Page 10-13 of this report focuses upon relative valuations of companies based on in ground resource metrics. Companies such as Sandfire and Discovery Metals are accorded Enterprise values of up to $1498 per tonne copper equivalent in ground resource. These companies are regarded as having a "high quality" resource whereas companies such as Intrepid Mining with a low copper grade (0.4%)and higher sovereign risk are marked down. Of the companies this report looks at the average in ground price is $490 per tonne equivalent. While I personaly regard the AVB resources as much greater than average I have done a few simple sums for illustration.
Based on current resource: 401,000 tonnes contained copper ( totally ignoring 389,000 oz Gold, Vale payment, cash on hand, nickel, etc)
401,000 @ $490 (avg.) $196 million Enterprise Value 401,000 @ $1348 (SFR) $540 million Enterprise Value 401,000 @ $1496 (DML) $599 million Enterprise Value
A point not mentioned in the report but worth noting is that the valuation is heavily influenced not only by "high quality" ore bodies but also by how close the companies are to production. Given yesterday's Money and Mining presentation states that purchase of a second hand plant is high on the agenda we may be in for a major re-rating over the next 12 months.
Drilling programmes are targeting a doubling of Pedra Branca resource in the next 6-9 months plus upgrades to the resource for Antas sure to occur as well.
Enterprise values based on 600,000 tonnes year end target:
600,000 @ $490 (avg.) $294 million Enterprise Value 600,000 @ $1348 (SFR) $808 million Enterprise Value 600,000 @ $1496 (DML) $897 million Enterprise Value
All of the above valuations are achievable IMO based solely on drilling out the existing resources. In, fact they are conservative stretch targets that I would expect to be surpassed with ease over the next 12-24 months. They do not require new finds which are undoubtedly out there and will get targeted in the years to come. A 2 year scenario may well see 1 million tonnes in ground and mining underway. The valuation then would be significantly higher again, maybe in the range of $1,000-1,500 million based on in ground EV. If we assume production then that figure would jump significantly,(600,000 tonnes @ $5000 nett profit is $3,000 million).
Hence, current value in excess of 20c is my calc with a 1 to 2 year target of $1. Without further major discoveries. Of course if you are primarily a trader all of the above is of little consequence:)
Cheers
AVB Price at posting:
9.6¢ Sentiment: Buy Disclosure: Held
