My analysis of Lumina Copperis available at
www.VanFM.com
There are seven companies profiled and detailed reports are available for download.
as of Jun 11 2013
Candente Copper Corp (DNT)
Augusta Resource Corp (AZC)
Lumina Copper (LCC)
Nevada Copper Corp (NCU)
Yellowhead Mining (YMI)
Catalyst Copper (CCY)
as of Oct 15 2013
Northern Dynasty Minerals (NDM)
In addition, there is a comparative analysis of the seven companies available at
https://www.VanFM.com/ComparativeAnalysis.pdf
Although there are “preliminary economic assessments” or “feasibility studies” for these seven projects, the copper price in each study or assessment was different in each study or assessment. In order to do an apples to apples comparison of these projects, consistent prices of $2.75 per pound Copper, $1200 per ounce Gold, $10 per pound Molybdenum, and $22 per ounce Silver were used for each project in the financial models (except for Augusta Resource that has sold forward all gold at $450/oz and silver at $3.90/oz).
The intent is to use the same measuring stick for each of the seven companies.
Although the unlevered Project NPV and IRR are calculated and reported, the key output, or bottom line, of these models is the “
Share Price at IPO” (technically, a secondary public offering). There is more detail in the model as to how this is determined.
Candente Copper (DNT) – Jun 11 2013 closing price - $0.21/share, model price at IPO $1.56/share using a 15% discount rate (see Assumptions on front page of PDF).
The Good – 14.1% Unlevered after tax IRR (includes a $2B construction cost per S. Waller in Nov 2012, and a T Kingston estimate of a 20% increase in mining, processing, and G&A Costs from the March 2011 AMEC Pre-Feasibility Progress Report); 0.40% average Cu grade of ore mined, 728 million tonnes of ore to be mined (i.e. BIG deposit); 70% of local population support project, strong central government support; upside potential from Cañariaco Sur and Quebrada Verde not included in this analysis (increased mine life and/or ore mixing benefits).
The Bad – Arsenic in ore; Northern Peru - Anti-Mining Activists are active in the local area - they spread a lot of fear among the local population and investors; “Limited fire damage to forest and a few small buildings was incurred” by radicals in Dec 2012; Company will have very limited financial resources end of Q2 2013; Company will have to raise funds to complete feasibility study.
The Bottom Line – You have to be satisfied that the rule of law will prevail in Peru and that the central government and local population do indeed support and will continue to support the project, and also that the arsenic in the final concentrate can be reduced to non-penalty levels by roasting or other means, and the next financing can be completed without major dilution, although current price reflects this uncertainty.
Augusta Resource (AZC) – Jun 11 2013 closing price - $2.32/share, model price at IPO $4.87/share using a 12% discount rate.
The Good – 18.3% Unlevered after tax IRR; 0.44% average Cu grade of ore mined, 600 million tonnes of ore to be mined (i.e. BIG deposit), politically stable region, no major permitting issues; sold forward all gold at $450/oz and silver at $3.90/oz to Silver Wheaton in exchange for $230M when material permits are received; project can handle the lowest copper price of the seven companies and still be economic.
The Bad – option to buy in 20% of project by a third party (Note: the model price of $4.87/share assumes this is exercised).
The Bottom Line – This is likely the safest investment of the seven projects - project can handle the lowest copper price of the seven companies and still be economic.
Lumina Copper (LCC) – Jun 11 2013 closing price $6.20/share, model price at IPO $21.82/share using a 15% discount rate.
The Good – 16.6% Unlevered after tax IRR; 1.65 billion tonnes of ore to be mined; 0.46% average Cu grade of ore mined.
The Bad – Argentina (high taxes); high percentage of revenue to pay royalties and taxes, the highest of the seven projects
The Bottom Line – Great deposit and project, high taxes and country risk.
Nevada Copper (NCU) – Jun 11 2013 closing price $2.37/share, model price at IPO $2.12/share using a 12% discount rate; Deposits remain open – the model considers only what is known to be mined.
The Good – 0.53% average Cu grade of ore mined (open pit and underground), 365 million tonnes of ore to be mined; politically stable region, no major permitting issues; CFO knows of Clinton Creek.
The Bad – only a 10.3% Unlevered after tax IRR; $1B of sustaining capital required (not known why this is so high compared to others), this is three to four times the average of the other projects; this will be funded 100% from operations (no leverage).
The Bottom Line - Reserve Upside – Updated Resource Announced September 2012, Deposits remain open, Western deposit mineral reserve to be published in early 2013, Feasibility study results on integrated underground-open pit operation to be published in August 2013; It might be wise to wait before making any decisions on this one.
Yellowhead Mining (YMI) – Jun 11 2013 closing price $0.35/share, model price at IPO $1.53/share using a 12% discount rate.
The Good – 704 million tonnes of ore to be mined; excellent infrastructure already in place or nearby; politically stable region, no major permitting issues.
The Bad – only a 10.1% Unlevered after tax IRR; lower grade deposit, 0.262% average Cu grade of ore to be mined, average tonne of ore milled has pay revenue of only $14.44 based on $2.75Cu, $1200Au and $22.00Ag.
The Bottom Line - Project requires a high copper price to be economic.
Catalyst Copper (CCY) – Jun 11 2013 closing price $0.035/share, model price at IPO $0.00/share using a 12% discount rate.
The Good – 588 million tonnes of ore to be mined; 0.37% average Cu grade of ore mined; politically stable region, no major permitting issues.
The Bad – only a 8.3% Unlevered after tax IRR; high mining costs and processing costs, $5.80 and $6.17 per tonne milled, respectively; Arsenic in ore.
The Bottom Line – Project requires a high copper price to be economic, the highest of these seven projects; high mining costs and processing costs, $5.80 and $6.17 per tonne milled, respectively.
Northern Dynasty Minerals (NDM) – Oct 15 2013 intraday price $1.50/share, model price at IPO $5.37/share using a 12% discount rate.
The Good – 3.4 billion tonnes of ore to be mined over 45 years (likely minimum78 year mine life); 0.45% average Cu grade of ore mined (45 yrs); very high gold in ore for a copper mine - 0.386 grams/tonne Au (45 yrs); politically stable region; NDM owns 100% of the project.
The Bad – only a 10.3% Unlevered after tax IRR; deposit is near one of the world’s greatest salmon resources; there will be environmental permitting issues; no infrastructure in place, will have to build own power plant, etc.; Anglo American, previously 50% partner, backed out of project recently – offset (the good) is Anglo American already spent $M 514 on project and NDM now owns 100% of project; high construction cost $B 5.8; NDM has commercial operation beginning in 2021 – this analysis has commercial operation Jan 2019.
The Bottom Line – Huge deposit – “Pebble is the World’s Largest Undeveloped Copper Resource”, per NDM; Cu Equivalent grade - 0.83% per NDM Sep 2013 Corp presentation.