http://www.mineweb.com/mineweb/view/...

Haywood endorses Invecture's $48m Frontera Copper bid

As Haywood Securities endorsed Invecture's takeover bid for Frontera Copper, Haywood analysts remained mystified as to why the hedge fund decided to buy the junior miner.

Author: Dorothy Kosich
Posted: Wednesday , 18 Feb 2009

RENO, NV -

Haywood Securities Tuesday endorsed Mexican hedge fund Invecture's bid for Frontera Copper, urging investors to tender to the offer.

However, metals analysts Stefan Ioannou and Danny Ochoa admitted that the hedge fund's "intentions for Frontera and its underlying assets, namely the Piedras Verdes mine, remain unclear."

"Invecture has not stated the purpose for its takeover offer in any detail, but does plan to have Frontera's shares delisted from the TSX if its offer (and/or a Compulsory Acquisition and/or Subsequent Acquisition Transaction) is successful," they noted.

"In a sea of copper ‘development' stories, Frontera has made the transition from explorer to producer ahead of many peers-providing investors with immediate exposure to cash flow," the analysts said. "The company's 100% owned Piedras Verdes open-pit mine in northern Mexico is targeting 70 million pounds of annual copper cathode production over a 14-year mine life."

Invecture's offer values Frontera at $48 million. Haywood maintains its belief that Invecture's current offer (as well as prior offers tabled by Invecture and Southern Copper) "already offers a significant premium for Frontera-a company with a debt-heavy balance sheet and a relatively high-operating-cost profile, which recently prompted a suspension of mining activities-hence our TENDER rating and $0.75 per share target price,"

"Southern Copper's lack of a counter offer clearly supports this argument," the analysts said.

The Frontera Board of Directors also recently endorsed the Invecture offer.

Mining activities were temporarily suspended last November at Piedras Verdes in response to the downturn in the copper price. Copper production for the first quarter of this year is expected to decrease between 6 million and 8 million pounds, assuming the suspension of mining continues through the quarter. The analysts called the action "a proactive measure to conserve cash and protect the long-term viability of the operations."

The analysts also noted that Frontera's first major debt repayment of $64.5 million is due in June 2010, followed by a repayment of a second $24.4 million facility due in March 2011. "Hence, timely restart of mining activities at Piedras Verdes is essential for Frontera."

"However, under our modeled 2009E to 2010E production profile, we do not expect Frontera will have sufficient funds to service this debt facilities, and anticipate (partial) refinancing would be required by/in Q2/10-disregarding a near-term charge in company ownership, which now appears imminent," they advised.

"Given current market conditions, the ‘refinanceability' of Piedras Verdes comes with no guarantees," the analysts cautioned.