In a March 15 research note, Fundamental Research Corp. analyst Siddharth Rajeev wrote that Quaterra Resources Inc.'s (QTA:TSX.V; QTRRF:OTCQX) "low valuation metrics make it an acquisition target."
Rajeev provided evidence that Quaterra is undervalued.
Despite owning 6,700 acre-feet per year of water rights in Yerington, Nev., worth about $20 million based on its recent sale of the same for $6.02 million, the company's current enterprise value (EV) is only $9 million. This EV translates to $0.003 per pound of copper, more than eight times lower than that of its peers' average of $0.026 per pound.
Quaterra has $4.5 million in cash along with an estimated 14.86 million options and 19 million warrants. "Approximately 9.67 million options are currently in the money, indicating that the company can raise up to $0.68 million if all these options are exercised," indicated Rajeev.
Fundamental assigns Quaterra a fair share value of CA$0.49 per share. The mining company is currently trading at around CA$0.11.
Rajeev reviewed what makes Quaterra attractive to potential acquirers.
The company owns the MacArthur and Yerington projects along with an option to acquire a 100% interest in the Bear copper project, all in Nevada, and an agreement in place to acquire 90% of the Groundhog project in Alaska.
At its Nevada assets, Quaterra already has a documented copper resource. It stands at 1.48 billion pounds (1.48 Blb) in the Measured and Indicated category and 24.6 Blb in the Inferred. The historical resource there is 4 Blb copper.
Quaterra is advancing MacArthur, having started work on a prefeasibility study on the oxide part, which is expected to be completed in 2020.
At Groundhog, exploration will continue, with more geophysics and drilling to assess the potential for porphyry-style copper mineralization there. For Quaterra's earn in to the asset, it must pay $5 million to the owner-operator Chuchuna Minerals Co. for exploration over five years and $3 million afterward.
External activity taking place close to Quaterra increases "the probability of consolidation in the area," Rajeev commented. For one, neighboring Mason Resources was recently acquired by HudBay Minerals for CA$31 million. Nevada Copper's Pumpkin Hollow project, 3 kilometers away from Quaterra, is slated to start production in Q4/19.
Rajeev added that South32's recent acquisition of Arizona Mining also "supports our outlook." The all-cash deal for the company that owned the advanced-stage Hermosa zinc project in Arizona was $1.6 billion, representing a 50% premium.
Fundamental Research has a Buy rating on Quaterra.
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from Fundamental Research Corp., Quaterra Resources Inc., March 15, 2019
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