Gunnar, there was an article in the the Globe & Mail, Saturday July 4, 1998:
It's too long for me to type in but the essence is as follows:
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TENKE IN TALKS TO SELL STAKE IN CONGO PROJECT
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That Tenke is negotiating with several major mining companies
interested in acquiring a piece of its Tenke Fungurume copper and
cobalt project in Congo, the first stage of which is expected to
cost $475-million (U.S.) to develop.
Anglo American Corp. of South Africa Ltd. told Bloomberg News
yesterday that it may bid for part of the 55-per-cent stake in the
Tenke Fungurume project.
Tenke Mining of Vancouver said it estimates it will take until
August to refine the proposals, although the time frame could be
shortened.
The shares of Tenke traded unchanged at $1.85 (Canadian) on the TSE.
The company has 65.5 million shares outstanding.
Tenke Fungurume is "a truly outstanding project" because the copper
deposit is "so good and big", said John Clemmow, an analyst at
Investec Securities in London. Mr. Clemmow told Bloomberg it
"needs a lot of up-front capital and will take years to return that
capital - it needs a company with long-term vision and that's what
Anglo can provide".
That Adolf Lundin owns 54.2% of Tenke.
Lundin Holdings has agreed to pay G‚n‚rale des CarriŠres et des
Mines, the state mining agency, $50-million (U.S.) when the project
reaches commercial production, and another $150-million by May, 2003.
The agency owns 45% of the property.
That Tenke will produce 100,000 tonnes of copper within 3 years at
6 cents per pound (assuming cobalt is $10 per pound). After 5 years
it will produce 200,000 tonnes at a lower cost.
That the 1997 average cost of production for copper was 70 cents and
the current price of 72 cents is an 11 year low.
There are estimated 500 million tonnes of ore at 3.5% copper,
0.27% cobalt.
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A simple (conservative) calculation ($US):
assume $0.65/lb gross margin on copper (it can't go much below 0.72
because mine closings will reduce supply)
assume all investment is capital
assume that all capital must come from Tenke, none from G‚camines.
All cash-flow to Tenke until costs of the mine excluding payments to
G‚camines, feasibility etc. ($500M) are covered.
assume that production will increase linearly
assume no income taxes
$200-million invested so far
$700-million additional investment required between now and 2003.
$???-million additional investment required in 5 years. (The annual
report says investment
will exceed $1-billion in the first 10 years)
Assume $1-billion in capital investment to year 5.
Year Capital Tons Cu Cash Flow Cumm. Cash Flow
2000 730M 100K 130M 130M
2001 750 120 156 286
2002 770 140 182 468
2003 940 160 146* 614
2004 960 180 129 743
2005 1000 200 143 886
* at this point the mine costs are paid back
Of course if you finance part of the expense at a low rate the ROI
goes up. If they beat the production estimates, the ROI goes up, etc.
It certainly looks like they need a senior partner (like Anglo) to
make it to 2005.
The current market cap of Tenke is 65.5 @ $1.85 (CDN) = $121-million
for a property that will produce a $143-million (US) cash-flow
in 2005 with almost no debt. Based on a 10% ROI, and ignoring
increased production after 2005, the property should be worth
$1,430-million in 2005 (7 years from now).
I'm in for the long term.
Do you see any errors in this calculation?
Regards, Gofer |
