Charred, What people pay depends on the total ounces and the ease of mining and the ease of leaching(recovery rate) and the amount of overburden.
It looks like they can mine from surface here.....a strong plus as there is no overburden.
It also looks like they are getting high recovery rates, but that needs to be confirmed by the degree of oxidative weathering at depth....the deeper stuff might be more tightly bound with sulfides etc and only the top is well weathered.....although I am encouraged by the broken structures and the permeable nature in the deeper old holes they have found(intense fracturing)....it may all leach well. this is a second potential strong positive.
Then there is the size of the area. 1850 meters long, 250 wide and on the order of 100 meters deep(this needs to be confirmed). On the face of it that makes a reserve of about 140 million tons(and it may be deeper, longer and wider???)
If they have a grade of 1.5 G/tons that equals on the order of 6-7 million ounces......a fairly large deposit. If the average grade is larger and the extent is larger it could be better. Time will tell.
If it is all easily fractured and leachable from surface a fairly low cost operation will ensue. with 4.5 grams per cubic meter and 90% recovery we have a value of about $35 per cubic meter. They describe it as intensely fractured? that means it can be ripped and graded and hauled by draglines(low cost dragged buckets) and conveyors, given a minimal crush and size with low energy that should cost less than $12-13 per cubic meter, leaving $22-23 as the yield in profit. Let us say they use up half and recover half, that will still give them a cost of $130 per ounce and I am betting it will be in the 80-90 range, less if grade is higher. A lot depends on the final size, a larger mine uses larger equipment at a lower cost per ton and/or lasts longer as an exploitable resource.
Now what would someone pay for such a resource? Probably $30-60, depending on the final size, final grade and final extractive efficiency. Lets face it if the maximum they will pay to buy the resource and to operate it is in the $150 area a resource that extracts for $50 is worth $100 per ounce and one that extracts for $120 is worth $30 per ounce. It also depends on who else is looking on PFG as a nice mouthful to bite off. Rumor has it that two majors are interested in Luicho....to the point of accumulating a share holding of some size, but just investment grade right now....it may become a question of two dogs and one bone....in that case $60 is quite reachable if the size grade and leachability co-operate. $60 will back into a share price of around $20 per share, depending on the dilutive effect of the to be announced next week financing.
I see all this recent news as highly positive to SH values and I feel it is a good time to buy. When will all this happen? When those values of grade and extent and ease of leaching are more fully described so a major can quantify the reserve to an acceptable degree.
There is one other option. Self operation.
Heap leach is low tech, low cost and LOW CAPITAL INTENSIVE.
With a good reserve PFG could easily raise the capital to run such an operation. The design and operation skills are widely available at a high level and this one deposit could catapoult PFG into the junior major ranks immediately. Sale of Diablillos to a silver major could well finance such a venture. the control block seems to be tightly enough held that a hostile takeover would have to be very high before managment agreed and that means over $40 a share as with PFG operating this mine it could go way over $40 per share.
Lets say it ends up at 7 million ounces and is operated for 14 years at 500,000 per year at an average cost of $125. That would be quite doable and the final would be lowerIMO.
$160 net margin times 500,000 divided by 22 million shares is $3.75 per share for 14 years. Barrick made 80 cents a share and was worth $25 a share , so PFG might well be worth
$100 or more per share when in operation of this mine. Now these figures are all if and maybe, but there is a seed of truth in all of this. Every major was at one time a tiny crumb eating junior that made their way with one big operation that they were able to find and operate and also withstand takeover pressures with a strong control group in command.
Will PFG do this? beats me, but they just might do it.
Bill |
