Jump to content
AceofKY

Geovic Mining

Recommended Posts

Geovic Mining (GMC.v on the TSX venture exchange) looks very interesting. First, Geovic owns a 60% share in the world’s largest cobalt resource in Cameroon. There is also a significant amount of nickel and manganese in the deposit. A large percentage of the remaining 40% share is owned by a corporation that appears to be controlled by the Cameroon government, so there is significant incentive for the government to advance this deposit.

 

The first of seven deposits has been evaluated through the prefeasibility stage and this report can be downloaded on SEDAR. The prefeasibility uses conservative numbers, $16.83 Co and $5.78 Ni, for the base case economic evaluation scenario. Even better, the reserves of the deposit were calculated on $12 Co and $3.50 Ni yielding a 21 year mine life. The in situ value of the first deposit is about $12.8 billion using the base case numbers. This is very misleading, however, since the net payable metal recoveries will be very low (~57.2% for Co and 15.4% for Ni). I was hoping that these recoveries were conservative assumptions too, but the COO confirmed that we will not likely see much more than 58% for Co and 17% for Ni due to metallurgical issues and the proposed process that maximizes Co extraction at the expense of Ni extraction (which yields the optimum NPV & IRR). Base case NPV (Geovic’s 60% share) is about $317M and IRR is about 77%. This does not include any debt financing, but they will definitely be financing a portion of the project via debt which will increase the NPV and IRR. Capital costs will be very low at around $111M. Financially, this is a low risk high return project. Compare to projects such as Novagold’s Galore Creek where it will take a $2 billion capital expenditure to generate approximately the same NPV and with a low IRR.

 

There are 6 other deposits, one of which (Mada) has a NI43-101 compliant inferred resource.

 

Let’s take a stab at a very conservative valuation. The objective here is to find the absolute minimum this company’s assets are worth. If we can buy the assets alone for less than they are worth, then there is very little risk to our investment. The rest is upside. Numbers are in US dollars.

 

#Shares Out: ~101M of which ~11% is owned by management

#Shares FD: ~135M (no more equity is needed to finance the project)

 

Working Cap, FD: ~$156M or $1.15/FD share

 

No debt (yet)

 

Nkamouna deposit base NPV from prefeasibility (x 60%): $317M or $2.34/FD share

 

Mada deposit value: This is the 145M tonne inferred resource which hasn’t been thru feasibility yet. Looking at the nearby Nkamouna deposit, the NPV ended up being about 4% of the in situ value of the deposit. Let’s be conservative and use 2% of the Mada in-situ value. This yields $242M or $1.79/FD share. It should be much higher since they will share the same infrastructure.

 

Base case value: Working Cap – Debt + Nkamouna NPV + Mada Estimated NPV = $5.28/FD share.

 

Geovic is currently trading at approximately US$3.3/outstanding share.

 

 

Conclusion: We can buy Geovic for approximately a 37% discount to a very conservative estimate of its asset value, which implies a minimum share price appreciation of 60% needed just to get back to a reasonable valuation of assets. All of the upside with respect to high commodity prices, additional deposits, reinvestment of free cash flow, etc, is a bonus. This is not a marginal resource that can be mined only when commodity prices are high. This is the type of resource that the big boys look for. The only significant risk seems to be Cameroon, and it seems to be one of the more stable countries in Africa.

 

 

Ace

Share this post


Link to post
Share on other sites

Correction: "world's largest cobalt resource" should say "perhaps the world's largest cobalt resource."

 

There are 5 deposits which they haven't published resource figures on yet because they are only defined by test pits spaced 1 km apart. No value, however, was assigned to these deposits in the above valuation. Note that Tenke has a larger NI43-101 compliant cobalt resource in their DRC copper resource.

Share this post


Link to post
Share on other sites
Base case value: Working Cap – Debt + Nkamouna NPV + Mada Estimated NPV = $5.28/FD share.

 

Geovic is currently trading at approximately US$3.3/outstanding share.

 

So todays price of $1.58 would be a bargain then?

Share this post


Link to post
Share on other sites
So todays price of $1.58 would be a bargain then?

 

The feasibility study highlights were recently released, to the great disappointment of investors. NPV and IRR of the project has dropped using the base case futures prices. And the higher capital costs likely means more equity will need to be raised.

 

Any way I work the numbers, however, $1.58 is still a good buy and I'm holding my shares.

Share this post


Link to post
Share on other sites
Any way I work the numbers, however, $1.58 is still a good buy and I'm holding my shares.

 

She continues to plummet - down another 20% today. The babies are getting thrown out with the bathwater here.

Share this post


Link to post
Share on other sites
Geovic will make the patient investor rather wealthy.

 

At this point, I'd settle for mere return of capital.

Share this post


Link to post
Share on other sites

Geovic Mining Corp. Announces 2007 Results

 

Geovic has $78 million in cash.

 

Geovic diversifies with vast mineral leases of gold and uranium properties in Arizona, Colorado and Wyoming.

 

Arizona Properties

 

Through geologic mapping and geochemical sampling, the Company has

identified several new areas of gold and uranium mineralization in the

Whetstone Mountains, located 64 kilometers (40 miles) southwest of

Tucson, Arizona. The Company located 51 federal lode claims covering

approximately 1,000 acres of expected uranium mineralization in the

northern Whetstone Mountains. In addition to the indicated uranium

mineralization in the area, the pre-Cambrian hosted shear zones also

appear to contain anomalous fluorite, copper and gold. In the same

general area, the Company also leased approximately 16.8 square

kilometers (6.5 square miles) of state of Arizona mineral lands

covering a newly identified gold occurrence. The total cost of leasing

the state land and staking the mineral claims was about $24,000. The

work commitment on the state mineral lands is $41,000 per year. The

annual fee to hold the 51 mineral claims on federal lands is

approximately $9,000.

 

The Whetstone Mountain area where the claims are located was

previously explored in the 1970s and 1980s by Rocky Mountain Energy

(Union Pacific Railroad) and Unocal (Union Oil Co of California), at a

time when members of the Company's management were employed by the

latter company. Related documentation compiled by those early

operators show that the newly acquired properties have significant

uranium oxide (U3O8) mineralization hosted in high-angle shear zones

within the pre-Cambrian granite complex that forms the core of the

Whetstone Mountains. The Company plans to re-drill the historic

resource areas, and test for extensions when it begins a drilling

program later this year or early 2009.

 

On the state mineral leases containing the new gold occurrence, the

Company collected 33 surface rock chip samples of the previously

unexplored area, covering a zone 600 feet x 1,800 feet (185m x 550m),

underlain by quartz stockwork with associated alteration features.

These samples assayed up to 1.0 gram of gold per tonne (1.0 gm/t), and

averaged 0.1 gm/t. Additional sampling is planned, possibly followed

by geophysical surveys before a drilling program is designed to test

for economic gold concentrations within the indicated epithermal gold-

quartz system.

 

Colorado/Wyoming Properties

 

We have also targeted and are acquiring fee mineral leases over the

known uranium deposits in the Denver-Cheyenne Basin of Northeastern

Colorado and Southeastern Wyoming. These 15-year mineral leases cover

large portions of the six (6) main known uranium deposits in Weld

County, Colorado and Goshen County, Wyoming. As of the end of 2007, we

have incurred approximately $2.82 million in leasing costs to acquire

approximately 15,500 acres believed to host historical uranium

deposits at depths ranging from 120 feet to 600 feet below the

surface. The acquired properties are known to host shallow Cretaceous

age sandstone "roll-front" uranium deposits. These deposits are

believed to average in excess of 7 feet of uranium mineralization,

with average grades between 0.07 to 0.20% U3O8, as established by

other operators in the 1970s, including Union Oil of California, by

whom several members of management of the Company were then employed.

Through the leases it now holds, Geovic Energy has control over much

of the known mineralized area in Eastern Weld County, Colorado and

Goshen County, Wyoming.

 

Geovic Energy is planning an extensive development-drilling program to

re-confirm the historical resources, with the goal of establishing

reserves. This will be followed, as soon as practical, by

environmental and related engineering studies.

 

Complete Press Release available :

 

http://www.earthtimes.org/articles/show/ge...rp-announces-...

 

Good investing!

Share this post


Link to post
Share on other sites

Does anyone know what happened yesterday +34% :)

 

 

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

×