Bear Creek Mining Corp V.BCM

Raymond James: Outperform rating and $3.50 target for BCM

[hockeyguy123]

According to Raymond James:

https://app.box.com/s/cw3b2ccffwbizlqlv6tn

Bear Creek Mining Corp.

Bringing Santa Ana Home - the Next Couple of Weeks are Critical

Recommendation

We are maintaining our Outperform rating and $3.50 target price on BCM following the tabling of a favorable judicial decision concerning the 2011 canceling of BCM’s right to operate / develop its Santa Ana project in Peru. We view the next couple of weeks as an important period which will determine BCM’s development timetable for Santa Ana, and potentially Corani’s timetable. While we recognize Corani as hosting the bulk of BCM’s value, regardless of timelines, restoring Santa Ana’s status as a key (and potentially near-term) component of BCM’s development / production plan is a game changer for the company.

Analysis

- A big positive for BCM: bringing Santa Ana back into the fold – The Lima first Constitutional Court’s ruling that the Peruvian government’s previous actions in rescinding BCM’s right to operate Santa Ana is clearly a positive step for BCM. The government does, however, hold the right to appeal the court’s decision (within the next 2-3 weeks). In tandem, BCM is in dialogue with the Peruvian Government to reach a negotiated settlement and avoid formal arbitration proceedings. We believe both parties are eager to achieve this outcome – Stay tuned.

- Maintaining current estimates until appeal period window closes – Prompted by uncertainty over an appeal from the Peruvian Government, we have elected to leave our estimates un-changed. However, we do recognize the importance of Santa Ana, not only from a valuation perspective, but strategically, in providing a pathway to near-term production (~2017) at a relatively modest Capex (~US$70 mln) vs. Corani (~$600 mln). Santa Ana is easier to finance in today’s tough markets.

- Santa Ana, low Capex, Silver heap leach asset – Santa Ana is a feasibility stage heap leach silver project (~4.2 mln oz. Ag/year, 10 year LOM) that’s relatively cheap to build ($70 mln Capex, $100 mln LOM). BCM tabled a feasibility study in 2011 prior to the suspension of a Presidential Decree by outgoing Peruvian President Alan Garcia.

- Santa Ana to add up to $0.84 in NAV, Corani timeline likely pushed out – Whilst we don’t currently ascribe value for Santa Ana in our valuation (we await news from the Peruvian Government on an appeal), we see potential for $0.84 in value based on our DCF using conservative assumptions (see Exhibits 1&2). However, we note that should Santa Ana be developed, Corani’s development timeline would likely be pushed out – which would be value destructive to our $4.53 NAV for Corani.

Valuation

Our $3.50 target price is derived by applying a 0.7x our minesite NAV5% estimate for Corani plus Corp Adj of $0.28 / share. BCM currently trades at a 0.4x NAV (Peers - Developers trade up to ~0.7x NAV).