Value Added Theory, and a mix of Buy and Hold ...for the FUTURE:
Date: Fri, 02 Oct 1998 16:08:19 -0700
From: "Mardee S. Briscoe" <mbriscoe@jaba.com>
Organization: JABA (US) Inc.
Clarification Announcement on the value of JABA's ISL--SX-EW Project,
southeastern Arizona, J. M. Guilbert
October 2, 1998
JABA Inc. management has been advancing the due diligence evaluation of
its in-situ-leach—solvent extraction-electrowinning copper projects in
the Cochise Mining District in Arizona, for which it has recently (July
24, 1998) signed a Letter of Agreement with Delta Exploration, LLC, of
Scottsdale, Arizona. The drilled-off resource includes four billion
pounds of ‘oxide copper' (chrysocolla) in two near-by areas previously
known as the I-10 and Dragoon bodies, now to be called Sullivan North
and Sullivan South. Both consist of porphyry- copper-related skarn
zones between a shallow quartz monzonite porphyry intrusion and a thick
section of Paleozoic limestones. Early due diligence study has focused
on land titles, and has shown that all titles are in order. Due
diligence on the 140 existing drill holes, their assays, environmental
permitting, and technological- engineering reports in hand is proceeding
rapidly and favorably by JABA and by The Winters Company consultants of
Tucson. Development of the Sullivan property as a fast-track, early
copper producer has become practical both through recent consolidation
of the land position and by developments in in situ leaching
technology. Further details are given in JABA News Releases of July 24,
August 17, and September 28 and Clarifications of July 30 and August 19,
all available on their web site at www.JABA.com.
In an effort to inform JABA shareholders of the economic significance of
this acquisition and as points of information for potential joint
venture partners, some interesting projections and facts can be pointed
out.
The ‘four billion pounds of copper' represents a major asset. The news
releases assert that this resource has already been drill-defined, and
that the only foreseeable adjustment of reserves upon further drilling
will be upward. Four billion pounds of copper assumes real value ‘in
the ground' as well as upon extraction. Even at copper prices as low as
the present approximately US 80 cents a pound, the raw value is $ 3.2
billion dollars. JABA has about 22 million shares outstanding, so the
copper-value-in-the-ground is (at 80 cents per pound) US$143 per share
of JABA stock (C$219). After extraction, even if one pessimistically
assumes only 50% recovery and an ‘all-in' production cost of 50 cents a
pound (leaving a profit of 30 cents a pound), the profit value generated
is $600 million, or $26.86 (C$41.09) per JABA share. A copper price
increase over US 80 cents yields a ‘bonus' per penny up-tick of $20
million further profit (89 cents per share). Each percentage point of
improved recovery over 50% generates another $12 million profit, or
$0.53 per share. And each cent of reduced all-in production cost below
50 cents per pound adds yet another $0.89 per JABA share. There are some
‘downside risks' such as low transmissivities or reagent costs. But a
reasonable scenario of 70% recovery and 40-cents-per-pound cost at
80-cent copper generates a return of $1.12 billion, or US$50.13
(C$76.70) per share, and an optimistic but plausible scenario of 80%
recovery and 30-cents-per- pound cost at 80-cent copper values creates a
profit of US 1.6 billion dollars, each current JABA share being worth US
$71.62. Most forecasters recognize the cyclical price of copper — at
90 cents and $1 per pound copper, the last profit numbers become $1.92
and $2.24 billion and $85.94 and $100.27 (C$131.49 and C$153.41) per
present JABA share respectively. JABA shares have traded as high as
C$0.50 this year, and presently trade at around C$0.11.
These figures are forward-looking and clearly involve assumptions, but
the basic arithmetic is solidly positive. JABA's business plan is to
seek a joint venture partner to assist with both capital investment and
technology, so the foregoing ‘per share' figures will be reduced
somewhat according to and depending upon the specifics of the joint
venture agreement. But note that capital costs to be provided by the JV
partner are included in the production cost and profit figures given
above — returns to JABA shareholders should remain robust.
These figures are presented as realistic and rational projections —
details of the calculations can be provided. They are given to indicate
to present and future JABA shareholders, and to potential joint venture
partners, that there is great real value at Sullivan North and South and
that the cash flow-through and indicated profits from the property are
attractive.
(Except for historical information contained herein, the statements on
this clarification are forward-looking statements which involve unknown
risks and uncertainties which may cause a company's actual results in
the future periods to differ materially from forecasted results. These
risks and uncertainties include, among other things, product price
volatility, product demand, market competition and risk inherent in the
companies operations.)
--
Mardee S. Briscoe
Vice President/Business Mgr.
JABA (US) Inc.
2766 N. Country Club Rd.
Tucson, AZ 85716
(520)327-7440 voice
(520)327-7450 fax
ChucapostwithSafeHarbors,Catamarans,WhaleWatcherShipTourand-ThereBeWhalesTharr!!! !
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