TD TodayEvent We have updated our model to include Copper World Phase I.
Impact: NEUTRAL HBM has separated the Copper World project into two phases — Phase I would be developed entirely on private land and would not require U.S. federal government permits.
Phase II would expand onto federal land and would require federal permits. We have not included Phase II in our model, given the protracted timeline to the potential development (16-20 years) and the uncertain permitting/legal roadmap.
Based on HBM's PEA, beginning from project sanctioning in 2024, Phase I has an NPV-10% of $741 million (C$3.53/share) and a 17% IRR. We have updated our model to reflect the Phase 1 PEA (including a 9% capex overrun), resulting in an unlevered project NPV-10% of ~$550 million; discounted back to 2022, we are now including $396 million in our NAV (previously $428 million).
Copper World Phase I is a standalone operation on private land and patented mining claims over a 16-year mine life with 86kt/year of copper production at $1.15/lb cash costs and $1.44/lb sustaining cash costs.
Phase I includes a 60ktpd sulfide concentrator, 20ktpd oxide heap leach, concentrate leach facility, SX/ EW facility, and acid plant for an initial capex of $1.9 billion.
In our view, the funding strategy for the US$1.9 billion capex for Phase I will be a key hurdle for HBM. HBM's silver streaming agreement with Wheaton Precious Metals (WPM) applies to Copper World; WPM would pay an upfront stream deposit of $230 million at the commencement of construction.
Over the course of 2022/2023, we estimate that HBM should generate ~$500 million in FCF. We estimate that HBM would require additional financing in the order of $1.0 billion-$1.2 billion.
If we assume that this debt is financed, we estimate that HBM's Debt/EBITDA ratio would be ~3.5x-4.0x by 2026/2027 immediately before production, which would decline rapidly after production to below 2.0x by 2028. HBM has noted that it may seek a JV partner for the project as a component of its project funding strategy. TD Investment Conclusion We are maintaining our BUY recommendation and C$14.00 target price.