GREY:NUSMF - Post by User
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greatemailslobon Jun 24, 2010 9:01am
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Post# 17217321
BIG TD DOWNGRADE to 1.75
BIG TD DOWNGRADE to 1.75glad i sold earlier at 2.50
Nautilus Minerals Inc.
(NUS-T, NUS-L) C$1.43
Higher Capex, Key Driver for Lower Target and Rating
Event
Nautilus Minerals announced the results of an independent Offshore
Production System Definition and Cost Study (‘Cost Study’) for the
development of its Solwara 1 project in the territorial waters of Papua New
Guinea. The comprehensive Cost Study was prepared by SRK Consulting and
included details regarding exploration, mine development, and both operating
and capital costs. While the study lacked some key operating cost
assumptions in terms of the final transportation and treatment of the ore from
the Port of Rabaul, the report does provide us with the most comprehensive
summary of the project’s key development assumptions to date. As such, we
have incorporated a number of these assumptions into our DCF model, which
are summarized below.
Impact
Negative. Materially higher capital costs and somewhat lower tonnageestimates overwhelmed the materially lower operating costs, and lowered our
NAVPS estimates. Therefore we have lowered our target price to C$1.75
(previously C$3.00) and lowered our rating to HOLD from Spec Buy.
Details
The Cost Study outlined the proposed ‘Offshore Production System’, which
includes the following:
? The Solwara mining system consisting of Seafloor Mining Tools, Riserand Lift System, and the Production Support Vessel;
? Slurry dewatering;
? Transfer of ore to transportation barges;
? Barging ore to the Port of RabaulSignificant items not addressed in the study include:
? Ore storage at an onshore stockpile facility at the Port of Rabaul;
? Load-out and transportation of ore to a processing facility;
? Final treatment and refining of the oreThe key conclusions of the Cost Study versus our estimates are as follows:Significant increase in capex - Total capital costs for the Offshore Production System are estimated to beUS$383 million including a 17.5% contingency (Exhibit 1). We had been expecting preproduction capex of
$280 million. The significant difference is attributable to the $24 million dewatering plant and the $57 million
contingency allowance which we had not factored into our estimates. While the cost to construct an ore
handling system at Rabaul is not included in the Cost Study’s estimates, we expect it could be covered by the
17% contingency.
Average operating costs up to the Port of Rabaul are estimated to be US$70 per tonne based on a 1.35million tonnes (~3,700 tpd) per year production rate. The US$70/tonne estimates do not include; the cost of
stockpiling material in Rabaul, shipment to a treatment facility or any other downstream processing costs
including, concentration (milling). They do include an allowance for TC/RC charges. We had previously
expected total operating costs of US$150/tonne, but have now lowered these estimates to US$90/tonne
(US$70/tonne onsite and US$20/tonne offsite).
Production is expected to commence at a rate of 1.2 million tonnes per year (~3,400 tpd) with the capacityto ramp up to 1.8 million tonnes per year (~5,000 tpd). Total ore used in the Cost Study’s life of mine
production plan is 1.957 million tonnes. Our estimates assume an average throughput of 3,400 tpd, but we
include a larger total resource of 2.44 million tonnes (Exhibit 2), which applies a factor of 1.25 times the
resource used in the Cost Study. We believe a 1.25 multiplying factor is justifiable given that 40% of the holes
drilled at Solwara 1 terminated in mineralization.
Timeline to start-up is expected to take 30 months to complete the build of the Offshore Production
System following approval by the company. This is inline with our previous estimates, which assumedconstruction would be begin at the start of Q3/10, with first production scheduled for Q1/2013. We have now
adopted a more conservative approach and have pushed out the start of our production forecasts to Q4/2013 to
allow time for the company to finance the project which we expect is likely to be accomplished through a joint
venture (JV) partnership.
Exhibit 1. Capital Cost Estimates - Solwara 1
Description (US$ million)
Mining Equipment
Subsea Mining Equipment $84
Riser and Lift System $101
Dewatering Plant $24
Production Support Vessel Mobilisation $7
Integration and Testing $60
Barges $11
Other
Project Services $32
Owners Costs $7
Capex Sub-Total $326
Contingency (17.5%) $57
Total Initial Capex (to Rabaul Port) $383Exhibit 2. Development Assumptions and Cost Summary – Solwara 1
Parameters
Cost Study
June -10
Previous TD
Estimates
Revised TD
Estimates
Tonnes in DCF (100%) tonnes 1,957,040 3,255,000 2,446,300Grade Cu % 6.18% 7.22% 6.18%Grade Zn % 0.47% 0.64% 0.47%Grade Au g/t 5.26 6.24 5.26Grade Ag g/t 25.64 31.39 25.64Contained Cu (100%) Mlb 267 518 333Contained Zn (100%) Mlb 20 46 25Contained Au (100%) Moz 0.33 0.65 0.41Contained Ag (100%) Moz 1.62 3.29 2.02Ownership % 100% 100% 100%Average Daily Throughput tonnes/day 3,400 4,200 3,400Annual Throughput tonnes 1,241,000 1,533,000 1,241,000LOM Cu Recovery % 90.0% 85.0% 90.0%LOM Zn Recovery % ND 85.0% 85.0%LOM Ag Recovery % ND 80.0% 65.0%LOM Au Recovery % 65.0% 85.0% 65.0%LOM Cu Production M lb ND 440 300LOM Zn Production M lb ND 39 22LOM Ag Production Moz ND 2.63 1.31LOM Au Production Moz ND 0.56 0.27On Site Costs (to Port of Rubaul) US$/tonne $70.00 $100.00 $70.00Offsite Costs (Transportation, TC/RCs) US$/tonne ND $50.00 $20.00Total Cost/tonne ore US$/tonne ND $150.00 $90.00LOM Operating Margin % ND 70.5% 74.1%NSR Royalty % 2.25% 2.50% 2.25%