Friday, October 20, 2006

Calls of Note Part 2

Prudential taking a look at the valuation of Phelps Dodge (NYSE:PD). Firm values PD at $182 in liquidation as $10 for free cash, $135 for operations and $37 for exploration and development. The $135 equates to 6x 2007E of $22.48 at $3.00 copper and $20 spot moly or 9x 2009E of $14.77 at $2.00 copper and $8 spot moly. PD would earn $28.23 in 2007 and $33.64 in 2009 if today's $3.50 copper and $27 per pound spot moly prevailed in those years.

Firm value PD's stake in Tenke Fungurume at $25 per share, Kisanfu copper-cobalt also in Congo at $5 and the other eleven exploration properties on slide 73 of the 3-16-06 webcast at $7.

Plausible buyers "outside the radar" might include Norilsk Nickel (produces 2.5% of world copper), Rusal, Severstal, Lakshmi Mittal personnally or metal trader Glencore as a white knight.

Firm expects a strategic buyer to pay fullest value, not an LBO type relying on debt, as the copper market does not appear liquid enough to hedge out a $20+ billion transaction nor exploration efforts.

Notablecalls: So the <$100 stock is worth $182 today? We are going to see additional $2-$4 pt upside today in addition to $20 pt move in the past weeks. Actionable call!

No comments: