In short the results are incredibly good.
An important note to make is that I understand that this is also a high-quality PEA ... in that all costs are based on direct industry quotes. Not desktop comparisons. If it were not for a scrap of inferred resource in the mined material, I believe this would be very close to a Pre-Feasibility Study. So we can trust these numbers ... which is not always the case.
Let us look at the main take-aways ...
Headline figures - NPV8, US$3.15 Cu price, US$524m / C$702m post tax. IRR 33.5%. 2.6 years pay back. Equating to C$10.60 per share.
My hope and expectation was for an NPV8 of + US$400m. So this is a stunning result.
It is also worth looking at the PEA with a couple of differing inputs, as this helps to show its robustness ...
- NPV8, US$3.00 Cu price, US$466m / C$622m post tax. IRR 31.1%. Equating to C$9.40 per share.
- NPV8, US$3.45 Cu price, US$640m / C$854m post tax. IRR 38%. 2.4 years pay back. Equating to C$12.90 per share.
If you really want to get silly, some Canadian peers use a NPV5 which I (and most people) think is ridiculous ...
- NPV5, US$3.15 Cu price, US$688m / C$918m post tax. IRR 40%++. Equating to C$13.90 per share.
Capex - Pre production capital cost of US$285m.
My hope was for a number close to US$300m. So again, this surpassed my expectations. To lay this out, this is a capital intensity cost of US$7,125 per tonne of installed production capacity. The rule of thumb is that the industry average is US$10,000 ... but I think the average is now significantly higher, as companies are forced to develop more challenging assets.
Cash cost of production - Life of mine average all-in-sustaining cash costs of US$1.29/lb of copper. Life of mine average C1 Cash Cost of US$1.22/lb of copper.
Put against the industry cost curve this is an outstanding number. It again shows just how robust this operation will be. The graph below highlights this :
Strip ratio - 0.84/1. For every 1 tonne of copper bearing ore, there is only 0.84 tonne of waste to be moved.
The economic benefits of this extremely low strip ratio speak for themselves. I highlight this as it could also have a significant future bearing on any sulphide ore found under the oxide cap - if sulphides are found at a similar grade to the oxides, then they will most likely be mined via an extended open pit. This strip ratio gives us confidence that a good portion of these sulphides should / will be economically extractable.
Conclusions - The first and important thing to say is that this PEA shows that Marimaca will be a mine. This is important, as it is rare that you can say this so definitively at such a stage.
- Why are these results so strong ? And why can we have a high level of confidence in the asset ? It comes back to the powerful simplicity of the story - initial oxide deposit in Chile, at surface, on infrastructure.
- The headline figure NPV8 gives us a C$10.60 per share value on the initial oxide cap. For an asset of this quality I believe this conservatively underwrites a value of c.C$5.00 per share today (versus current level C$3.30).
- But remember, as said before this is just the oxide cap. The company seems to have two emerging beliefs 1) that the sulphides extend with grade under the Marimaca oxide cap, and 2) that Marimaca could well be the first of a cluster of similar IOCG deposits on their land package. If either of these two beliefs are true then this could quickly become a C$15 / 20 stock. Obviously we are not there yet, but with a PEA clearly underwriting the value for MARI at higher levels than we are trading at today, we have every incentive to sit back, wait, and enjoy the progress. I think we are in for a very interesting and enjoyable 12 months.