Barry Fitzgerald article today in RRS.
DEVELOP: Talking about copper, Bill Beament’s $10.5m options exercise this week in Develop (ASX
VP) likely presaged that financing for the return of the Woodlawn copper-zinc mine can’t be far off now. Wrapping up the financing – Beament has made clear in the past that it will be debt and not equity, just as you would expect from a 25% (fully diluted shareholder) – presents a significant re-rating event. Beament is the underground mining engineer who previously took Northern Star (ASX:NST) from junior gold explorer to what is now the biggest listed gold producer in Oz with a $15.2 billion market cap. Life post Northern Star is all about Develop, a Mineral Resource’s (ASX:MIN) style hybrid with a cashflow-producing mining contracting business and a bagful of hard mining assets which apart from Woodlawn, include the Sulphur Springs copper-zinc project in WA and the Pioneer Dome lithium project, also in WA. Woodlawn had $250m spent on it by previous owners and exploration and development work since its acquisition by Develop means it is pretty much all dressed up and ready to go, sans financing. But as suggested, this week’s option exercise suggests financing completion for what is a low- cost development anyway (maximum cash down of $67m) is close at hand. In a $US4.44/lb and rising copper market, it should be a snack. Beament has raised the prospect previously that financing Woodlawn could include traditional project finance, and offtake financing, and potentially selling a minority interest to a strategic investor. Selling a minority interests makes sense after the financing is complete. And as Beament has said previously, selling a minority interest would enable the company to recycle some capital. Recycled capital would be nice but assuming demand for copper exposure spills over into Develop receiving full see-through NPV in selling a minority interest, a re-rating of the stock would be triggered. Assume the sale of 20% of Woodlawn for $132m (20% of its pre-tax NPV of $658m), implying $526m value for the remaining 80%.Develop last traded at $2.22 for a market cap of $540m. In the above scenario then, there is next to nothing in the market cap for the mining contractor business, Sulphur Springs or the Pioneer Dome project.
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