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September 28, 2010 Dear Friend,
We simulated that
Quadra FNX Mining raises the July 23, 2009 estimated
Sierra Gorda $1.66 billion capital cost to $2.73 billion
at 111,000 mtpd or $3.5 billion at 190,000 mtpd, raises
the forecasted mining cost per tonne to $1.295 from
$0.940 per metric tonne and negotiates a $350 mm sale of
50% of Sierra Gorda down from the aborted State Grid
transaction that discussed $900 mm for 50% both of the
Franke producing heap leach copper mine and Sierra Gorda.
We approached Sierra
Gorda both from a 10% NPV model and from a $0.12 per lb
of copper resource approach, concluding a negative
valuation in both cases. We estimated a negative NPV of
$4 per Quadra FNX share even at $4.00 long-term copper.
Our intuition is that
the project should be approached differently, perhaps as
a 20,000 mtpd underground mine with sale of surplus
water rights to other miners. Quadra FNX Mining has
enjoyed drill intercepts of 1+% copper plus moly values
in thicknesses > 100 meters, which might support an
underground mine. We estimate Quadra FNX delays the
project two years for further evaluation.
We want to revisit
Quadra FNX Mining after it publishes its updated Sierra
Gorda studies in early 2011 and after the stock market
digests new information, timing, joint venture terms,
capital costs, etc.
Faithfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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