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Gold/Mining/Energy : Corner Bay Silver (BAY.T)
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To: Claude Cormier who wrote (3861)4/24/2002 10:30:31 AM
From: Lalit Jain  Read Replies (1) of 4409
 
Claude, C'Bay economics.

Bay has a good deposit. However, here are the concerns that make me value it lower than the current trading price:

1. Current price of Ag is $4.60. Need sustained higher prices for marginal profitability to increase. Hence, high risk.
2. C'bay is an exploration company and has no mining, processing and production experience. Hence, high risk.
3. Deposit is in the hills of Mexico and may be prone to anti-government forces. It not exactly US or Canada. It is however better than Columbia. I give it medium risk.
4. Geology and deposit metallurgy is still unproven and raise the cost of processing. Avg. recover is currently only 75%. This could decrease. Medium risk.
5. Cost of mine construction can be much higher than anticipated. Medium risk.
6. Environmental Issues still to be addressed. High risk.
7. Mine reclamation cost could be high. A fund will have to be put aside, adding costs and lowering project feasibility.
8. Current cash burn is about $1m/yr for C'bay. Plus, metallurgy and feasibility studies can burn a lot cash fast. May need to go for funding again. Further dilution. Last couple of financings were a give away.
9. Mineral properties are recorded at cost and exploration costs are deferred until production. If Ag price does not increase beyond $5 soon, small writedown may be in order.
10. Mining and processing costs are estimated at $3.75/t, mine capital cost are $45M. Small -ve changes in these figures can adversely affect production profitability.
11. Contained reserves of Ag equiv. are about 125m ozs. Current estimated recovered equiv. are only 95m ozs. This infact decline. High risk.
12. C'bay has to still pay $400K US to get 100% interest in deposit. Will need funding.
13. C'bay is a single deposit company. High risk.
14. Current s/h equity is only about 60c/sh.

All the above makes me value C'bay around $2.50/sh. If Ag prices rise higher than $5.50/oz US, C'bay would be worth more of course.

Best Wishes.

Lalit Jain
spot4rent.com
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