Marengo Mining (MGO.ASX) is a stock which has a world-class project in PNG. It has a lot of appeal for numerous reasons:
1. Immense resource - low grade, but its huge size and high grade zones give it appeal, scale and leverage. The discovery of the high grade zone is relatively recent. It would be nice if it comes at the front-end of the project, as was the case with the Porgera mine.
2. Institutional backing - the share register is dominated by some major institutions. These include the Sentinel Investment Fund, George Soros, et al.
3. Financial backing - the company has the support of Non-Ferrous China (NFC), a Chinese state-owned enterprise, which comes with bank financing, and probably equity participation for project finance
4. PNG government participation - This includes the reimbursement of Marengo for their $100mil expenditure before they earn 30% equity, i.e. MGO can expect $30mil back form the government I believe. Perhaps PNG govt has 10% free-carried, so it might only be $20mil.
5. Cash backing of $25mil, say $5mil to finish the feasibility study; that means with PNG reimbursement, they have $45mil to contribute towards a project cost which I guess is around $2 billion. The implication of course is that there is going to be major dilution, with either NFC or institutions coughing up a lot of equity. But I dare say, not before a substantial rise in the share price.
6. Metal output: The mine will product a product stream comprising copper, molybdenum and gold; so the project start-up is commensurate with a turn-around in economic activity. The proposed project is 25Mtpa of ore throughput, doubling to 50Mtpa in time.
There are of course obstacles like the long development lead-time. i.e. The project is scheduled to start production in 2016. You can view a company presentation here; though I would keep watching the company website for an update on these high-grade zones. The Omora Zone is a separate and distinct target close to the existing orebody. This zone can be expected to mined early, and it will thus greatly enhance the commercial viability - since intersections of 165 metres @1.08% copper & 381ppm Molybdenum are more than double the grade of the primary ore zones.
There is no doubt that there will be some excitement with this company upon completion of the feasibility study. I expect this stock to rise to 27-30c, before some profit-taking and selling-back, because its a long development lead-time. So there is scope for a trade now.
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