Credit Suisse has kept a Neutral rating and $4.25 target price on Mercator Minerals Limited (ML.TO) after announcing on April 12 that it has entered into a friendly business combination agreement with Creston Moly Corp. (CMS.V), whereby ML will acquire each CMS share in exchange for 0.15 ML common shares, plus $0.08 in cash. At the time of the announcement, the transaction valued CMS at approximately C$195 million.

Creston’s main asset is the El Creston molyb and copper project, located in Sonora State, Mexico. According to Creston, the project is targeted to start production in 2014, and generage an annual average of 24 Mlb of moly, and 16 Mlb of copper, at an average cash cost of $4.12/lb moly over a 13 year mine life. We note that we are in the process of reviewing El Creston’s technical details, and have not yet included the acquisition in our estimates.”

Transforming Mercator to a moly dominated company. “At steady state (Mineral Park, El Pilar and El Creston), we estimate molybdenum would account for two-thirds of Mercator’s revenues, with copper making up the remainder. Without El Creston, we estimate the revenue mix would be the reverse.”

Big capital spending requirements lie ahead. “While we are pleased to see Mercator adding more project’s to its development pipeline, we are concerned about the company’s ability to finance the nearly $900M in development costs we estimate may be required to bring both El Pilar and El Creston into production. Sequencing of project development and operating cash flows will help, but accessing both the debt and equity markets for a combined minimum of $200-$300M is very likely, in our view.”

Valuation: :We continue to rate Mercator as Neutral, with a C$4.25 target price, which is based on a 70/30 weighting of 1.0x our NAVPS ($5.07) and 5.0x FY11 EV/EBITDA. The decline in our 2011 EPS estimate to $0.27 from $0.29 reflects our reduced 2011 copper price forecast to $4.56/lb, from $4.70/lb.”