Fungurume is agoThis was published in Casey Research latest dispatch:
For a world-class copper deposit, Tenke Fungurume has been idle for a long time.
The high-grade ore body - weighing in at an impressive 3.5% copper - has been known to geologists for over 75 years. Over that time, several companies have drilled it, carried out feasibility studies and even built rail infrastructure and an airstrip at the site. That work showed that Fungurume contains some 42.5 billion pounds of copper, worth $70 billion at today's prices.
And yet the project has remained on the drawing board. For some time after first discovery, the deposit was actually passed over as being too low-grade. At least compared with the 8% copper ores nearby. More recently, it wasn't geology but politics that kept miners away, as the DRC suffered under a series of corrupt regimes.
But the time may be nearing that the ore sees daylight. And the men behind the deal are none other than X-Leaguers Adolf and Lukas Lundin.
Late in 1996, the Lundins first went to the DRC to work on Fungurume. They managed to secure a controlling interest in the property through their Tenke Mining (T.TNK) and began working up a plan to mine 100,000 tonnes a year of the high-grade rock. They spent 2 years and $88 million building infrastructure and studying the deposit.
But then politics intervened. In 1999, war broke out in the DRC, bringing all industrial activity to a halt. Adolf and Lukas could only watch from the sidelines as the world's best copper prospect once again eluded production.
But with the war's end in late 2002, and the setup of a provisional government, they immediately began picking up the pieces. The lay of the land was now somewhat different, with the World Bank helping to rebuild the DRC. Included in this aid was the development of a new mining code improving the financial climate for developing ores in the country.
With the campaign for Fungurume now entering the latter half of its ten-year span, the Lundins took things up a notch. They brought in major Phelps Dodge as a 70% partner on the venture in early 2004 and scaled back their development plan to a more nimble 45 to 50,000 tonnes per year to start with, with a planned ramp-up in production following.
But there remained one final step: updating the agreement with the new Congolese government. Given past political problems in the country, this was a serious concern for investors. Would the new leaders prove their paper commitments to business? Or would the country return to its old ways?
In late July, the answer came back. Fungurume is ago.
Tenke announced that the DRC's Council of Ministers has approved nine key amendments to the development agreement. With the updated approval in hand, the company can now go about building one of the world's largest copper mines. As president Paul Conibear told us, "This was the fundamental hurdle."
The company will now, along with the considerable resources of Phelps Dodge, spend 8 to 10 months updating its feasibility study from the late '90s. Although infrastructure at the site has moldered for several years, they believe much can be salvaged. The only major task, Paul noted, is to construct a mill. First production is expected 18 to 22 months following completion of the feasibility work.
Once the copper starts flowing, Tenke will hold a 24.75% interest in the property, with 57.75% going to Phelps Dodge, and 17.5% to state mining firm GECAMINES. A back-of-the-envelope calculation shows that TNK's share of this asset is worth several times the company's current CAD350 million market cap. Investors seem to agree - in the last month, TNK's share price has jumped from CAD4.80 to a current CAD7.25.
Even given this run-up, there could be a lot more room for Tenke to appreciate. The reasonably short timeline to production is encouraging, as is the seemingly growing political stability of the DRC. It looks as if general elections will likely be held in 2006, a key development in moving the nation toward lasting democracy.
Of course, it's difficult to say what could happen to Tenke's share price as the company moves toward production. In some cases, the mine building period can lead to investor fatigue, causing the price to move sideways or even downward. But given the incredible scale of Fungurume, not to mention the reputation of the Lundins and their staff, now could be the cheapest time to buy into the world's largest undeveloped copper project.
https://www.caseyresearch.com/