Taking Stock - A Message for the LongsDear all,
I offer my thoughts here without any belief that my contributions are of any more value than any of yours. I have received thanks for my contributions in the past, and I thank you for your kindness. I will attempt to answer concerns or questions, that some of you recently sent privately, with this post.
As expected, so far the market has not reacted favourably to our news. The reasons for this are twofold: first, the market sentiment is low right now (has probably bottomed based on technical indicators), and second, because LWC has had some difficulty in creating broad understanding amongst members of the investment community of just what they have, and what they intend to achieve. However, despite the failure, so far, of the recent 43-101 to ignite greater market interest in LWC, it does establish a very strong foundation for the company to begin the process of building the large, low grade deposit we have always understood they are trying to discover and delineate.
I have spoken with Jim Davis a couple of times since the release of the 43-101, as well as many times prior to this, and I remain completely confident of LWC prospects. I have questioned Jim on aspects of the technical details of the recent reports, as well as on recovery rates, and the geology and potential of other zones. Jim mentioned to me today that that the seven holes drilled so far since drilling recently restarted have all hit molybdenum mineralization, which now confirms that all of the zones (Delta, Sigma, and Theta) are significantly mineralized, and I strongly suspect that we are in for some interesting, if not exciting developments during 2008.
Do not concern yourselves with the grade in isolation of other factors – this is the mistake that many are making – what matters is the ‘global’ economics of the deposit(s). There have been few misinformed contributors to this forum recently who have expressed certain opinions without telling the whole story and making apples to apples comparisons. They are often expressed by people, some of whom cannot even spell, who think they know what they are talking about, but in all likelihood know very little about mining and geology, and probably have never worked in the mining industry. The key to understanding and appreciating the significance of the Nithi deposit is to grasp the critical details. If they are understood, it will be abundantly clear why LWC has something in Nithi, which not only stands out amongst some of the molybdenum deposits currently being discovered, but is also very economic and likely to be acquired.
I will set out below the facts, which are easily verifiable, along with some reasonable and sound assumptions, which if taken in consideration collectively, should it make it logically clear what LWC has now and what the potential is.
Facts:
1. It is not moly (Mo) that is produced and sold in the market by mining companies like TCM at Endako. Rather, it is moly oxide (MoO3). No company mining moly produces Mo – none. Mo is not is what is quoted and sold in the market, it is moly oxide (MoO3), and sometimes MoS2. Right now moly oxide (MoO3) is selling for $33/lb.
2. LWC recently announced a initial NI 43-101 inferred resource of 84,315,900 tonnes grading 0.028% Mo (0.047% MoS2) using a 0.020% Mo (0.034% MoS2) cut off in the Gamma Zone based on 79 diamond drill holes. This deposit exists at surface to a depth of roughly 200 metres.
3. 0.028% Mo equates to 0.0428% MoO3 (what is actually produced and sold), which results in an effective grade of 0.93lbs of molybdenum oxide per tonne of ore. This means that NI 43-101 effectively contains 78,413,787 lbs of moly oxide (MoO3) selling for $33/lb at current market prices. This puts the current gross value of LWC’s 43-101 inferred resource at $2.6 billion. There is no funny math here – that is really what it is.
4. TCM’s Endako currently produces moly oxide (MoO3) at an approximate cost of $10/lb. We are assuming that LWC’s costs will be the same, or even lower, given the very similar operating contexts. This is a debatable assumption, but also a very reasonable one.
5. If we discount LWC’s gross project value (GPV) to 10%, a standard rate for valuing newly discovered deposits, that makes the net project value (NPV) $260 million. Using this method of valuation, we can assign a value of $3.46/share assuming 75 million shares fully diluted. Again, this follows logically from the facts set out above using a standard method of deposit valuation, and is exactly how Noront Ressources’ deposit has been valued. No funny business or math here. However, there would be further dilution to equity finance further exploration and development, so this method of valuation has limited value, but remember further work will delineate a larger resource, probably largely negating the effects of further dilution.
6. Another way of looking at it is to deduct projected production costs ($10/lb) from the GPV of $2.6 billion: 78,413,787 lbs X $10/lb = $784,137,870; $2.6 billion – $784 million = $1.82 billion value after production costs, but less development and taxes. What does it cost to develop a mine at Nithi? I don’t know, but I doubt it would be more than $1.5 billion. Again, we could argue a +$3.00/share valuation on current the current resource. There is no funny math here – these are the numbers.
7. Finally another way to value LWC’s current resource, which is also a known way of valuing specifically moly projects, is to assign a net value of $1/lb of the resource. This would value LWC at $78.4 million, or a $1.04/share assuming 75 million shares fully diluted. I remind you that moly oxide sells for $33/lb, and we are valuing LWC’s moly oxide at $1/lb. That leaves $32/lb for all costs to THEORETICALLY develop the mine and produce the moly oxide.
8. LWC has only drilled 10% of the known zones, and has recently confirmed that moly mineralization exists in all, leaving the potential for very considerable upside. If LWC were to eventually delineate a 400 million tonne resource (a reasonable assumption given that we have only drilled 10% o the known zones) of the same grade, we could easily assign a valuation of $3.72/share using our most conservative $1/lb valuation and also allowing for further dilution to 100 million shares as LWC raises cash to drill – I have assumed another $20 million dollars would be required at an average financing cost of $.80/share. If we use our 10% of GPV method for valuation, which is a standard method for valuation, we could assign a value of $12/share assuming the same dilution (100 million shares).
Thus, it should be clear that we have very sound investment in LWC. Using our most conservative, known and accepted of valuation, we are worth $1/share right now. DO NOT be distracted or fooled by false comparisons to other projects, or people who focus on the low grade without considering the ‘global’ economic picture of the Nithi deposit, talking into account its location, its depth, and the favourable geometry that Jim has mentioned probably to many of us. To properly compare any other project to Nithi, you need to know what the average cost/lb is to produce moly oxide at the other deposit(s), without exception - comparisons on grade alone are meaningless.
Do we have mine yet? No. Will we? Well, if you consider that we have only drilled 10% of the moly zones, I think there is virtually no doubt we will. In addition, as Jim advances his understanding and knowledge of the geological structure (which is the ‘controlling’ factor in the mineralization) at Nithi, we very likely to see zones of higher grade to satisfy the naysayers. After recent conversation with Jim, I am highly confident of this.
My advice is to hold onto your shares and keep faith – it’s the logical thing to do.
Regards,
B.