BNY Mellon Strategic Municipal Bond Fund Inc V.DSM

DSM DD

[Yepnewpapy]

https://www.reddit.com/r/Baystreetbets/comments/tkurgj/deep_south_resources_dsm_due_diligence/
 
Deep South Resources (DSM) Due Diligence

DD
If you like to roll the dice on high risk, high reward bets then I have something that you might be interested in. This is about as risky as it gets with the stakes all hinging on one person. The ruminations of this one person could potentially make or break you financially. That person is the judge that is currently presiding over the case that $DSM.V has taken to the high court of Namibia against the Namibian Ministry of Mines & Energy (MoM&E). I will get into the court case a little more later on, but for now lets look at $DSM.V the company and the Haib copper project.
I like to type up my DD as it helps me scrutinize my decisions much more closely and provides an opportunity for others to tell me how stupid of an idea this is (and yes my username does check out).

• Market Cap: ~$12m
• Shares Issued: 146m
• Share Price: 0.08
• Cash in Bank: ~1.9m

Much of the information in this post can be found in the PEA here. I am not claiming to be be an expert, I am just sharing what I know. if I have missed anything please share it in the comments.
 
About Deep South Resources
Deep South Resources have had 100% ownership of the Haib Copper project since early 2017. The CEO Pierre Lveill has over 28 years of experience in the International financial sector and 20 years of experience in the mining exploration industry. From the mid 1990’s to today, he has been Executive and Director of several exploration companies active in Africa. He has financed and managed exploration projects in Namibia since 1996 including the acquisition and operation of a diamond mine.
The last 2 years has seen the price of copper surge from below US$2.50/lb to almost US$5/lb.

As has been discussed at length and in great detail is the increasing demands on commodities due to the global shift towards green energy and electric vehicles. Likewise for copper this will result in a significant supply deficit of copper for the short and medium term at least.


This will likely result in ongoing upward pressure on the price of copper until at least 2030.
 
About the Haib Copper Project
The Haib Copper Project is located in the far south of Namibia and lies 12-15 kms east of the main interstate connecting South Africa and Namibia. The nearest railway station is at Grunau, which is approximately 120km north on the main highway. Noordoeweris the closest town is located on the Orange River banks approximately 25 km west of the Haib deposit. German prospectors originally identified the deposit around the late 1800s or early 1900s. Since then Several drilling programs have been conducted by several companies including Falconbridge, King Resources, Rio Tinto, Revere Resources and Great Fitzroy Mines NL.
In December 2020 $DSM.V completed an updated Preliminary Economic Assessment (PEA) for the Haib copper project. The purpose of a PEA is to get an idea of the economic viability of a project within a certain range of accuracy such that it can be assessed as to whether to take it to next level of exploration. The next level would be a PFS (pre-feasibility study) followed by a DFS (definitive feasibility study). Each additional study provides a greater level of certainty and higher level of accuracy in all aspects of the project. Ultimately the DFS is accurate enough to be able to take to banks and financial institutions for the purposes of acquiring finance. The following images show the typical progression of confidence and value relative to these milestones.
 

 

$DSM.V having now completed the PEA have elected to skip ahead to the DFS to expedite the process (more on this later). The reason for this being the very favourable economics demonstrated by the PEA and the recent increases in the price of copper.
So what did the PEA tell us? The Haib copper project while being a relatively low grade is a very large tonnage deposit containing several higher grade areas.

It is suitable to be mined as an open pit design mine with drill and blast operations. I won't delve into the details here as it is above my head but any geologists or mining engineers reading the report will have a better understanding.
 
Project Economics
Well I guess the main question you want to know is, how much is that copper worth? The NPV (Net Present Value) that is generated by the PEA can be used a rough guide to value the project should it achieve everything as set out in the feasibility studies. There are many factors that affect the NPV with the most influential being the commodity price. The PEA provides the NPV from 6 different recovery options across a number of different copper prices ranging from US$2/lb to US$4/lb.

• Option 1: 8.5 Mtpa @ 80% Cu Recovery + CuSO4
• Option 2: 8.5 Mtpa @ 85% Cu Recovery
• Option 3: 8.5 Mtpa @ 85% Cu Recovery + CuSO4
• Option 4: 20 Mtpa @ 80% Cu Recovery + CuSO4
• Option 5: 20 Mtpa @ 85% Cu Recovery
• Option 6: 20 Mtpa @ 85% Cu Recovery + CuSO4

Using option 1 as the base case we can see from the below table that the After Tax NPV @ US$4/lb is US$898m (CAD$1.13bn). With a market cap of ~$12m, this represents a 99% discount to the potential value of this project and hence company.

As option 1 is the base case, further appreciation of the NPV can be achieved by considering options 2-6. As a result the best case scenario of option 6 would result in an After Tax NPV of US$1.78bn (CAD$2.24bn).

Considering the current price of copper is ~US$4.72/lb and the wider macro economic factors relating to EV uptake and forecast supply shortages, then there is potential for significant further upside from even the most optimistic scenario in option 6 as published in the PEA. Further feasibility studies will also seek to optimise the engineering design to reduce costs and improve recovery efficiencies by targeting higher grade zones earlier. This will further improved the overall economics of what is an already attractive proposition.
The Court Case
As encouraging as the above numbers are, it really is a moot point if $DSM.V does not win their legal challenge. But I am going to explain why I think they have a very good chance of winning.
The court case is basically the result of the Namibian MoM&E failing to or deciding not to renew the exclusive prospecting license (EPL) of the Haib project for Deep South Resources.
Having listened to several interviews given by the CEO, Pierre Lveill I am hopeful that the judge will rule in favour of $DSM.V. While admittedly only hearing one side of the debate, the following information has been provided in the various interviews and news releases:

• Namibian MoM&E has so far failed to provide any documentation supporting their decision. Recently they requested and were granted a deadline extension to provide further evidence but do not seem to have added any additional documentation of substance.
• Companies are prohibited from sitting on tenements when they are not actively exploring or developing them. However, $DSM.V has met all of the EPL requirements by continuing to develop the project by advancing to the DFS stage. This is in fact over and above what they have previously stated that they would do. As part of the ongoing exploration they have continued to spend the required sums of money and hence are contributing to the Namibian economy.
• At no stage has DSM been advised that they are not meeting the EPL requirements. Even after advising the MoM&E of their future plans there was no feedback regarding any issue with the EPL. Subsequent in person discussions mid 2021 seemed to indicate that the Minister was unwilling to discuss reasonably the situation to seek a resolution. It seems that they have been either derelict in their duty, corrupt in in their conduct or incompetent in their ability to manage and grant the license as would be reasonably expected.
• Back in Sep 2021 the high court has prevented granting an EPL over the area covering the Haib Copper project until the conclusion of the court case.

Deep-South Resources (DSM) - Licence Renewal Issue. Now What? - YouTube
Copper Mining in Namibia with Pierre Leveille, CEO of Deep-South Resources - YouTube
 
Conclusion and Forecast
Looking at the numbers from the Haib Copper PEA there is no doubt that there is massive upside potential here considering the current market cap is at ~1% of the base case After Tax NPV. The real question is whether you think they will win their legal battle against the Namibian MoM&E. If they do win then it is reasonable to expect that the share price will return to pre July 2021 prices of ~25c. For me this represents a very attractive risk vs reward proposition.
Assuming they are successful in their legal challenge then it would take approx 12 months to complete the DFS. A completed DFS would lead to pilot plant and finance discussions. This would see a significant re-rate and factoring in likely dilution and capital raises would see a share price somewhere between $1-$2. If they managed to subsequently acquire finance for the project then $2-$3 would be likely.
if they do lose the legal battle then I am bag holding until they find another project worth talking about.....ZAMBIA