Zeev, In general I agree with your calculation. So let us
use it as a starting point.
You calculated that IPMC worth $4 now (25% of BSR) and $8 in Oct 98 (50% of BSR). First you are worried about the dilution to
issue shares for exploration and maybe JV required. But I think
that the conservation US$30 per oz of Au and Pt in the ground already
caters for this. For production mining companies, right now
1 oz of gold is valued at over C$150 (US110) or more in the ground, so
why do we evaluate junior mining reseves at much lower price -
to cater for possible dilution required to bring the mines up to
full production and the risks involved in doing so.
You do not think there are upsides for IPMC, but I can list some
possible upsides :
1) The recovery grade can be improved. In fact, Jun 4 news release
indicated they are able increase it to 0.126 opt Pt and
0.066 opt Au. This is a 40% increse compared with the grade
you use. Granted they still need Behre Dolbear to verify this,
on the other hand, they may be improved this to a even
higher grade.
2) There are some other PGMs in their ore and may add more values
to it. The same Jun 4 news release indicated they have 0.086 opt
Pd potential there. Their Dec 15. 95 news indicated that
they have Rh (with unknown grade) in their ore also.
3) They can increase the ownership of BSR to 80%. After they earn
their 50% interest with a 1000 tons per day plant, they
can increase the tonnage to 10000 tons per day and earn another
20%. They can earn the next 10% by paying Phoenix 10000 ounces
of gold or cash equivalent.
4) They can increase the tonnage by drilling deeper. All the tonnage
calculated so far (50m tons) are based on 100' depth. Their
5 deep holes drilled there have 250 - 450 ft of material
before reaching bed rock. So there is a potential to increase
the tonnage a few times. While I am not saying all the material
will have same or better grade, I also cannot believe that
all mineralization stopped exactly at 100 ft.
5) They have 6 sq. km. of similar type of land. The reason they
chose to concentrate on one sq km is to be able to do
a systematic drilling, metallurgy, then infill drilling, then
pre-feasibility etc to earn their 50% interest. The other
5 sq km are equally likely to have mineralization. Again,
I am not saying we should multiple the whole thing by 6, but
there is a high chance there will be some mineralization on
some of those land.
6) They think that they find the source rock for the mineralization.
Only drilling and assaying will tell whether this is the case.
Again, they have chances of finding more minerals in the hard
rock area.
7) Your US$30 per oz of gold or Pt are too conservative. Actually
I myself have been using a very conservative figure of C$50 (US$37) and
I find that most of the time my evaluation of a company is
only half of the market price. I find out that a lot of small
company reserves are evaulating at about C$100 (US$70) or more these days. I am not suggesting that we should use the aggressive
US$70, but I think a US$50 is already quite conservative
viewing today's market.
In conclusion, if you are able to buy a company worth US$4 today
by paying about US$2.5 and which has quite a few upside potentials,
it may not be such a bad deal after all.
P.S. - I am not suggesting that IPMC is without risks. Like any other
junior mining companies, it still has to go thru a lot of
exploration risks, metallurgical risks, financial risks, regulation
risks etc. in order to reach the production stage. But this
is always part of a high risk high return game. |
