I guess Rob McEwan is really giving MAI shareholders a nice Christmas present this year...lotsa lotsa copper!
Our longtime stock pick, TNR Gold Corp, has seen some share price appreciation from this development already but still vastly undervalued giving its paltry market cap of $0.17 x 120M shares = $20.4 Million market cap.
Compared to the meteoric rise of Minera Andes share price of late, TNR is an undervalued play for copper in Argentina and for a potentially large stake in the ever-growing Los Azules project.
Just how amazing is the LA project??
1. Initial capital $2.9 billion expenditure - yes it's large, but read on...
2. Payback in 3 years. THREE!!
3. Mine life of 25 years.
Now, I'm not mathematician and CFA, but 25-3 = 22 years producing copper for hungry China and India tells me this could is going to be an amazingly profitable mine.
The previous NPV was adjusted from $2.2 longterm copper price to $3/lb, indicating a much more realistic longterm projection now that copper is well close to $4/lb.
WHAT DOES THIS MEAN for TNR Shareholders?
In really simple terms, let's take $2.8 billion and assume TNR's portion is a mere 10% of the entire property. Not even including Escorpio IV which the project also needs for waste and tailings.
Using Expected Value of an Outcome (EV) and Probability theory we can infer the value of TNR below. This is with a very aggressive 20% discount on legal risks and 20% additional on copper value, post EV discount of 50% for lawsuit.
I've attached Expected Value theory below for those who has not seen it. I think it's a reasonable way to look at this scenario.
Even in worst case, TNR shareholder should expect at least 400% gain from current share prices.
I'm long TNR - are you?
| $ 2,800,000,000 | Valuation NPV Los Azules ( 2011+) |
| 10% | Potential TNR ownership |
| $ 280,000,000 | $ Value of TNR claims |
| $ 140,000,000 | 50/50 Expected outcome of Lawsuit |
| -20% | Legal Risks |
| -20% | Longterm Copper Price Fluctuations |
| $ 89,600,000 | |
| 120,000,000 | TNR Shares/Out |
| $ 0.75 | $Value/Share (NAV without lithium) |
| $ 0.17 | Current Share Price |
| 439.22% | Potential Gains |
Expected Value of an Outcome
Some games are considered more risky than others based on their probabilities of winning and their expected value. The expected value is what the player can expect to win or lose if they were to play many times with the same bet. For example, when playing Roulette, let’s say that a player bets $10 on red, with a payout of 1:1. The expected value of that bet played over and over can be expressed as follows.
 |
| The winning amount for one bet is $10 |
 |
| The losing amount for one bet is -$10 |
Expected value is calculated as follows:
[(probability of winning)(amount won per bet) - (probability of losing)(amount lost per bet)]
We can represent this mathematically using the values from above:
This means that if a player were to make this same bet of $10 on red over and over again, the player can expect to lose $0.53 for each bet of $10. A player has better chances of winning money with a positive expected value.
2010-12-16 16:12 ET - News Release
Mr. James Duff reports
MINERA ANDES ANNOUNCES UPDATED PRELIMINARY ASSESSMENT FOR ITS LOS AZULES COPPER DEPOSIT
Minera Andes Inc. has released the results of an updated preliminary assessment on its 100-per-cent-owned Los Azules copper project located in the San Juan province of western-central Argentina. It is based on the updated resource estimate announced in Stockwatch in June, 2010, and higher base case metal price assumptions. Amounts are in U.S. dollars unless otherwise stated.
Highlights using a copper price of $3 per pound.
Base case pretax net present value is $2.8-billion, and the internal rate of return is 21.4 per cent at a discount rate of 8 per cent.
Life-of-mine cash operating costs are 96 cents per pound of copper, net of gold and silver byproduct credits.
Initial capital is $2.9-billion.
Capital payback is in three years.
Mine life is 25 years.
Rob McEwen, chairman and chief executive officer of Minera Andes, said: "We are advancing the engineering studies on Los Azules to systematically derisk the project. The field season is just getting under way, and we are currently mobilizing the first two of five drill rigs to the project. In addition to continuing the infill and step-out drilling, we will start to test some of the newly identified deeper geophysical targets this season."
Highlights of the updated preliminary assessment are shown in the attached table. Details may be found in an updated technical report which will be posted on SEDAR following the issuance of this news release.
IRR 21.4%
Initial capital expenditure $2,851-million
LOM average operating costs $7.82/t ore
LOM C-1 cash costs (net byproduct credits) $0.96/lb Cu mined
Nominal mill capacity 100,000 tpd
Annual throughput 36 million tonnes
Mine life 25.4 years
Life-of-mine strip ratio 1.37
LOM average annual copper-in-concentrate production 169,100 tonnes
First five years average annual copper-in-concentrate
production 226,500 tonnes
All monetary amounts are expressed in U.S. dollars unless otherwise stated.
The PA is preliminary in nature and includes the use of inferred resources,
which are considered too speculative geologically to have the economic
considerations applied to them that would enable them to be categorized as
mineral reserves. Thus, there is no certainty that the results of the PA
will be realized. Actual results may vary, perhaps materially. The level of
accuracy for preliminary assessment estimates is approximately plus or
minus 35 per cent.
Compared with the previous preliminary assessment released in March, 2009, the net present value discounted at 8 per cent has increased to $2.9-billion from $496-million, and the internal rate of return has increased to 21.4 per cent from 10.8 per cent. In addition, the payback of preproduction capital has decreased to 3.1 years from 6.4 years from the start of production.
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