RE:RE:Southern Copper
Good list. Many of those Aussie companies are well run, deep-pocketed firms with an appetite for copper. They also tend to be on the much more aggressive end of the spectrum (a couple of them in particular). So especially in the current copper environment if they decide they like Santo Tomas they may be more likely to swoop in after just a resource estimate rather than waiting around for a PFS/BFS. Even more so when you consider that ST was already taken to PFS historically and is a relatively simple low strip open pit project, not at high altitude, and with developed infra nearby.
Aside from the Aussies, Chinese state backed entities are also possible participants in the race for ST, especially with China’s current focus on an industrial/infra led economic recovery for which they’re stockpiling strategic metals. And as ‘the reader’ pointed out a while back these Chinese state backed firms may have lower return requirements. Projects like ST are often acquired at a discount to NPV such that the acquirer can still earn a 15%+ IRR after accounting for the acquisition price equating to roughly a 25-30% ROE assuming a typical debt/equity structure. So if a Chinese state backed entity who might have a strategic mandate and an ROE requirement of say only 10-15% is interested, you might see a Godfather type offer.
While that scenario is very exciting, what I really love is the margin of safety in that we don’t need such an offer or an exploration jackpot for multibag returns from here. Once the near certain ‘project value boosters’ from drilling that adds previously inferred/waste rock to the resource, extends depth, and reveals significant high grade mineralization at Brasiles, are completed and factored in, you won’t need particularly aggressive valuation assumptions in terms of assumed copper price in your NPV calc, buyout price % of NPV, acquirer return, or buyout cents/lb, to justify a buyout valuing the project at 0.75-1B USD or more. So despite the amazing run the stock has had, this is still very much a deep value play with our current market cap. And if Solaris’ market cap is any indication, once drills start turning that deep discount to a potential buyout valuation can start shrinking quickly.