RE:RE:New Bullish SA article about Zinc, Implications for KipushiStockfy,
Kipushi is a good project, but unexceptional. If you include an extra 1.5% in royalties, NPV8 drops to $612.7 million for $1.10 lb zinc, and $414.5 million for $1 zinc. This doesn't include an extra 5% corporate tax, if that does increase from 30% to 35%. I'm not sure of NPV8 at $1.20 zinc, and don't really feel motivated to make the calculation. These are good numbers to be sure, but not great. If this was somewhere else besides the DRC, I'd say go for it. But because I don't trust the political situation, or the new "Let's Take International Miners To The Cleaners" attitude from the government, it makes more sense to prioritize Kakula. The Company is only responsible for half of construction costs, and if you're going to take a leap of faith, you couldn't find a better project. There are two opposing principles here; investment income and preservation of capital. The zinc isn't going anywhere. The Company should take the time to advance these projects with attention to the SAFETY of long term funding.
I'd also like to split the political risk by having the second project in South Africa. We don't have to put all our eggs in one basket. A 12 Mtpa mine at Platreef (Initially 4 Mtpa) would clear at least $624 million a year AFTER TAX, all in sustaining capital costs included. That's for the base case scenario. To me this is a no brainer. Provided the joint venture can reach agreement with the government, Kakula should come first. Then Platreef. If and when the political picture stabilizes, move on Kipushi. Another alternative is to bring in a partner who will finance all construction at Kipushi, or sell it outright.
It's not just a question of costs either. Perhaps having a Chinese partner is a plus. The government is less likely to stick it to both the Chinese and a Western miner working together in a JV. In that sense, sinking $600 million into Kakula, may be safer than spending $300 million at Kipushi. Profits would certainly be exponentially higher.
The Company must not only generate cash flow, but needs to do so SAFELY. I don't want any scenario where the DRC can suddenly put everything at risk on a whim. A good example of that is Venezuela. The Chinese sunk $60 billion developing their oil industry after Western companies fled. It was all money down the drain. The government there is only able to meet interest payments (400,000 barrels a day). When you deal with irresponsible people, your money disappears fast. In my opinion, Congo needs to demonstrate they can be trusted.