Ursusbrumae discusses Ivanhoe's 2 World Class Congo Copper projects, and remember, this is just them getting started:
"Simple Math -
December 07, 2016 02:47 am
The chairman discussed, as a thought experiment, producing 1-2 mtpa from Kansoko Sud and 4 mtpa at Kakula. Assume a grade of 4% at Kansoko and 8% at Kakula. This is 0.04 x 1.5 + 0.08 x 4 = 0.38 mtpa Cu, or 840 million lbs/ann Cu. The Kamoa PFS models a mine site cash cost of USD 0.75/lb, so at higher grades let's say USD 0.45/lb. This takes C1 cash costs from USD 1.50/lb to USD 1.20/lb. At Cu spot of USD 2.70/lb operating cash flow at the project level is 840M x 1.50 = USD 1.26B/ann, of which the company's 40% interest is 0.40 x 1.26 = USD 500 million/ann, which at an exchange rate of USD 0.75 = CAD 1 is 1.33 x 500 = CAD 670/ann in operating cash flow net to the company. Over 779M shares this amounts to CAD 0.86/share in operating cash flow. Rightly or wrongly, there is an age-old heuristic valuation of 10x OCF multiple for a high quality commodity producer, which puts the shares at CAD 8.60. The USD 1.2B in capital is 65% debt, and 50% of the 35% equity is USD 210M to the company's account, but after factoring in owners cost, as low as USD 100 million, and capital costs are apparently falling by virtue of cost deflation, optimization, and the fact that capital has been continuously expended since the study. So in any case it should be manageable from cash on hand. This nearly $9 valuation is based on Phase 1 only, initial production from the two declines in about 2 years. It is also based on current copper prices, which, while possibly technically extended at present, are not sustainable for years unless demand really collapses. Without making a macro call and rebutting all the China bears, I would say only that the history of the copper market is that the world always needs MORE. So all this at low copper prices, for Phase 1 only, and just for Kamoa-Kakula. No credit for Kipushi, no credit for Platreef, no credit for residual cash. Mood: bullish.
