RE: readying $400m for $10m claimsSo ,let me try again a bit different , from previous one, assessment.
1.HBM is a king in this mineral province and is determined to be even bigger king there, for next 50-100 Y.
Three- four times bigger in Manitoba and 5-6 times overall.
I am impressed with HBM expansion projects..This co is going places.
Though bit slow for people's 'instant gratification" taste .
2. Their $ 450 m capex LALOR deposit is as big (and rich in Au) as their existing resource.
So,I assume Larlor will double their revenues .
The RL JV doesn't make sense to HBM if it will not produce IN THEIR ASSESSMENT
at least 1/2 what LALOR will produce. Therefore my guess , they are prepared to invest at least $240 m in RL development.
So ,the first step ( RL JV ) shall produce APPARENTLY a mine the size of 1/2 of HBM' at least..
1/2 HBM cap = 800-900m .
So, in first step of development VMS cap should be $ 300m = $ 2.5./sh
KNOWING, that no matter where PPS will go in between- it will end up in the end several hundreds %% higher
gives me a comfort, safety net , and ability to ignore short term noise
Of course RL JV can be much bigger, say as big as Lalor or existing HUB resource.
We don't know it now , except that RL has very high grade intercepts.
Likely much higher HBM ever had .
In that case we are looking at VMS $ 5 /sh just based on first step = RE JV.
3. HBM is APPARENTLY PREPARED to throw at the 4 extra claims $ 166 m EACH.= $ 664m
In this scenario ,I am taking the high road, interpreting ( in light of no post disputing otherwise)
the CEO quote as " EACH DEPOSIT".
CEO Quote "
"HudBay financing VMS’s share of expenditures for the first $50 million for each deposit."
$ 50m = 30% of total spending , so, total spending for EACH DEPOSIT = $ 166m
= $ 664 for all 4.
That suggests ,in HBM opinion ,those 4 deposits have as big potential as LALOR or all their existing resource size, or as much as core RL JV.
Maybe not so long bet , if they are APPARENTLY ready to throw at it $ hundreds of millions.
Spending ,condition to find anything worth spending. on ,of course.
Say ,their success rate will be 50%., so, 2 deposits will go into production.
Again, the size of prod can not be lower than 1/3 - 1/2 the existing HBM production ,to make sense for them
4. SUMMARY SCENARIOS :
A.) RL JV = 1/2 of HBM's today's revenue= cap $ 800-900m = VMS cap $250-300m = $ + 2 /sh
B). RL JV as big rev as HBM's today = VMS PPS $ +4/ sh
C. expanded later JV to those 4 claims = expanded JV rev by another 50% of today's HBM = by $ 2 VMS /sh
D. expanded later JV to those 4 claims = expanded JV rev by another 100% of today's HBM = by $ 4 VMS /sh
FINAL COMBINATION OF ABOVE 4 SCENARIOS ; VMS PPS RANGE $ 2- $8.
$ 4 MEDIAN
....BUT IT WILL TAKE MANY YEARS TO GET THERE .
The worst scenario, they will find NOTHING in those 4 claims and RL will be smaller , say 1/4 - 1/3 of today's HBM
RL 1/4 = $ 400m cap = $120m, VMS cap = $ 1 /sh
RL 1/3 = $ 560m cap = $170 m VMS cap= $ 1.4 /sh
All that without counting VMS own activity , Ni. company spin-off etc. ( add 10-20c /sh )
Compare to today's valuation of all above to $ 15 m market value ( $ 30m cap minus $ 15 m cash )
geeeeeesus.
5. HBM financing VMS portion of capex up to $ 50 m EACH = up to $ 200m ALL ?? for the 4 deposits
Plus ,say $ 80 m for RL ( if RL spending just $ 240 m)
Total HBM APPARENT financing of 30% VMS portion is either $ 280m ( if EACH deposit) or $ 130m (if $ 50 m for ALL deposits )
That suggest HBM APPARENT READINESS TO THROW AT THE VMS CLAIMS is $ 840m to $ 400m
Let's cal it APPARENT READINESS instead of APPARENT COMMITMENT -though contracts are signed and sealed.
An investment of $ 400- 840 m suggest a mine the size of 1x to 2 x the existing HBM.
$ 400m -800m ready to be thrown at FRACTION of claims own by co . valued at $ 15 m ??? (less cash)
geeeeesus .
This market values VMS claims being subject to HBM JV at $ 10 m (less cash and other properties)
While HBM values VMS claims as being worth throwing at them $$ hundreds of millions
geeesus.
Who is a total nut here?
Who makes a 1000% mistake in judgment ?
The Joe - Blow?
Or HBM, which sits on $900m cash ,produces good profits , is in better financial shape than TCK or any gold co you name.
Last time I yelled so loud ...geeesus ..a steal..... was at similar metrics ....,GCE 60-90 cents.
6. NOW THE DEDUCTIONS FROM ABOVE ROSY PIPE DREAM.
The HBM financing of VMS portion of development expenses is a form of very friendly ,flexible debt.
VMS will show nice EPS , which will go towards repayment.
That may make the 'market" to keep lower P/E for VMS than for HBM.
So, for safety sake we have to reduce above PPS projections by say 20-30%
Means 80c in worst case, $ 3 in median case and $ 6 best case.
The repayment from cash flow of RL mine will look like this:
HBM CF is 240m/Y
If RL will be 1/2 HBM , the VM|S CF will be $ 40m /y
If RL will be as big as HBM , the VMS CF will be $ 80m/y
If RL + the 4 claims will grow later to 1.5 HBM , the VMS CF will be $ 120m,
The repayment ( before tax) seems possible in 2-3 years and then ...a free CF cow for next 20 + years.
VMS may also start to pursue their own properties more aggressively , means they can
dilute to rise money for own projects.
Though in next year, maybe even 2 , they do not need to do that.
Or wait for the JV CF to use it for growth.
The dilution can be more neutral on PPS or pretty beneficial for rising PPS ,depending on
project success.
So, dilution can go both ways.
Without bothering with details ,just cut all above numbers in half ....and you still have pretty compelling valuation.
Plenty assumptions ? eh ? .. at this stage .... yes
But the assumptions are straight forward and just a common sense..
BOTTOM LINE:
Valuing VMS JV @ $ 10m , while the very JV partner APPARENTLY values it at
multiples of that , is the inefficient market opportunity here.
My main question is : "is RL JV going to be as big as HBM (in that case i have to throw at VMS $ 10m ; -:) , or just 1/4 of HBM? ( in that case I can throw at VMS only $ 1m ; -: )
The manipulation of low trading volume is separate issue though.
And can work both ways.