Lumina Copper: Good things come to those who wait

Dr. Copper: showing signs of life

For a while, Lumina Copper (LCC) shares defied gravity. As of Mar. 28, when shares closed at $17, the stock had a one-year return of 150% — while most TSX Venture stocks were getting pummelled.

LCC is developing its Taca Taca copper-gold-molybdenum deposit in the Salta province of Argentina, 90 km east of BHP Billiton-Rio Tinto-owned Escondida, the world’s largest copper mine. Drilling isn’t finished yet, and the Taca Taca deposit already hosts more than 20 billion pounds of copper and more than 5 million ounces of gold in the indicated and inferred categories, as well as molybdenum. In other words, it’s a monster.

In the spring, however, Argentine president Cristina Fernandez de Kirchner nationalized the country’s largest oil producer, sending wary investors scurrying away from anything Argentina. LCC was not spared – it lost half its market value in the next two months, even as the deposit grew. (Yamana Gold seems less worried about Argentina geopolitical risk: in June it bought Extorre Gold for its Cerro Moro deposit in Argentina for about $400 million.)

LCC is now trading below $10, the level at which company founder Ross Beaty bought 1 million shares in December. In a career that spans decades, the mining magnate – who is a geologist and a lawyer – has created billions in shareholder value by developing mineral deposits and selling to the highest bidder. He owns 23.7% of Lumina Copper shares.

Despite a June 15 “strategic review” news release, it’s been a quiet summer for Lumina Copper – at least publicly. But a couple of recent news releases indicate that management continues to advance the project, one of the world’s largest undeveloped copper deposits.

After Friday’s market close, LCC announced it was increasing a loan facility from Lumina Capital Limited Partnership – a Beaty-controlled investment group that owns a further 3.3% of LCC shares – from $10 million to $13 million.

That followed a Thursday press release announcing the purchase of additional mineral concessions near Taca Taca for $150,000 in cash and about $18,000 in shares. I’d put the chances those mineral concessions are worth considerably more than $168,000 at above-average.

Short-term commodity price fluctuations are only marginally relevant to an exploration company, but copper seems to have broken out of the $3.30-3.50/lb range it was trading in all summer (last at $3.60/lb). Copper traders are bullish too, and prices for the metal remain near all-time highs, despite the drop from 2011 highs.

While central banks in China, Europe and the United States look to stimulus for revival, economic growth continues apace in the highly populated developing countries. The accompanying appetite for copper  – for use in cars, electronics, plumbing and roofing materials, glass, etc – is high and rising.

The world’s copper giants are scouring the earth for new deposits as copper reserves are exhausted, and Lumina Copper has a gem. Brokerages that follow Lumina Copper have price targets north of $20/share, based on net asset value. When it comes to LCC, good things may come to those who wait.

Disclosure: I own shares in Lumina Copper.

 

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