect, a joint venture with Metal Tiger (70/30% split).
Investors wanting to invest in this copper prospect in Botswana, have a choice, invest in Metal Tiger (MTR) or invest in MOD Resources (MOD).
1. British Pound vs Australian dollar exchange rate
2. MOD has significantly more shares in issue the MTR
3. 70% MOD, 30% MTR split
4. MTR having 5% of MOD share capital
the returns should the T3 prospect be sold and capital returned to shareholders would currently favour MTR investors.
Looking at the pros and cons for investing in MTR vs MOD,you need to consider the following:
1. MOD have announced over the next year they will be investing A$10m in Botswana. 75% of this investment will be used on MOD/MTR prospects. The downside is what the exploration within MOD 100% areas will discover.
2. MTR JV covers several MOD prospect areas. All the areas highlighted in orange in this table.3. MTR will be announcing this month details of the Thailand IPO (KEMCO). MTR shareholders will receive ‘free’ shares in KEMCO. Currently the MTR share price doesn’t include any value for Thailand.
4. Disparity between MOD and MTR share price. MOD share price has increased whilst the MTR share price has stagnated.
At some stage you would expect MTR share price to increase and for the gap to close. Alternatively it could be MOD over priced.
5. Copper price now over $3/lb. This is still below the 5 year high with many analysts predicting the price will continue its rise.
6. Having met the management of both companies they come across as professional and competent.
7. Assays due from the holes drilled on T3 when drilling recommenced in the first week of August. We already know visible copper present. What will happen to the share price if significant results or trading halt called due to ASX requirements? Could this result in a spike in the MTR sp as trading will not be halted on the AIM market?
8. Sprott took a significant investment in MTR. Why didn’t they invest in MOD when they did their placing? Have they decided that MTR is the better investment?
9. Finance – both MTR and MOD have significant capital to fund drilling.
10. NPV of A$210m for T3/T1 is only going to increase as data analysed.
Looking at these 10 points, the following graphic indicates the best investment, MOD or MTR (white = neutral, green MTR, red MOD).
Near term more value is going to come from MTR/MOD JV licence areas rather than those owned 100% by MOD.
If somebody wanted more exposure to the other MOD licence areas, you could put a strong case forward to invest in MTR, take the potential near term gains and then invest in MOD.
Another consideration would be each businesses other interests such as MOD’s Sams Creek asset and MTR’s investment portfolio.
MOD or MTR, it looks like September is going to be a very interesting time for the share price.
The recently released MOD, Ocean presentation and brokers note made me question if I should invest directly in MOD. I have concluded that investing in MTR offers the greatest potential.
If MOD and MTR merged (after the KEMCO split), this would remove the requirement for investors to make the decision and also simplify the acquisition process, if a major copper business was interested in the business.
Investors who invest now are in at basement level prices. It’s just a matter of sitting and waiting for the BOD’s of both businesses to deliver.