Research report is out at dwamine.com. Presumably you can get it from IR. My email copy from company won't open.
Presumably you can download it, if you have PDF capability, 20 pages.
Key points:
Retrofitting of the plant includes: a refit of all process piping, according to the new plant
design; construction and installation various pieces of new process plant;
refurbishment and other modifications. As much of the existing piping valves and
other equipment will be reused as possible; for the most part equipment is in excellent
condition. Key items of capital expenditure will include a new flash tank, state-of-the-art
instrumentation and control equipment, the silver circuit and the calciner needed to
convert cobalt carbonate to cobalt oxide and nickel carbonate to nickel oxide. Capital
costs are estimated to be C$7.5m which includes working capital and contingency.
Part of the capital budget would be dedicated to the large laboratory that is already
well equipped and includes a spectro-analyser. A laboratory sized autoclave, to test
custom feedstock will also be installed. The capital expenditure programme will take
around five months before commissioning can start. Thereafter commercial
production would commence within a month. Contingent on financing we estimate
that the plant would be in commercial production by the end of the second quarter
2001.
We believe that Binco represents a very exciting and highly prospective exploration
play for Canmine and represents long-term exploration upside for the company.
The Binco properties are currently held in the 100% owned Binco Resources
Corporation. There are currently 16m shares outstanding in Binco and Canmine
plans to distribute 5m shares to Canmine share holders, in November or
December 2000, concurrent with a listing on the Canadian OTC, whilst retaining
11m shares in the company. It it is planned to issue a further 5m rights in Binco to
raise C$2.5m for further exploration, this effectively values Binco at C$10.5m.
Canmine will still retain majority share holding of 11m shares of the 21m issued
(assuming rights fully subscribed). The reasoning behind the "dividending" of
Binco is to position Binco for Canadian "flow through" financing, which entitle the
holders to favourable tax breaks that were recently upgraded in a federal mini-budget,
and also retain the cobalt price leverage in Canmine.
Our earnings and cash flow estimates (cash flow before changes in non-cash
working capital) are summarised in Table 6.
Table 6 Earnings, Cashflow and EBITDA Estimates
Calender Year 2000E 2001E 2002E 2003E 2004E
Fiscal Year 2001E 2002E 2003E 2004E 2005E
Earnings per Share (C$0.03) C$0.03 C$0.06 C$0.07 C$0.14
Cash Flow per Share (C$0.03) C$0.04 C$0.07 C$0.08 C$0.17
EBITDA (C$1.26) C$2.84 C$4.55 C$4.63 C$11.59
EBITDA Margin NM 33.0% 33.4% 28.4% 39.5%
NPV Valuation
Our model is based on a long-term cobalt price of US$10.00/lb that we believe to
be conservative given the supply and demand outlook over the next 5 years or so.
We use an after tax, real discount rate of 8% on the cobalt related assets and
book value for the exploration properties. Our NPV calculation is summarised in
Table 9.
In arriving at a target price for Canmine we have applied a market discount to the
cobalt refinery of 25%. We have ascribed no market value for the exploration, and
have valued the balance sheet items at par.
Table 9 NPV Summary and Target Price
Canmine is very highly leveraged to the cobalt price as demonstrated by the
earnings leverage. For every US$1.00/lb change in the long-term cobalt price
(99.3%) our NPV changes by around C$0.25/share. Canmine probably
represents the best leverage to the cobalt price in North America. Looking out
two years or so to production, we would be looking to upgrade our target price as
the refinery is optimised and cash flow is established. Longer term we would
expect further upgrades as production is expanded and as the company
establishes its name in the cobalt market.
At a discount of 67% to our NPV we believe that the Canmine share price is
currently undervalued. Our one-year target price range of C$1.15-C$1.20
represents a discount of 30% to our NPV, which we believe to be reasonable in the
current cobalt price environment. We recommend that investors buy Canmine
Resources for a plus 100% one-year return.
NPV Market Est. Market
(C$m) Discount (%) Valuation
(C$m)
Refinery and Werner Lake C$83.5 25% C$62.6
Maskwa C$3.0 100% C$0.0
Binco C$2.5 100% C$0.0
Other Exploration C$2.0 100% C$0.0
Cash C$1.0 0% C$1.0
Non-Cash Working Capital (C$0.6) 0% (C$0.6)
Debt (C$0.7) 0% (C$0.7)
Liabilities (C$0.1) 0% (C$0.1)
Preferreds (C$3.0) 0% (C$3.0)
Present Value of Tax Loss Carry Forwards C$6.3 0% C$6.3
Total C$93.9 C$65.5
Shares Outstanding 55.5 55.5
Per Share C$1.69 C$1.18
C$1.69
Current Share Price C$0.57
One-Year Target Price C$1.18
Current Share Price Discount to NPV 66%
Target Price Discount to NPV 30%
Potential Return 107%
Management
The four founding directors, Edward Ellwood, President and CEO, Paul Teodorovici,
Director and Manager of Investor Relations, William Ferreira, Director and Senior
Geologist, and Eric Plexman, VP and company secretary, are still with the company
and have been the visionaries and main driving force in developing the company to
date. With the purchase of the Canmine Refinery the company has added very
important managerial depth in marketing and sales by hiring Somerset Parker, who
has many years' experience in the cobalt and nickel markets. As CFO the company
has hired Allan Goodhand who has background in manufacturing and iron and steel.
Mike Stoner brings many years of project management, mining and metallurgical
experience to the team and has been instrumental in the development of the refinery
and a prior independent review of Werner Lake. Agra Simons, consulting engineers
is a large, highly regarded Canadian engineering firm with a long track record of
success in the mining, metallurgical and chemical fields. We have met the
management team and are confident that this team has the right mix of skills to take
the company forward and realise the potential in the company's assets. |
