Message 19246727
If Northgate's Terry Lyons really believes that copper could double in price within the year, I wonder what he thinks of the DSR's Sustut copper deposit, whose production was expected to increase South Kemess's copper production by 40-50%
On June 18th, DSR issued a NR that included the following paragraph (abbreviated).
"The draft feasibility study indicates that a copper price of US $.90 per pound will be required to begin development, on account of the strong Canadian dollar...... Capital cost of approximately $20,000,000 CDN will be required to develop access to the site and then develop the site itself. Operating costs are still being finalised, as are some of the smaller details on the trucking of ore to Kemess. A final report is expected to be issued within a few weeks."
I remember noting at the time that US$.90c was equivalent to C$1.20. This is a Canadian project; let's use Canadian prices. It seems to me that C$1.20 per lb for copper, is NOT the break even price. It is surely the price that would cover the high cost of capital for a small mining operation. If this is so, there is no need to take the $20,000,000 capital cost into the equation; C$1.20 will cover it. At C1.20 copper the project might proceed, it would not proceed simply to break-even.
So what we have is an option on the price of copper whose strike price is $C1.20. The current price is ~C$1.14. The volatility of copper prices is about 12% per annum. The term of the option is the half-life of the orebady, (i.e. 3 years).
Punching these data into a Black-Scholes option calculator gives an option value per lb of copper of C$0.15. Sustut could produce 36,000,000 lbs of copper per annum, but half the profits would go to NGX, leaving only 18,000,000 as DSR's share. But 18,000,000 lbs for six years gives a total of four lbs for every current DSR share. The option value of thedeposit might therefore approximate C$.60 per DSR share.
Now see this;
stockhouse.ca
I find the reference to Noranda Horne's need for concentrate interesting. Development of the Sustut deposit was expected to increase Kemess' copper production by 40-50%. Moreover, DSR purchased the deposit from Falconbridge (AKA Noranda!), with a 50% buy back provision exercisable "at the time of production decision". By my reckoning a 50% interest would cost FL a little more than C$1.5M.
It seems to me that the development of this higher-grade deposit and the resultant increase in copper production, could well be a factor in the feasibility of North Kemess.
Such is the stuff of my mining speculations ! |
