A Russian Bonanza ( got this per mail)
By Karim Rahemtulla
Sometime next year, a little-known mining company is likely to go public on the AIM Exchange in London.
That's according to the company's CEO. You'll want to pay attention to this one.
The company is IG Copper and the CEO is a West Virginia-born geologist named Tom Bowens. I met with Bowens a couple of weeks ago in Malmyzh, about 700 miles north of Vladivostok in the far eastern corner of Russia.
I traveled to that icy, forbidding region so that I could check out IG Copper's major copper-gold project. The company owns 51% of the project and Freeport-McMoRan (NYSE: FCX) owns the other 49%. Eurasian Minerals (NYSE: EMXX) is also in the mix as a 40% owner of IG.
When I met with Tom, he explained to me that he and his team "stole" the rights to the project during a slump in
copper prices. Then they spent two years trying to get approval from the Russian government to ramp up exploration.
After IG drilled thousands of meters of core samples and was in a position to clarify its main ore bodies, the company was able to obtain the go-ahead from the Russian government.
The project has been designated as strategically significant under Russia's Strategic Industries Law (SIL). Thisapproval and designation is only issued when the reserves exceed certain thresholds for both copper and gold.
It was 14 below zero when I trudged my way through the snow to visit one of the active drill sites. They love winter up there. It's when the majority of works gets done. The mosquitoes are gone, the ground is firm and the drill crews are busy pulling out core samples for testing. The crews get bonuses based on how many meters they complete within a specified time frame.
The cores go to the assay tent... and that's where the big news is made. There are lots of copper and significant quantities of gold. IG estimates that its Malmyzh project holds at least
60 million gold equivalent ounces. (This reflects the total value of copper and gold and other metals measured in ounces of gold.)
That's big.
The grades of copper and gold at IG's project are not high. I usually like to see higher. But there are mitigating factors that make this equation interesting.
You see, it's not just the grade that counts. You could have the highest grade gold mine in the world, but no one will develop it if the cost of infrastructure is too steep. Sure, you can get it out of the ground for $700 per ounce. But if it costs you another $700 to transport and process it because of its location, that really doesn't do you much good.
Malmyzh, on the other hand, has a lot going for it. Besides the company's paying mining and operating costs in Russian rubles, the property is less than 1 kilometer away from a major highway and a major river, the Amur. It is also less than 1 kilometer away from a power supply.
In addition, less than a two-hour drive north, Russian mining company Polymetal International (OTC: AUCOY) runs a world-class smelting operation, which is also accessible by train and barge.
The infrastructure could not be better, and that's what makes IG's project very feasible, despite its low grades.
I spent time visiting Polymetal's smelting operation and meeting with the principals on-site. It's a very substantial facility that can handle the output from several mines, including its own. The principals are quite proud of their facility, and it shows. The place was spotless.
Even though IG already has all the most essential infrastructure in place, it will still need to raise a lot of capital to develop its massive copper-gold resource into an operating mine.
That's why the company intends to go public next year. You'll want to keep your eyes open for this one because the valuation of the IPO could be very attractive. When a gold-mining company goes public - or sells itself to another mining company - it always does so at a big discount to the value of its reserves. The selling company doesn't receive the full value of what's in the ground because it costs money to get it out. So, while IG's 60 million gold equivalent ounces would be worth billions, that's not how things work.
Goldcorp's $300 million (C$400 million) purchase of Kaminak Gold Corporation shows how valuations typically work in a mining purchase. Kaminak has a project in the Yukon that has yet to deliver an ounce. At the time of the takeover last summer, the project showed reserves of around 3 million ounces of gold, worth about $4 billion. So that means Kaminak sold itself to Goldcorp for about 7.5% of the value of its probable and inferred resources ($300 million paid for $4 billion of gold in the ground).
The fact that Kaminak operates in a politically safe and well-known jurisdiction like the Yukon helped boost ist value. But since IG's project sits in Russia, the company would probably have to sell shares at an even deeper discount to the value of its reserves than Kaminak did. Alternatively, IG might raise the necessary capital from another mining company. The Company definitely cannot go it alone, so a partner is necessary. I see a scenario where it's in IG's best interests to sell a stake to a major operator. Freeport McMoRan is already a partner, so it's not out of the realm of possibility that Freeport might boost its investment.
Regardless of the outcome, it will be good news for early investors like Bowens, Freeport and Eurasian. For now, keep IG Copper on your radar. It will end up being one of the most undervalued IPOs of 2017 if it goes public.
Good investing,
Karim Rahemtulla
For The Non-Dollar Report
P.S. I sat down for an extensive interview with Tom Bowens - where we discussed his unique background and
projects he's been involved in - for the next issue of Beyond the Dollar. If you're not already a subscriber, click
here to find out how to get access.
