will optimised pfs look like this?, page-2

Looking at the future and potential of BTR I think we should differentiate here a little bit.

I still believe in the exploration potential of Mumbwa overall. On the other hand I am realistic enough to admit that after years of drillings what we have is a quite nice copper deposit in the ground (unfortunately deep in the ground) and some really world class high grade drilling results. Nice but not really exciting.
I went through a dozen of different copper price forecasts yesterday. From producer, from explorer, from analysts, broker and banks. I came to the conclusion that even in the long term (2016-2018) the upside potential seems relatively limited. Most market participants predict a copper price around US$/lb 3.00. The range is somewhere between 2.70 and 3.30.
That said we all know that based on the actual PFS and based on such a scenario the chance that Kitumba will go into production is rather small if not zero at all. This is obviously the reason why the SP dropped and why it is there where it is. The "Kitumba-fantasy" that came up again after the last high grade drilling results evaporated within minutes after the release of the PFS.
Well...this is my unemotional view of the story. From an emotional point of view personally I am a little bit disappointed and frustrated (as many other here probably) that the exceptional drilling results have not found (yet) their way into the PFS. Obviously here the big question is: What will be the impact of those results within the optimization of the PFS. With other words: How will be the economics of the PFS affected by the consideration of those results? To be honest, I have no idea what the outcome might be. As we know more metallurgical testing is underway. As we also no there is at least on drilling results pending (KITDD_033 if I am not wrong) that might further affect the PFS. My gut feeling (still) tells me that the actual PFS is based on rather conservative assumptions and that the main aim of the PFS was to meet the deadlines (application of a mining license). Therefore I hope (yes I hope because I am not sure that it will be the case) that the enhanced PFS will deliver more favourable economics than the actual one. I hope that based on a copper price US$/lb 3.00 the project will deliver the same NPV like the actual PFS with US$/lb 3.50. That would mean the profitability of the project should increase by roughly 20-25 %. I am not sure if this is realistic. However – if this would be the case and under the assumptions that in the next 12-18 months we have a better and clearer view how the copper price might develop in the next few years (e.g. demand from China and other important economies) – Kitumba might turn out to be se.xy enough for further development, means to go into production.
How this will happen (if it will happen!) nobody knows. Some are of the opinion that BTR might develop Kitumba on itself. I doubt that this will be the case. However possible future cash flow from Perkoa might help to further explore the area or even to support the “path to production”.

Looking at Perkoa I have to say that so far this was a really long journey. Starting from the “Flory-Hype” 6 or 7 years ago, putting everything on care and maintenance and then the revival under the lead of Scott. I think we are at 90 %...maybe 95 % now. I am pretty convinced that the first zinc will be shipped before the end of the year and I am also sure that cash will flow. Main questions here: How much cash flow will be generated? We know that this is depending from different factors. Main factor obviously is the zinc price level. Here I am more optimistic and I divide Glencores view that the chance to see a higher zinc price in the next 2-4 years is higher then to see a lower zinc price. However – inventories are still high and we will need some time to see the zinc price appreciating and break the US$/ton 2000 level. We should just bear in mind that a e.g. + 10 % in zinc price will have a leverage effect on cash flow and net profit of Perkoa. So in a optimistic scenario and based on zinc prices of 2500 or 3000 US$/ton the profit from Perkoa will justify a higher SP then today. So in the long run Perkoa is BTRs backbone. Without Perkoa BTR is just an explorer – not more not less – a sale of Perkoa in my view would be a set back of several years in the best case.

I would say that if you are not already invested in BTR and you would read the above then you hardly find reasons why you should buy this share. Probably there are – from a rational point of view – better opportunities to make money in this industry.

Nevertheless and in the sake of my personal “mental-hygiene” I think it is at least worthwhile mentioning some possible positive or negative catalysts in the near term (6 months):

a)The question regarding additional working capital requirements is still not solved. I guess that the bad news is already priced in but you never know.
b)A new MD should be announced in the next months. Based on his background this might give indications in which direction BTR might heading
c)Pending drilling results from phase seven. Especially KITTD_034. Personally I see some surprise potential here but I also think that even if the drilling results should be fine we have to bear in mind that we are talking of copper somewhere in the area between 600m and 980m in the ground. In the light of the actual PFS I do not assume that this would make a difference.
d)Further drillings at Kitumba. I am talking here of the 3 additional drillings in 600-1200m distance from the high grade core. Well…blackbox….obviously sufficient smoke to justify the drilling but maybe also a desperate attempt to find more copper or an additional deposit near the known Kitumba deposit to give the story a new spin. Okay….I have to admit that in the case that they hit something substantial this might a game changer. I am optimistic about the potential of the area so who knows?
e)First shipping of zinc. This would be more a confirmation that Perkoa finally is delivering and the impact on the SP is probably rather small.
f)More results with regard on metallurgical testing at Kitumba – might give an indication how the enhanced PFS could look like
g)The release of the updated PFS probably in the first 3 months of 2014. Obviously with a major impact on the SP if the economics should improve substantially and there is a realistic chance that the project might be followed.
h)Possibly the outcome of the drillings around Perkoa might be released. As we know they are looking there for further zinc deposits in vicinity of Perkoa. Could also have a nice impact on the story overall.

Summarized I think that we can say, that in the case of good news there is some upward potential here. On the other hand I am of the opinion that without really good news that SP will not raise substantially in the next 6 months. Then BTR for at least some time will be a pure zinc play and the SP will completely depend on Perkoa. Might be that further exploration at Mumbwa will deliver the one or other result but what we would need then were a really exceptional hit.

I am still wondering if there are other views from brokers – updates – recommendations – rating changes. Besides the UBS view so far I have not seen other updates. However my guess is that BTR is from the radar at the moment and that analysts and brokers will wait for the updated PFS before making any recommendations. However....after the release of the actual PFS I was expecting to see more rating changes (from speculative buy to neutral, hold, sell..whatever).