Mineral Park vs. Phelps Dodge’s Sierrita Those who remember reading the Value Investor report on ML might find interesting an update that compared Mineral Park to Phelps Dodge’s Sierrita mine.
For background, it would be helpful to refer to this excerpt from the orignial report
(from: https://www.valueinvestorsclub.com/value2/guests/view-thread.asp?delay=90&id=1995&more=dtrue )
“The cost of producing 70MM lbs of copper and 10MM lbs of moly: So assuming one can get comfortable with the production, how can one get comfortable with the operating expense (opex) range of $65MM to $85MM? There are two ways. One, Duval Corp operated a similar 12,000 tons per day mill on the ML property for 17 years. ML has all the operating data of that mill and thus knows the input quantities (kilowatts, grinding balls, etc.) required to run it. This data allows them to adjust the old cost of running the Duval mill to the cost of running the newly acquired mill using today’s input prices and adjusting for differences between the mills. The old mine ran at a cost of $3.75/ton and I estimate the new mine will run at between $4.50-6.00/ton, with a more likely range of $5.00-5.50/ton.
“At 35,000 tons/day, the mill would process 12.8m tons/year. At a cost of $5.25/ton, the annual cash opex would be $67MM. The $75MM opex, which was assumed in calculating FCF above, implies a $6/ton operating cost. Cost of $6/ton is probably too high because other similar yet higher-cost mills, such as Phelps Dodge’s Sierrata, which has published cost reports, are running at $5.50/ton. Sierrata is a higher cost mill because of its 1:1 strip ratio, whereas Mineral Park has a 0.3:1 strip ratio. The strip ratio indicates how many tons of waste need to be stripped away to get one ton of ore. In other words, Sierrata needs to move 3 times as much tons of waste per ton of ore. Hence Sierrata’s mine cost/ton of ore is $1.75, while ML’s will be near $0.65 at 70MM lbs production. Therefore, one would expect that ML’s mill would average a mine cost $1.10 lower than Sierrata’s mill, implying $4.40/ton mining cost. So though I estimate cost of $5.00-5.50/ton, the comparable mine analysis suggests this estimate is $0.60-$1.10/ton too high.
“Why is ML’s strip ratio so low versus Sierrata? The answer is that the old 12,000 tons/day mill that produced Cu, moly, and silver in concentrate from 1963 to 1980, stripped the original leach cap off the deposit, thus reducing the future strip ratio and increasing profitability of mining the property. A lower strip ratio means less waste needs to be removed per ton of ore.“
► Along with the apparent 5,000' depth of the moly, one of the most unappreciated aspects to ML is its incredibly low strip ratio. Imagine, that low strip ratio is the product of 17 years of work on the property with heavy machinery. The cost of duplicating that work in today’s dollars would be incredible!
Here is the link to the comparison of the two mines:
https://www.valueinvestorsclub.com/value2/guests/view-thread.asp?delay=90&id=1995&tid=19467