Market cap vs upcoming cash-flowIf anyone cares to do a comparison of Ivanhoe's forward cash-flow vs market cap and debt etc I would be interested.
As some here may know my main copper investment is NCU Nevada Copper.
I know some people hate NCU's huge share float but it will be consolidated in a few weeks in May sometime. The ratio is as yet unknown but probably will be 15:1 or 20:1 I actually would want it to be even higher but just have to wait and see.
Here is my work on NCU if anyone wants to check it and offer any thought out comparisons:
Cheers,
Notgnu
Underground mine (after full ramp up in 3rd quarter)
65 million pounds per year x $2.14 ($4.00 - $1.86 = $2.24)
Free cash-flow of about $139 million per year at a 5X cash-flow multiple =
$695 million, divided by 1.8 billion shares = $0.39 USD
OPEN PIT (valued as not yet developed)
IRR of 39%
NPV of $1.76 billion / 1.8 billion shares = $0.98 (then discounted 75% by me) = $0.24USD
Total share price: $0.39 USD + $0.24 USD = $0.63 USD = $0.79 CAD
*** double again if a 10 X multiple is used
Some reasons I own NCU shares:
- The future open pits are now highly economic and are relatively high grade
- First in 10 yrs new USA copper producer
- Future open pits have some gold and silver (not sold in any stream deal)
- The future open pits are already permitted and may be spec'd at 70,000 tpd
- Copper demand running beyond the price assumptions in the feasibility study
- The new mill is successfully ramping up to it's 5000 tpd capacity (prob ~50% now)
- Trading at 0.7 X book value
- Full copper production next 6 to 10 weeks
- Minimally hedged
- Covid uncertainty is reduced with vaccine roll outs
- No insider selling for 10 yrs despite past issues
- Banks lending now at reasonable rates (interbank rate + 4.9%)
- Highly experienced CEO with 3,500,000 share rights which align him with us.
- A mining friendly jurisdiction with plenty of experience labour available
- Future full US listing anticipated later this year thus bringing in a new buyers
- A share consolidation is coming in May 2021 which will help allow institutional buying and possibly allow the stock to be marginable
Potential risks include:
Problems with the mine plan leading to more cost
Copper price dropping a lot
Mine accidents
Another Covid shut down
Notgnu being overconfident and overly promoting NCU (AKA pumping according to bogdogg)
Interpretation of the 2020 share price collapse:
Covid hit and the mine was shut down. It was bad timing in terms of funds to get production up and running. Cash was not there and it looked like another dilution was to happen
Selling came in with very little buying support. Then the situation changed for the better yet investors were scared.
Insider average costs:
Pala / Iorich ~40 % owner > $0.51 (calculated as of January financing)
NCU director Nutter > $0.32 (calculated as of Dec 2020)
NCU director Albanese > $ 0.41
NCU director Brown > $0.31
NCU chairman Gill > $0.21
NCU senior VP Joseph > $.32
NCU director Cochrane > $0.67
NCU: Some history on the underground portion:
Throughout 2019 copper prices declined about $0.75 per pound, from ~$3.00 to ~ $2.25 (March of 2020) This was the first major hit to the share price. The NI 43-101 assumed an average price of $3.00.
Quote: "Consensus prices per the 2019 NI 43-101 Tech Report : US$2.83 – 3.20/lb Cu"
Covid shut the mine down just when start up production was about to occur. Copper ~$2.25 at the time. NCU dropped to $0.24
The share price continued to decline and only in June 2020 did it have a small pop back to the $0.20 area, presumably because copper went to ~$2.75 thus making the mine viable again (all in cost of $1.89 underground, leaving $0.86 per pound net profit.)
Cash was needed to get to positive cash-flow and support debt obligations thus the now infamous dilution and refinancing at a about net $0.14
Shareholders bailed on mass with the tax loss season and covid doom in the air, leaving the share price to hit 2020 lows of ~$0.07 to $0.10
Since then both the copper price and importantly, the outlook for copper, have improved markedly. This affects everything. NCU is affected more than most because going from almost bankrupt, to having a very profitable outlook, creates a larger leverage effect than going from profitable to more profitable (as is the case with other low hedged, mid sized copper mines)
Since the life saving July 2020 financing NCU's marginal profit is now 250% of what it was then ($2.14 vs $0.86 p/pound) Note: the $2.14 today is based on $4.00 copper, minus $1.86 AISC
During the time copper prices went up the mine build progressed amazingly well. The mill was tested to run great at 'nameplate" of 5000 TPD and the underground hoisting and ore crushing have successfully been commissioned... a shout out to the new CEO and the NCU team.
NCU's hedging is relatively small and applies to only the first 6 months of 2021 leaving the vast majority of the copper open to the new higher copper prices.
The recent financing converted another big piece of debt to equity so the balance sheet is in great shape.
Despite the troubles in the past there has been no insider selling for 10 years and insiders hold a lot of stock cumulatively, with Pala / Iorich holding about 60% at an average price that is greater than $0.51.
Another thing not yet discussed much is the additional 83 million tons of additional ore that may be available underground.
This ore is now extremely economic at $4.00 copper. Additionally there will be more and more drilling done and the confirmation, size and grade of this ore body may easily increase That part is pure, but reasonable, speculation.
The current "measured and indicated" catagory is 54 million tons at 1.39% copper and the "Inferred" is 29 million tons at 1.09% copper. (these are in addition to the 13 years [ 24 million tons] of 1.6% that we are about to start mining.)
Taken together that adds 83 million tons of ore (if and when upgraded by further definition drilling) to provide an additional 38 years of mill feed using 6000 tons per day.
The math is: 83 millon tons / 6,000 tpd / 365 days a year = 38 years.
The grade is (about) 1.28% copper averaged
So, 6000 tpd X 365 days per year x .0128 grade X .9 recovery X 2000 pounds in a ton = 50 million pounds of copper per year for another 38 years
Using $4.00 copper (just because I want to) gives $2.14 per pound free cash-flow (or probably more per pound because it is additional marginal production) gives 38 years of $107 million per year, extra underground cash-flow beyond the first 13 years.
https://nevadacopper.com/site/assets/files/4190/ncu_october_2020_final.pdf
https://nevadacopper.com/site/assets/files/4209/2021-03-ncu-cp.pdf (Newest Presentation)
Robert Pavich Video (last 10 minutes)
https://www.youtube.com/watch?v=hk_WhFu7FlA&feature=emb_logo
Guesses on start up production (underground only)
Assuming that blended ore (90% recovery) works out to 1% copper = 40,000 pounds of copper per day (20 x 2000) which = 1.2 million pounds of copper per month.
About 715,000 pounds of that is hedged at $2.91 per pound so that gives $1.05 per pound profit after deducting $1.86 cost which = $750,750 per month
So $751,000 plus the remaining 485,000 pounds X $2.24 per pound ($4.10 - $1.86 cost) = another $1,086,000 per month for a total of $1.84 million per month profit.
Increase the mixed grade to 1.3% copper (after blending and recoveries) with a ramp up to 3000 tons per day = hedged portion of $751,000 plus another 1.625 million pounds X 2.24 = $7,056,000 million for a total of $4.4 million per month profit.
Increase the mixed grade of 1.5% copper at 3500 tons per day and get 3,150,000 pounds per month. $751,000 (hedged portion) plus 2,435,000 pounds (not hedged) x $2.04 profit = $7,078,000 + $750,750 = $7.8 million per month profit.
Increase the recovery grade to 1.8%copper at full 5000 tpd (once the hedge is gone) and get 5,400,000 pounds of copper per month and get $12.1 million per month profit.
Multiply the 5.4 million pounds copper by 12 months and get back to NCU's prediction of about 65,000,000 pounds per year copper.
Using a $4.10 copper price minus the $1.86 cost and get 65,000,000 pounds X $2.24 profit = $146 million yearly cash-flow (underground only.)
$146 million per year at a 5X multiple = $730 million, divided by 1.8 billion shares = $.41 per share PLUS the open pit asset which is easily worth $.23 per share today.
Near term price $0.64 per share USD which is $0.80 CAD with a lot more upside from there.
Summary of key NCU news with:
2013, Sept 9: (copper~$3.30)
>>>Final permit for underground mine build, plus loan financing.
2013, Nov 14: (copper~$3.20)
>>>Stand alone open pit feasibility study filed using $2.75 copper
2014, Dec 15: (copper~$2.75)
>>>Land bill passed by Senate and House of Reps
2015, May 28: (copper~$2.45)
>>>Feasibility results. Mine life increased by 5 years.
>>>A description of economic results using 3 base case scenarios for copper.
2015, June 1 - July 15: (copper~$2.25)
>>>Three more positive drill result releases, including 400’ of 1% copper.
2015, Aug 17: (copper~$2.25)
>>>Full permit for open pit is obtained
2015, Aug 21: (copper~$2.25)
>>>BLM conveys 10,000 acres of land to NCU.
2015, Sept 10 & Nov 3: (copper~$2.20)
>>>Two more sets of positive drill results
2016, June 9: (copper~$2.15) $4.8 million raised at $0.60.
>>>Total shares NCU shares outstanding = 88 million
2017, May 23: (copper~$2.55)
>>>Private placement with Pala at 10% premium to the market = $0.66 for 3.7 million shares.
>>>Total NCU shares outstanding = 93 million
2017, Dec 17 and 2018, Jan 12: (copper~$3.20)
>>>Construction financing and debt restructuring
2018, Feb 26: (copper~$3.20)
>>>Restart of underground mine construction after the raising of more funds.
2018, March 5: (copper~$3.10)
>>>$128 million from Pala for an additional 256 million shares. $0.50 each
2018, May 15: (copper~$3.05)
>>>Open pit extension drill results including 42 metres of 2% copper
2018, July 17: (copper~$2.75) Additional equity financing. $108 million, $0.60 per share;
>>>Total NCU shares outstanding = 660 million
2018, Sept 6: (copper~$2.60)
>>>$70 million received in exchange for (underground only) Au & Ag metal stream.
2018, Sept 10: (copper~$2.65)
>>>PEA received for the open pit using $3.20 long term copper.
2018, Nov 13: (copper~$2.75)
>>>Announcement to update technical report to include new info and PEA
2019, Feb 22: (copper~$2.75)
>>>Announcement of 5,700 additional acres staked for exploration, thereby expanding the Pumpkin Hollow property by 32%
2019, April 16: (copper~$2.90)
>>>New open pit PFS study published with updated numbers ($3.20 long term copper price is used)
2019, May 16: (copper~$2.70)
>>>$40 million combined private placement and public share sale $.040
2019, Dec 16: (copper~$2.80)
>>>Copper production commenced and ramp up to full 5000 tpd is expected by mid 2020.
>>>65 million copper / year is projected from underground at cost $1.86 AISC (all in sustaining cost)
2019, Dec 17: (copper~$2.80)
>>>Pala announces buying shares in the public market at $0.29 per share
>>>Pala’s total of the financing is ~ 273 million shares, ~ 36% of all the shares outstanding.
>>>The new float is roughly 758 million shares outstanding
2020, April 6: (copper~$2.25)
>>>Covid necessitates a shutdown of the newly completed mill
underground work continues at a reduced pace.
2020, July 31: (copper~$2.85) Equity sale completed of 667 million shares, including the over-allotment
>>>This raises $100 million to pay down debt and cover ongoing expenses.
>>>The new price per share works out to about net $0.14 after backing out an allowance for $0.02 per warrant attached.
2020, Aug 24: (copper~$2.95) Production is restarted
commissioning of hoist, vent shaft and underground crushing continues
2020, Oct 15: (copper~$3.05) Mike Ciricillo is brought on board as CEO. Mike “...was previously the Head of Copper Industrial Operations for Glencore Plc, where he oversaw Glencore’s worldwide copper assets…”
2021, Jan 29: (copper~$3.55) Equity financing; 230 million shares issued at $0.16 for proceeds of $38 million.
>>>Pala takes down an additional 80 million shares as a part of a debt to equity trade.
>>>New share base of about 1.7 billion and a lot of warrants will bring cash in at an average of $0.21
2021, March 18: (copper~$4.05); we learn:
>>>Some 5% ore is encountered in the ‘development’ area while working toward the new stopes
>>>Expect “grade increases” in combining weeks as stopes are accessed
>>>The hoist is tested and able to run at 5,000 TPD matching with the tested mill capacity
>>>Electrical upgrades in the areas where mining was redirected to have been mostly completed
Ventilation remains the primary constraint to increased production but some intermediate solutions (before arrival of the big surface fans) are being enacted.
A majority of the investment in proving up and building this mine came from shares issued at much higher prices and while the copper outlook was anemic and copper was trading below $3.00.
Now is the right time to accumulate. Earnings will, of course still be negative for a year but cash-flow cometh soon and with copper over $3.50 the longer term profit will be immense and will pay this asset off very quickly, including the cost of building the (permitted) open pit portion.
NCU A warrants at $0.05 This is if you believe that within the remaining 16 months NCU gets to:
$0.40 then $0.22 plus $0.05 = $0.40 minus $0.27 = $0.13 (260% up vs shrs 220%)
$0.50 then $0.22 plus $0.05 = $0.50 minus $0.27 = $0.23 (460% up vs shrs 277%)
$0.60 then $0.22 plus $0.05 = $0.60 minus $0.27 = $0.33 (660% up vs shrs 333%)
$0.70 then $0.22 plus $0.05 = $0.70 minus $0.27 = $0.43 (860% up vs shrs 388%)
$0.80 then $0.22 plus $0.05 = $0.80 minus $0.27 = $0.53 (1060% up vs shrs 444%)
$0.90 then $0.22 plus $0.05 = $0.90 minus $0.27 = $0.63 (1260% up vs shrs 500%)
Barrick CEO on copper as strategic >>> NCU is permitted!
https://www.bnnbloomberg.ca/investing/video/barrick-gold-ceo-says-copper-is-a-fantastic-strategic-asset~1907821
Combined open pit and underground:
Using $4.00 copper
At 2.2 billion shares (for fun), and a few multiples below
Open pit straight to 70,000 TPD X .005 copper equivalent X 88% recovery X 2000 pounds per ton X 365 days per year = 225 million pounds plus another 65 million pounds from underground =
290 million pounds X ~ $2.00 profit (at $4.00 copper) = $580,000,000 free cash-flow
$580 million p/year cash flow X5 multiple = $3.15 billion / 2.2 billion shares = $1.32 USD p/s
$580 million p/year cash flow X6 multiple = $3.78 billion / 2.2 billion shares = $1.58 USD p/s
$580 million p/year cash flow X7 multiple = $4.41 billion / 2.2 billion shares = $1.84 USD p/s
$580 million p/year cash flow X8 multiple = $5.04 billion / 2.2 billion shares = $2.10 USD p/s
$580 million p/year cash flow X9 multiple = $5.67 billion / 2.2 billion shares = $2.37 USD p/s
$580 million p/year cash flow X10multiple = $6.3 billion / 2.2 billion shares = $2.63 USD p/s
* Converted to Canadian = $1.66 to $3.30 depending on the multiple applied.
**Remember this is using 2.2 billion shares, $4.00 copper and all costs in.
Cheers and as always DYODD,
Notgnu