tastarga, page-8

re: marchelo/mack et al Just briefly going through the announcement.
In the past, on this ticker and previous code (PIL) ,you may note that I rank the MD pretty highly-he is an accomplished mining engineer who knows how to innovate to save significant costs.
Lets start with the negatives IMO:-
1) Not a big fan of equivalents-copper in this case, but at least it is better than gold equivalent! Copper and zinc are two distinct minerals with different treatment charges/recoveries/pricing etc.
The hype about VMS grade and copper production costs is there for the brokers/journalists.
2) As jtjones points out, they have used an exchange rate of 70 cents. The counter argument is the use of copper and zinc prices below the current spot prices. They tend to balance each other out.
However what a bank/project financier will do is use their own forecasts coupled with what they can achieve in the forward hedge market. On the currency front probably 80 cents, commodities ,well copper is in backwardation and a medium term figure closer to $1.15 may be more appropriate, and maybe a bit less for zinc.
The banks/project financiers will also heavily discount the value of the existing stockpiles as they would have partially oxidised impairing recovery. The lenders also like a significant coverage of reserves to be in the 'tail'-in this instance debt repayment within say three years against a current project life of at least six years.
3) Given the project finance argument above, the lenders will also note the alternates for the project are fairly limited,ie if it c*cks up, there is not much alternate value other than the plant-the project is remote with not much happening nearby.
Net effect of above-don't expect a high debt level, and what there is will be hedged at unfortunately lower prices.
Now on the positive side:-
a) they have bought most of the plant required at knock down prices.
b) ground conditions look excellent.
c) any further extensions to the resource will have a big impact on project value, and the dirt is obviously prospective. VMS orebodies usually have good legs once opened up, eg Rosebery in Tasmania.
d) the current market cap is not unreasonable and with the option expiry coming up, that potentially puts another $7m in the bin towards the project capex (especially if they can get them underwritten!).
e) whilst they highlight the potential for increased costs in some areas, the scariest has been nullified-they have most of the plant, and the MD is a wizz at cost savings.
My reading out of all of this is that I can see the company and its backers pushing the current SP up to the low 20s in coming weeks in an attempt to get the oppies exercised-not far to go now.
A further cap raising say around August to tie in with project finance/trade finance , as well as general working capital (which was excluded from the announcement).
Not a lay down 'm', but certainly one of the better punts around.
Cheers,TAS