RE:RE:RE:25% Option Exercise PriceI am still working on a discounted cash flow guesstimate, but it's still hard to model assumptions.. so the PEA will also be proof of the pudding to me. But it is pretty obvious that at the current levels, we are at a huge discount to even the low end value.
Now if you look at the Edison Research NPV estimate from June 2013 (*), they basically inflate the Jan 2009 PEA for inflation and resource upgrades.
They use these price assumptions (corresponding with the long-term metals pricing assumption in the agreement):
Our DCF valuation of the TMM project is based on a 10% discount rate, long-term copper and nickel prices of US$2.96/lb and US$10.14/lb respectively and a US$0.99/C$ exchange rate.
They use these assumptions for the base case NPV:
- Capital cost estimate inflated 25% to US$1,665m.
- Cash cost estimate increased 20% to US$27.20/t.
- Plant throughput unchanged at 40ktpd.
- Mined resource grade revised to 0.69% Cu and 0.22% Ni compared to 0.68% Cu and 0.21% Ni to reflect the Maturi indicated 622Mt higher-grade sub-unit.
- Mine life extended from 22 to 27 years (maintaining a 70% resource extraction factor).
- Mineable resource increased to 435Mt (70% of Maturi higher grade sub-unit) from 282Mt.
For the upside case, they use these modified assumptions:
- Mineable resource increased to 745Mt (70% of the current Maturi indicated resource).
- Mined resource grade revised to reflect the current Maturi indicated resource.
- 622Mt higher-grade sub-unit mined and processed in the early years of the project.
- Plant throughput increased to 80ktpd.
- Capex estimate increased 80% to US$3,000m; no change to opex estimate.
- Corporate overheads increased by 50% due to the increased scale of the operations.
They also 'conservatively assume the BFS NPV is at a 20% discount to our DCF valuation'. They basically discount their own DCF NV calculation by 20%, so you divide by 0.8 to get to their estimated published NPV.
Using their latest estimates from September 2013 (**), which contains some minor mods, the base case NPV is US$ 1.072 bn (as 25% equals $ 268 mln) and the upside NPV $ 1.668 bn. So dividing by 0.8 to get the estimated NPV, the:
Base case 10%NPV is $ 1.340 bn
Upside case 10%NPV is $ 2.085 bn
Now, what I find interesting is that the Feb 26 resource update by AMEC notes that "The Maturi resources are based on a concentrate sales plan that in turn assumes a mining cost of $12.54/t, a process cost of $5.96/t and general and administrative charges of $3.16/t."
So that would be $ 21.66/tonne.. lower than the $ 27.20/tonne of Edison. But it is excluding 'slurry pipeline' $0.87/tonne and 'concentration' $3.92/tonne which was in the Jan 2009 PEA. I don't know whether to include that, but it seems highly unlikely to me that cash costs are higher than Edison projects. I would welcome any thoughts on the implication of not including these two cash cost items in the Feb update.
So for now I expect CAPEX $ 1.5-2.0 bn and I would be really surprised if NPV would come in lower $ 1.5 bn.
I think any NPV $ 1bn+ will give the stock a boost anyway.. just check MIN.V (Arizona copper) and see what recently happened when they published their updated PEA.. which was basically pretty much the same as their earlier PEA which was already out!
Stock nevertheless went from 12 cts to 63 cts (!!) in a two days. It seemed such non-news (compared to what was already out) that I wasn't even eager at buying the pre-open indication at 16 cents and thought 'forget it' when it opened at 20 cents.. but it really did kaboom haha.
That stock is just back on the radar, nothing more. I expect something similar at DM. It's hated and off the radar. But after a long, long wait we can expect some fireworks in the next half year. I would expect that a shareholder that has hung on for a long time only to capitulate at this point, is probably going to regret that...
GLTA
(*) Edison June 2013 research
https://www.edisoninvestmentresearch.com/?ACT=18&ID=9918 (jun)
(**) Edison Sep 2013 research
https://www.edisoninvestmentresearch.com/?ACT=18&ID=10914