Potential game-changing event -Macquarie
April 20 report
Event On April 20, IVN completed the private placement with Zijin Mining for a 9.9% stake in the company by issuing 71.8m shares at a price of C$1.36/sh equating to a 47% premium to yesterday’s price. On the one hand the C$105m ($85m) can be put to good use; more importantly we consider the strategic partnership a potential game-changing event as it could well pave the way to expedite the development of one or more IVN’s exceptional assets. Impact The sheer size of IVN’s three deposits is staggering: Kamoa contains over 50bn pounds of copper, Kipushi contains more than 10bn lbs of high-grade zinc and Platreef has nearly 75m oz of combined Pt+Pd+Rd+Au (3PE + Au) along with copper and nickel credits. Based on IVN’s development plans Kamoa will have a 30-year mine life and Platreef could last ~50 years; we think both could double. Meanwhile, with the underground infrastructure largely in place, the high-grade Big Zinc deposit at Kipushi could be fast-tracked into production within as little as three years. With a NI 43.101 compliant resource expected on the Big Zinc deposit, we built a hypothetical model of a modest 1,800tpd mine that we estimate could produce around 215m lbs/a of zinc over a 10-year mine life at C1 and C2 costs of $0.83/lb and $0.93/lb, respectively. Our model results in an after-tax NPV8% of ~$425m and IRR of ~50% to IVN’s 68% share in the project using our average Zn price of $1.53/lb in 2018–19 and $1.18/lb thereafter. We currently value Kipushi on an EV/oz basis only, with this hypothetical mine plan serving as a “what if” scenario against which we can measure the potential impact on our valuation. Price catalyst 12-month price target: C$2.25 based on a DCF methodology. Catalyst: Kipushi compliant resource late 1H15; Platreef resource update & commence feasibility 2H15; Kamoa: finalize PFS & continue exploration in 2015. Action and recommendation For value-oriented investors with a long-dated time horizon, we can find few investments that have the potential to match IVN in terms of asset quality, long life and option value. We recommend investors revisit the quality of these projects and consider the implications of the Zijin relationship.