Weatherly International finally gets some positive momentum

Nice 7.5% rise on Copper Miner, Weatherley International (WTI) today to 14p. The markets are beginning to realise that with a market capitalisation of £76 million, WTI is very much undervalued. With copper hitting an all time high and  the Otjihase and Matchless mines gearing up production, there's plenty of news flow in the short term to look forward to. The fact that shareholders will get shares in CAR (China Africa Resources) when it floats on AIM in April has been missed by many. Though the company is close to hitting its 52 weeks high, a share price in the 25p-30p looks reasonable on valuation grounds within the next 2-3 months. There were some chunky buys in the afternoon, several 250K's and 1 million at 16.20 indicating institutional buying.

As a reminder from my previous post on WTI on January 30th, http://contrarianinvestoruk.blogspot.com/2011/01/weatherly-international-namibian-copper.html

SWOT
Strengths
Producing copper assets at  Otjihase (3.2 million tonnes at 1.6% JORC) and Matchless mines (0.7 million tonnes at 1.8% JORC) with minimum 5 year mine life
Copper price strong at close to $9500 per tonne
Low cost of production $3,258 per tonne at Otjihase and Matchless
No exploration risk
$140 million of losses able to offset future production
Good institutional shareholder base e.g. Gartmore and Blackrock
Namibian government large shareholder which may derisk licences etc.

Weaknesses
Success geared to copper price
Activity focused on one country - Namibia (but low risk for Africa)
Blighted history
AIM listed so volatile

Opportunities
Investors in Weatherley will get shares in CAR (China Africa Resource) when CAR is floated in AIM in Spring 2011-  Weatherly will distribute 10% of its 35% shareholding in CAR to its shareholders as a dividend in specie.
Good development pipeline e.g. Berg Aukas, Tschudi open pit
Continued weakening of dollar boosts commodity prices priced in U.S. dollars

Threats
Delay in listing of China Africa Resources
Namibian political situation (considered low risk)
Delays in production ramp up at Otjihase and Matchless copper mines
Further fund raising (low risk due to forward selling contract with Louis Dreyfus Commodities Metals
Collapse in copper demand and price e.g. China

Outlook
If every falls into place during Q1 2011, things look very positive for Weatherley given its undemanding rating and low market capitalisation of just £68 million. With full scale production from Otjihase and Matchless of over 4000 tonnes in 2011 and close to 8000 tonnes in 2012 plus some interesting development projects such as Tschudi coming on stream in 2013 . So this should be a year to put its past mistakes behind it and look forward to 2012 and 2013. If we conservatively assume net profit of $4,500 per tonne of copper in 2012 and production of 7500 tonnes, that would make earnings of $34 million (£21.5 million).

The usual risks of investing in Africa have been reduced by Rod Webster's excellent work in getting the Namibian government to have a large shareholding and thus incentive for future success.