Philex Mining Corporation: Mining

THE COMPANY: Philex Mining Corporation (PMC) is engaged in the exploration, development and utilisation of mineral resources. PMC is a unit of Hong Kong-listed First Pacific Company, and primarily produces copper, gold and silver. In September 2008, PMC announced that its subsidiary, Philex Petroleum Corporation, completed the acquisition of Forum Energy, an oil and gas exploration company in the Philippines. In February 2009, PMC acquired a 50% interest in Anglo American Exploration (Philippines). In addition, in April 2010, PMC, through its wholly owned subsidiary, Philex Gold Holdings, acquired Philex Gold Incorporated.

BUSINESS PERFORMANCE: In the first nine months of 2011, PMC posted the highest net income in its 55-year history at P4.35bn ($98.75m), a 105% improvement from the P2.12bn ($48.12m) reported for the same period in 2010. PMC’s core net income stood at P3.98bn ($90.35m), an improvement of 72% over the previous year’s P2.31bn ($52.44m) – the second highest in the company’s history for a nine-month period.

PMC, the largest metals producer in the Philippines, reported record-high earnings in the first half of 2011, with net income in the second quarter amounting to some P1.5bn ($34.05m). Performance in the first nine months of the year was supported mainly by strong metal prices and an increase in production of gold and copper. The realised price for gold averaged at around $1500 per ounce and $3.62 per pound for copper in the first nine months of 2011. Prices were somewhat lower in 2010, reaching $1130 per ounce of gold and $3.26 per pound of copper in the first nine months of that year.

The life of PMC’s Padcal mine was recently extended to December 2020 from its original expected maturity date of September 2017 based on an evaluation that it has reserves of as much as 85.6m tonnes. This extension could possibly go beyond 2020 as well, depending on economic parameters and its remaining reserves. PMC is also currently active in exploring potential areas that surround the Padcal mine as part of its drive to prolong the mine’s life to the optimum extent.

Based on the latest Philippine Mineral Report Code (PMRC), the mineral resources at Philex’s Silangan project were higher than previously indicated. Combined, the Bayugo and Boyongan have a mineralisation that is approximately 2.6 times larger than that of Padcal. In terms of content, they have an estimated 6.3 times more copper and 3.5 times more gold.

PMC has disclosed the completion of the Independent Mineral Resource estimates for its Boyongan-Bayugo deposit located at its Silangan project in Surigao. It was reported by SRK Perth, an Australian mining consultant, that the gold and copper resources in this deposit were worth around $22bn. PMC will be spending $1bn over the next three years for the development of this project, which is expected to commence production by 2016. The development of Silangan project, meanwhile, is expected to accelerate in the coming months and production should begin by the fourth quarter of 2014.

Through its oil and gas exploration subsidiary, PMC is interested in participating in the fourth Philippine energy contracting round, which will offer for bidding 15 new oil and gas exploration areas.

OUTLOOK: PMC significantly outperformed the Philippine Stock Exchange for much of 2011, before falling sharply later in the year during the month of September. The stock subsequently rebounded in part the following month, and was relatively flat for the remainder of the year and into 2012.

As of late March 2012, the stock was trading at P20 ($0.45) on volume of 5.68m shares, down from the 52-week high of P28.95 ($0.66) but above its 52-week low of P14.4 ($0.33). The price-to-earnings ratio, using year-end earnings per share, was 24.88x. The market capitalisation was P100.6bn ($2.28bn) as of late March 2012, with a free float level of 32%.

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