RE: WHAT'S THIS STOCK WORTH ANYWAY? Gentlemen:
In reponse to Banx question about the worth of our LVN stock, I thought I would take a look at Levon from a different perspective in the midst of the horrible market in resource companies that we are all having to deal with. I keep hearing comparisons to the CDE takeover of Orko from other posters on this Bullboard and thought that we might compare that transaction to Levon because:
- It is a takeover of a silver project in Mexico by a major under difficult market conditions.
- It reflects pricing based on the underlying fundamentals rather than what the general public investor and short term traders use to value the market price of the stock.
This is what I would call a "poor man's analysis technique", but I believe it is quite conservative. There are clearly a lot of other factors to consider with more information available to us from both companies. It may put some minds to rest while are going through the doldrums.
I don't know enough about the type of deposit that Orko has, but it appears to be primarily an open pit type of play. One can look on the Orko website to see if they have a 43-101 and or a PEA to compare to LVN’s 43-101 and PEA. The Levon deposit is clearly much larger and has a superior indicated vs inferred ratio.
The CDE offer is a combination cash and share trade. Orko has the following share structure:
Share Structure
Issued: 131,693,979
Options: 10,425,000
Fully diluted: 142,118,979
Working Capital
$12,500,000
The offer from CDE is:
CDE's counter offer consists of a mix of cash, CDE shares and CDE warrants for each Orko Silver share. However, the total cash component of the mix is capped at $100M and the maximum number of new CDE shares to be issued is 11.6M. This is where the offer becomes a bit complicated. CDE lists three choices for Orko Silver shareholders.
There is the 'all-shares' choice whereby each Orko Silver share is exchanged for 0.1118 CDE shares;
then there is the 'all-cash' choice whereby each Orko Silver share is priced at $2.60;
and then there is the 'mixed' choice whereby each Orko Silver share is exchanged for 0.0815 CDE shares and $0.70 in cash.
If either the cash cap or the share issue cap is reached, the available cash and shares are distributed pro-ration. If all shareholders choose either the 'all-cash' or the 'all shares' option, then everyone gets the 'mixed' option. On top of this, 0.01118 CDE warrants are issued for every Orko Silver share.
CDE claims, that the offer is based on a valuation of $2.70 per Orko Silver share.
Based on $2.70 per share valuation this comes to $383,721,249 for 142,118,979 fully diluted shares.
The Orko website describes their prospects as:
September 26, 2012
Orko Silver Corp. (TSX Venture Exchange: OK.V) is developing one of the world's largest primary silver deposits, La Preciosa, located near the city of Durango, in Durango State, Mexico. The La Preciosa silver project and adjacent mineral concessions cover 32,400 hectares (80,000 acres) of contiguous mining claims.
On September 20, 2012, the Company released the new resource estimate, created by Mining Plus under the supervision of AMEC Americas Ltd, which will be filed on SEDAR.
The following material changes incorporated into the updated resource estimation contributed to the significant increase in the open pit mineral resource:
- 32 previously drilled holes have been added to the resource model.
- Vein definition has been refined through the careful review and correlation of drill hole intercepts, reducing errant dilution and nugget effect.
- MiningPlus modeled 68 discrete veins independently to define the deposit model, an increase from the 18 veins previously modeled in the last resource estimate.
This table shows the current resource:
| Mining Method | Classification | Cut-off
grade
Silver
(g/t) | Tonnes (millions) | Silver (g/t) | Silver (million ounces) | Gold (g/t) | Gold (000's ounces) | Silver equivalent (g/t) | Silver equivalent (million ounces) |
| Open Pit | Indicated | 25 | 29.6 | 104 | 99 | 0.20 | 190 | 115 | 110 |
| Open Pit | Inferred | 25 | 47.7 | 86 | 132 | 0.16 | 245 | 95 | 146 |
| Underground | Indicated | 60 | 0.1 | 99 | 0 | 0.16 | 0 | 108 | 0.2 |
| Underground | Inferred | 60 | 1.9 | 124 | 8 | 0.21 | 13 | 136 | 8 |
| Total | Indicated | | 29.7 | 104 | 99 | 0.20 | 191 | 115 | 110 |
| Total | Inferred | | 49.6 | 87 | 140 | 0.16 | 259 | 97 | 154 |
Open pit resources stated as contained within a potentially economically minable pit shell.
Pit optimization is based on assumed silver and gold prices of US$25.90/oz, US$1,465/oz, respectively, mill recoveries of 88%, 78% respectively, mining costs of US$1.45/t, and a processing costs of US$17.25/t and G&A cost of US$4.35/t.
Break-even cut-off grades used were 25 g/t Ag for open pit mill material and 60 g/t Ag for underground material.
Silver equivalency is based on unit values calculated from the above metal prices, and assumes 100% recovery of all metals.
Mineral resource tonnage and contained metal have been rounded to reflect the accuracy of the estimate, and numbers may not add due to rounding.
Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability
The portion of the mineral resources amenable to open pit mining for the La Preciosa Project are 29,600,000 tonnes grading an average of 104 g/t silver-equivalent classified as Indicated Mineral Resources, with an additional 47,700,000 tonnes grading an average of 87 g/t silver-equivalent classified as Inferred Mineral Resources. This resource is based upon a 25 g/t silver cut-off grade and contained within two potentially economically mineable pit shells.
The portion of mineral resources amenable to underground mining are 54,000 tonnes grading an average of 99 g/t silver-equivalent classified as Indicated Mineral Resources, with an additional 1,900,000 tonnes grading an average of 124 g/t silver-equivalent classified as Inferred Mineral Resources. The resource is based upon a 60 g/t silver cut-off grade to reflect the higher mining costs associated with underground mining methods. The mineral resources are summarized in the Table above. The updated Indicated Mineral Resource contains an estimated 110,000,000 oz AgEq with another 154,000,000 oz AgEq categorized as Inferred.
On August 11, 2011, the Company released the results of a positive Preliminary Economic Assessment for La Preciosa Project, and the Company has now published the Preliminary Economic Assessment on SEDAR.
The 2011 PEA is no longer considered current and should not be relied upon.
On April 5th, Pan American Silver Corp. provided notice to Orko that it has decided not to deliver a feasibility study before April 13, 2012 for the La Preciosa project. Orko will retain 100% of the project.
Orko engaged AMEC Americas Limited ("AMEC") to complete an updated preliminary economic assessment on the project, which is expected in early 2013. Management believes the potential exists for improvement in the economics of the project relative to the preliminary economic assessment released in August 2011 (the "2011 PEA").
A number of engineering studies are done or are close to being completed including metallurgical studies, environmental impact assessments and geotechnical testwork. However, more work will be required before a feasibility study can be completed. The current data will be incorporated into the AMEC preliminary economic assessment and will also form the basis for preparing a pre-feasibility and/or feasibility study that will be completed.
If you simply apply the total value of $383,721,243 to just the 110,000,000 indicated silver ounces you come up with a value of $3.49 per indicated ounce.
I didn’t see any other minerals mentioned as we have at LVN in gold, lead and zinc.
Accoring to the LVN website:
Levon Resources is exploring one of the world's largest silver resources at the company's 100%-owned Cordero Project in northwest Mexico. In less than four years, Levon has amassed a resource at Cordero containing 364M oz silver indicated plus 91M oz silver inferred. Further indicated resources of 945,000 oz gold, 6.1B lbs zinc and 3.3B lbs lead have established Cordero as one of Mexico's premier polymetallic porphyry targets.
The Cordero resource remains open to expansion in nearly all directions with at least six additional mine-scale targets located within the property's 20,000 hectares (49,400 acres). A Preliminary Economic Analysis based on just 30% of the open pit resource projects a 23.4% Internal Rate of Return (based on US$30.18 silver) and a 15-year mine life to complete the first four stages of a planned eight-stage open pit. Payback would occur in 3.8 years.
With over $50M in cash, Levon is well funded for continued organic growth at Cordero and potential asset acquisitions.
If we just use the $3.49 per indicated ounce figure from Orko times the 364,000,000 indicated silver ounces at Levon, we would arrive at a value of $1,270,360,000. This skips over the inferred silver ounces, all the gold, all the lead and all the zinc and all the cash and just values the indicated silver without any furthur drilling.
LVN has the following share structure:
Levon Share Structure
| Shares Outstanding | 199,854,423 |
| Options Outstanding | 15,090,000 |
| Average Weighted Price | C$0.84 |
| Fully Diluted | 214,944,423 |
If we divide the $1,270,360,000 total value by 214,944,423 fully diluted LVN shares outstanding, it would give LVN a comparable valuation just based on indicated silver ounces alone of $5.91 per share. I recognize that this is a quick down and dirty way to look at it, but compared to a share price of $.40 in today’s market, this looks to me like an undervalued situation by a long shot.
Today’s share price includes around $.25 per share of cash value alone, so the comparable of the silver valuation of $.15 per share versus $5.91 indicated ounces of silver per share looks even better.
Anyway, I thought you all enjoy the comparison.