Josemaria Resources Inc JOSMF

Related party transaction

[carbide]

Lundins own 13% of LUN mining and 39% of JOSE.  Which side of the table did you think would get the better deal?

The project is mediocre.  15% IRR.  $3.1 billion capex and $1.5 billion NPV8.  In a capital unfriendly jurisdiction.  You can point to conservative copper price of $3/lb, but the increase in the price will probably be absorbed by inflation in capex and opex.  I can hardly think of a 15% IRR FS which actually made good money.  15% is a good return, but the estimates in these studies are always optimistic.  15% IRR FS equals more like a 0-5% actual return in the real world.

On the conference call an analyst asked if there were any other bidders.  It was turned over by Lundin to Josemaria, and the CEO dodged the question twice, saying the sale was the best thing for shareholders.  Another analyst pointed to the pivot in LUN strategy from buying non-core producing mines from majors at cheap prices (low risk, accretive) to greenfield development (high risk, and probably not accretive relative to their own cost of equity).

This was a special deal because the junior had a special share registry.  The controlling shareholder realised it was a pretty lacklustre orebody going into the dull permitting and financing period, a.k.a., Lassonde valley of death, it could not self-finance the massive capex at a US$ 300-400M cap, and no other major would buy it.  So it got bolted on to Papa Lundin.  No shareholder approval required to transact only 10% of the firm's capital.

To answer a question on the board here, I would be very surprised if there were another bidder.  A white night come to rescue poor JOSE shareholders from the low-ball offer.  Ha!