Anybody familiar with this? apparently its bombed completely but its now on the way back with new finance? any thoughts, short-term is 2.5p, but long term 10p.

check this out though, am suggesting now is a good entry?

http://www.proactiveinvestors.co.uk/companies/news/14965/mercator-gold-new-strategy-is-beginning-to-reap-dividends-14965.html

why if they are going down the tube?

Wednesday, March 31, 2010

Mercator Gold: new strategy is beginning to reap dividends
by Ian Mclelland and Mike Sweeney


Patrick Harford, Managing Director of Mercator Gold (AIM:MCR; OTCBB:MTDGY) is not one to give up easily. Volatile gold prices and soaring input costs at the companys Meekatharra Gold Mine in Australia in 2008 brought the company to its knees. The final blow was dealt when it became apparent that a nearby highway would have to be rerouted to allow operations to continue. Amazingly, Mercator Gold thanks to a ring fence around Meekatharra has survived, and through a series of shrewd investments, has built up a new portfolio of mining interests.

Mercator Gold is now more of a diversified mining investment company with interests in a range of companies and projects, including an exclusive option on the Copper Flat project, a porphyry copper-molybdenum-gold-silver deposit in the Las Animas mining district of New Mexico, U.S. The new business model is focused on acquiring interests in promising assets, adding value, then either spinning them into new vehicles or vending into other companies while retaining a material stake. The market has a limited tolerance for small cap companies... Patrick Hartford said to Proactiveinvestors this week we are aiming to spot the value in projects and make them go faster

Developments at Copper Flat has picked up in recent weeks, with Mercator Gold announcing that it had entered a binding agreement for the sale of the corporation that holds the exclusive option over Copper Flat to Canadian mining junior THEMAC Resources Group (TSX-V:MAC).

THEMAC is no ordinary mining junior. The company is effectively a cash shell controlled by Australian entrepreneur Kevin Maloney. Maloney is Chairman of The Mac Services Group (ASX:MSH), and still controls 51% of the equity of the AUD$435 million company. Harford and Maloney have known each other since 1983, which explains Mercators rationale that Copper Flat is better suited to a Canadian listed company with strong backing.

Once THEMAC Resources exercise Mercators option over Copper Flat, Mercator will no longer be responsible for the purchase and development cost but will retain a very substantial interest in the projects future development. The Copper Flat project has significant infrastructure in place and can potentially be brought back into production for a relatively low capital outlay.

Copper Flat is a former producing mine with infrastructure from previous mining operations still in place. The results of an initial drilling program that commenced at Copper Flat in January 2010 and concluded in February have so far been positive, with assay results received including an intersection of 429ft (131m) at an average grade of 0.73% copper. Further assays are pending. The drilling program was designed to provide data for a Canadian NI 43-101 compliant update of the historic Copper Flat reserves/resources and to provide geotechnical and geochemical information for the planning and permitting of future operations.

The total contained metal is approximately 200,000 tons or 447.872 million pounds Copper, 223,900 ounces Gold, 3.2995 million ounces Silver and 6,600 tons or 14.762 million pounds of Molybdenum, according to management. This equates to an excess of US$1.5 billion in-situ value at current prices. The most recent feasibility study was by Pincock, Allen & Holt, and it envisaged the mining of 5.8 million short tons of ore and two million short tons of waste annually for 11.6 years.

When Mercator Gold announced the deal with THEMAC Resources, many investors struggled to get their head round the numbers. In summary, this is the thrust of the agreement:

Copper Flat Transaction

Mercator is to receive 10.5 million fully paid shares in THEMAC Resources and 10.5 million warrants valid for five years and exercisable on a one for one basis at C$0.28 per share.
The closing price of shares in THEMAC Resources on 12 March 2010 was C$0.24 and there are currently 12.6 million shares in issue (18.1 million fully diluted).
THEMAC Resources is to fund or reimburse all expenditures by Mercator and/or NMCC in relation to the Copper Flat project from the date of agreement until the completion of the transaction.
THEMAC Resources is to place 5.5 million shares at C$0.15 per share, with attached warrants valid for one year and exercisable on a one for one basis at C$0.28 per share, with Mercator and/or Mercators nominees (the Initial Placing).
A second placing (the Second Placing) of shares sufficient to raise C$5 million at a minimum placing price of C$0.50 per share, with attached warrants valid for one year and exercisable on a one for one basis at a price sufficient to raise C$10 million should all the warrants be exercised, is to be undertaken by THEMAC Resources prior to completion of the transaction.
Exercise of the warrants issued in the Second Placing is to be compulsory if the closing price of shares in THEMAC Resources exceeds the exercise price of the warrants by 50% or more for more than fifteen consecutive trading days.

What does this all mean? Assuming after the completion of due diligence and a Preliminary Economic Assessment (PEA) by SRK Consulting, THEMAC Resources exercises the option on Mercators option, and raises the capital required, Mercator Gold will hold up to around 40 million of the 70.5 million shares outstanding on a fully diluted basis.

There have been a few raised eyebrows over a 3.25% royalty on production that came with the original option agreement on Copper Flat, but Harford thinks the market is overplaying the significance, and believes shareholders should look at the combined royalty and cash element to purchase the project. Typically the royalty would be smaller, but the cash element significantly higher. Harford says the reverse formula at Copper Flat reflects the risk of securing permitting to move the mine back into production.


Other Assets

ACS Asia - Mercator acquired a 70% interest in ACS Asia from Tyco International in October 2008. ACS Asia, located in Thailand, manufactures and markets the Unistrut brand of metal construction products. ACS Asia is an established and profitable metal company, and brings much needed revenues and cashflow into Mercator Gold.

Paniai Gold - Between September and December 2008 Mercator invested 175,000 in the Area 81 gold project - a promising gold mining and exploration joint venture in Papua Province, Indonesia. This loan gave Mercator a 50% interest in the project. During the course of the period, Mercators loan was converted into a holding of fifty million shares in an Australian company named Paniai Gold. Paniai has since invested a further AUD$700,000 in the project, having raised pre-IPO funding ahead of an IPO planned for 2010 on the Newcastle Stock Exchange (NSX).

While the Area 81 project presents some logistical challenges, the large amount of gold (more than 100,000 ounces) that have been extracted by Paniais Indonesian partner over the past four years presents potential for both the application of more sophisticated mining techniques and for the systematic exploration of the wider area with a view to the discovery of new deposits.

In order to ensure that the Area 81 project has the best possible chance of success, Mercator introduced Paniai to Trevor Neale, a noted specialist in gold mining operations in Papua New Guinea who has now been appointed Operations Manager of the project. Mercator also introduced Paniai to BGF Capital Ltd, a new brokerage house focused on the exploration and mining industry in Australia. BGF has raised approximately A$500,000 in pre-IPO funding for Paniai and has agreed to underwrite Paniais listing in Newcastle for approximately A$1.8 million. On listing, Mercator expects to hold 16% of Paniai Golds issued share capital.

Silver Swan Group - Silver Swan Group is an ASX listed exploration company that has made a significant base metal discovery of the volcanogenic massive sulphide type in Western Australia. During 2009, Mercator was able to sell their interest in Silver Swan at a substantial profit, and they retain four million performance shares. The disposal by the Company of the majority of its ordinary shares in Silver Swan has realized cash proceeds of in excess of AUD$3 million.

Meekatharra Gold Project In October 2008, instability in the wall of the Surprise pit at the Meekatharra gold project, then operated by Mercator, forced a stoppage of mining activities at Meekatharra. This precipitated substantive losses associated with the Companys forward sales of gold during a period of extreme volatility in the gold price. After recapitalization, creditors (including Mercator) will have a 25% interest in Meekatharra Gold Corporation. To assist with this transaction, Mercator has invested, by way of a loan convertible into shares, C$200,000 in Meekatharra Gold Corporation. Furthermore, Mercator has agreed to contribute A$1.5 million in the form of a two year convertible instrument in the Company to a trust established to hold the creditors interest in Meekatharra Gold Corporation.

URANIO AG In November 2009, Mercator acquired three million shares in Uranio AG, a Swiss uranium exploration and development company listed in Germany. Uranio has extensive uranium tenement holdings in several countries. In March 2010, Mercator commenced due diligence over Uranios tenement package in Argentina, and has the right to earn up to a 70% interest in the tenement package by spending US$5.5 million on exploration, development, and associated activities over four years. The tenement package in Argentina totals more than 80,000 hectares of granted tenements plus 50,000 hectares of applications, and includes a tenement known as Color 15 that is located approximately 20km from the historic Los Mogotes Colorados mine, an unconformity-related roll-front uranium deposit. The Color 15 tenement is believed to be highly prospective. Harford told Proactiveinvestors that the company will be on the ground in April and expects to make a decision in May on the option. If it does exercise the option, it seems very likely the assets will be spun into a new vehicle in keeping with the new business model.

Summary

The easy option for Harford and the rest of the Mercator Gold board would have been to quit the company when Meekatharra ran into trouble. Instead, they have restructured the company and snapped up a handful of carefully selected projects and interests, all of which have the capacity to deliver substantial returns and some of which have already begun to do so.

On the basis of current historic reserves Copper Flat project has an NPV of $117 million and an IRR of 24% - based on $2/pound copper, $10/pound molybdenum, $13/ounce silver and $900/ounce gold. These figures are based on an owner mining scenario, initial capital costs of $115 million, and a discount rate of 8%. Mercator acquired its option over the Copper Flat project for just US$150,000.

In 2009, Mercator recorded income and book profits of 244,000 from ACS Asia, on 4 million of revenue with a gross profit of 1.2 million (30% gross profit margin). ACS Asia was a very good investment for Mercator.

Likewise, the companys stake in Silver Swan, which was effectively spun out of Mercator Golds Australian exploration ground, has delivered a handsome return for the company.
Mercator Gold has had its fair share of setbacks, and the share price is still stuck in mud, but if Mercator keeps cutting deals and turning small investments into big profits, the market will be forced to start taking

http://www.proactiveinvestors.co.uk/companies/news/14965/mercator-gold-new-strategy-is-beginning-to-reap-dividends-14965.html

bit of a rise today on back of director buying albeit on 6700 pounds worth

watch this space.

Changed to ECR, Electrum resources.