Marynell, my $2.10 case for IP:
Excellent partner (Antofagasta) for Peru, and this kind of project. Key points: Anto has historically been an aggressive bottom of the cycle player with a multi-decade vision of the business. They are very good operational cost cutters, easy today given the amount of equipment laying idle around South America.
IP is carried for 35% through bankable feasibility, and if they choose, 20% to production. IP management is not playing a waiting game in terms of a copper recovery. They are willing sellers, or so they've told me.
Magistral: Scoping study last year stated a 54 cent/lb cash cost. This year's efforts enhanced confidence that this is about 200 MT, with cash costs headed below 50, maybe towards the mid-40's as Anto. is a good tweaker. Deposit is open to the south, and there are supergene sniffs. With the Mo credit they are 1.0% plus on grade. If you closely look at the drill map, you will note very good consistency. This is a very good deposit in a hyper depressed commodity. Based on my research infrastructure is not considered difficult. Recoveries are expected to be a high 91%, with low arsenic 0.23%.
The copper cycle: Would a 45-50 cash cost mine with a $250 million capex be built today (70-75 cent Cu)? Of course not. However this one would fit in the top third in the world in terms of cost structure. The industry needs to replace two world class mines a year. So I'll ask you my favorite question, the now famous, (or infamous), RW "tooth fairy" theory: Where are the replacements going to come from? How many deposits can you offer that are superior to Magistral? Where are these 35 cent cash cost, $100 million capex mines? And if no supply is coming on stream, how long can 70 cent copper last?
Valuation: I believe a 35% carried interest in this project has value to base metal producers with a cyclical view. Commodity perma-bears need not apply here, either as investors or acquirers. But, my premise is that Cu is going to trade significantly higher than 70 cents sometime in the next one month to five years (and I'm willing to wait given the "biblical proportion" upside leverage in this). In hindsight IP (and select others) will feel like one of those "shoulda, woulda, coulda" plays investors (and companies if they have pulses) had wished they got in (or stayed with in the case of my friend VT) on. It's the call value that's important, and having it in the reserve inventory. Even large companies like this kind of minority participation in this kind of project. Or it could be a nice fit for a mid tier with some cash, like Inmet.
I'll assigned a very nominal, miniscule takeout price of 3 cent/lb: 35% X 2.1 (1.05% of 200 MT) x 2204 lbs/t X 0.03=
US$48m plus $3m cash from exercises = US$ 51 m/ 38.0 fully diluted shares (company has controlled expenses and dilution well: see my earlier G & A list)= US 1.34 per share= $2.12 converted to Canadian.
That's my 75 cent Cu assumption takeout price. I think there is plenty of blue sky potential above that number as Anto. progresses to the next stage, or Cu stages a rally. If that's not enough there is a real "sleeper" tin target waiting in the wings elsewhere in Peru. |
