AZC: Case study of a new mining company as it enters production. Part 1
May 20, 2008
– Comments (5) |
RELATED TICKERS: AZC
Commodity stocks continue to get alot of attention, but there are many many ways to play this sector. How do you choose? This pick's focus is copper, although you always get other minerals as well. Consider it a minor Silver and Moly play as well.
Research idea is Augusta Resource Corp. (AZC) a company in the final stages of mine permitting and about 2 years away from initial production. Looking at the feasibility, you can't help but pause to consider the potential.
"The bankable feasibility study estimates an NPV of $1 billion (5% discount/after tax) based
on a long term price of $1.50 Cu, with a 21% internal rate of return and 3 year payback
period. The mine is expected to produce annually 220 - 240 million lbs Cu , 4.5 million
lbs Mo, and 2.7 million ozs Ag."
http://www.augustaresource.com/upload/News_R/050508AZC_NRF_Q1Permit_Update.pdf
http://www.augustaresource.com/upload/PowerPoint/03-20-08_Fact_Sheet.pdf
BTW...Copper's long term price is likely to be well over the $1.50 figure estimated in the study. Current trading range is 3.60 - 3.80.
Funding for the project is essentially complete as AZC just traded away 45% of their future silver production to Silver Wheaton in exchange for $165 million to get this mine in production.
Mine life expectancy based on current reserve estimates (still potential to move upwards) is 29 -30 years.
Not trying to rush to judgement here, but I don't see how this mine won't go into production. Mining friendly area, good/experienced mining team, huge boon to the local economy, sufficient access to capitol, most permits are in good order or moving along nicely.
Questions:
When does a mining stock that is on the verge of production start to generate the increased investor interest?
Assuming a long 3-5 timeline, what risks am I missing here? Earthquake, commodity crash..Financial scandal? Why didn't I buy this last week.
Any thoughts? Look at the timeline on the second link and tell me if you think this is the time to get in.
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