Friday, December 17, 2010

Minera Andes announces updated NPV for Los Azules - $496M to $2.9 Billion

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+)


Potential TNR ownership

$ 280,000,000

$ Value of TNR claims

$ 140,000,000

50/50 Expected outcome of Lawsuit


Legal Risks


Longterm Copper Price Fluctuations

$ 89,600,000


TNR Shares/Out

$ 0.75

$Value/Share (NAV without lithium)

$ 0.17

Current Share Price


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.

Minera Andes estimates $2.8-billion (U.S.) Azules NPV

2010-12-16 16:12 ET - News Release

Mr. James Duff reports


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."

Los Azules copper project is an advanced-stage porphyry copper exploration project located in the cordilleran region of San Juan province, Argentina, near the border with Chile. The deposit is a typical porphyry copper system in that the upper part of the system consists of a barren leached cap, which is underlain by a high-grade secondary enrichment blanket, and the primary mineralization below the secondary enrichment zone extends to at least 650 metres, which are the depth of the deepest holes drilled to date. The deposit is approximately one kilometre wide by four kilometres long, and it is open in several directions.

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.


NPV ($3/lb Cu, 8-per-cent discount rate) $2,826-million

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.

The main driver of the improved project economics is that the base case copper price has been increased from $1.90 per pound to $3 per pound. Specifically the higher copper price added approximately $3.2-billion to the NPV, and the increased resources added approximately $2.1-billion.

The benefits of the higher copper price and increased resources were significantly offset by increases in the estimated operating costs ($695-million), capital costs ($100-million), and export retention taxes and royalties ($3.4-billion).

The updated preliminary assessment also incorporates updated property status and ownership information, revised locations for the project facilities, and an updated geological interpretation.

Project economics

The preliminary assessment contains a cash flow valuation model based upon the geological and engineering work completed to date and technical and cost inputs developed by Samuel Engineering Inc., Ausenco Vector and MTB Project Management Professionals Inc. The base case was developed using long-term forecast metal prices of $3 per pound for copper, $980 per ounce for gold and $15.60 per ounce for silver.

This news release has been submitted by Jim Duff, chief operating officer of the corporation. For further information, please contact Mr. Duff, or visit the company website.

Scientific and technical information

The information presented in this press release has been reviewed and approved by the qualified persons responsible for the technical report that presents the results of the updated preliminary assessment. They are: Kathleen Altman, PhD, PE, Robert Sim, PGeo, Bruce Davis, PhD, FAusIMM, Richard Jemielita, PhD, MIMMM, William Rose, PE, and Scott Elfen, PE. All are independent qualified persons as defined by National Instrument 43-101 (standards of disclosure for mineral projects). Mr. Sim, Mr. Davis and Mr. Rose are responsible for the mineral resource estimate. Mr. Davis is responsible for the quality control for the assaying of Los Azules drill core. All samples were collected in accordance with industry standards. Splits from the drill core samples were submitted to the ACME sample preparation laboratory in Mendoza, Argentina, and then transferred to ACME's laboratory in Santiago, Chile, for fire assay and ICP analysis. Accuracy of results is tested through the systematic inclusion of standards, blanks and check assays. Mr. Rose is responsible for developing the mine production schedule and participating in the resource estimate. Mr. Elfen of Ausenco Vector is responsible for information about environmental liabilities, environmental permitting and the geotechnical designs used for the study. Mr. Jemielita is responsible for information about the geological setting, deposit types, mineralization, exploration and drilling. Ms. Altman, Samuel Engineering, is the principal author of the report with specific responsibility for mineral processing and metallurgical testing, the capital and operating cost estimates, and the economic evaluation.

Mineral resources are generated using ordinary kriging with a nominal block size of 20 by 20 by 15 metres. Block grade estimates are derived from drill hole sample results and the interpretation of a geologic model, which relates to the spatial distribution of copper, gold, silver and molybdenum in the deposit. There are a total of 114 drill holes in Los Azules database with a cumulative length of 30,997 metres and a total of 15,260 samples analyzed for a suite of elements, including total copper, gold, silver and molybdenum. A total of 58 of the drill holes have some portion of the sample intervals tested for sequential copper analysis. This information contributed to the development of the mineral zone domains. The portion of the new mineral resource that has been defined as indicated is based on a drilling configuration that exhibits the degree of continuity required for higher-level mineral resources. Inferred mineral resources are limited to blocks within a maximum distance of 200 metres from a drill hole. As required by NI 43-101, the possible future economic viability of the mineral resource has been exhibited by restriction within a pit shell derived about the copper content in indicated and inferred class blocks at a copper price of $2.50 per pound, total operating costs of $5.25 per tonne and an average pit slope of 34 degrees. Mineral resources are presented at a cut-off grade of 0.35 per cent copper, which is the same base cut-off grade used in the 2008 mineral resource estimate. These are mineral resources, not mineral reserves.

For further information in respect of Los Azules project, please refer to the technical report entitled, "Canadian National Instrument 43-101 technical report, updated preliminary assessment, Los Azules project, San Juan province, Argentina," dated Dec. 1, 2010. This report will be made available on SEDAR concurrent with the filing of this news release.

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