Monterrico hots up

Hopes of a bid to rival China's Zijin Consortium's £95 million agreed offer are firing enthusiasm for Monterrico Metals.

AIM-quoted Monterrico has today published its detailed feasibility study on the Rio Blanco copper and molybdenum project in Peru, which is the bait for the Chinese consortium, led by mining tycoon and politician Chen Jinghe's £2.7 billion Hong Kong-quoted Zijin group. The consortium is offering 350p a share cash for Monterrico, whose feasibility study suggests it can produce an average of 191,000 tonnes a year, worth around £50 million a year gross for an 'initial' 20 years – with operating costs only a sixth of today's market price of $2.4 a lb.

The study estimates capital costs of $1.44 billion (£750 million) to bring Rio Blanco into production. Analysts at broker Numis and elsewhere suggest the study is too cautious and argue Rio Blanco is worth much more than £95 million. They hint rival bidders are on the prowl, while Monterrico's chairman Richard Ralph himself says the 350p bid price, though agreed, 'greatly underestimates the fundamental value' of Monterrico and its projects.

Monterrico has for now agreed to the Zijin offer, which provides for a scaling back to allow Monterrico to maintain a quote with 30 per cent of the equity outstanding. But Ralph, a former British ambassador to Peru and Falkland Islands governor, says '20 companies have before now signed confidentiality agreements' to study Rio Blanco and suggests one or two big buyers are thought to have lately been buying up any available Monterrico shares.

Monterrico peaked in 2004 at 595p before concerns over technical issues at Rio Blanco and caution over copper price trends and Latin American politics (misplaced, says Ralph) knocked them to 165p last September. The shares, recommended by Growth Company Investor as a spec also in September at 188p, have leapt 68p today to 366p, above the bid price, valuing Monterrico at £96 million.

Hold on for now.