Lumina Copper’s PEA shows NPV of $2.1 billion

Lumina Copper on Tuesday announced a preliminary economic assessment that gives the Taca Taca project in Salta, Argentina a net present value of $2.1 billion, assuming a discount rate of 8% and $2.75/lb copper, and after-tax internal rate of return of 17.2%.

The assessment includes substantial gold and molybdenum at assumed prices of $1,200/oz Au and $12/lb moly. Here’s the full news release; here are a few bullet points:

- initial capex of $3 billion, life-of-mine capex of $1.8 billion. Payback on initial capital of 3.8 years.

- 28-year mine life with average annual production of 244,000 tonnes of copper, 110,000 ounces of gold and 4,100 tonnes moly.

- life-of-mine cash costs of $1.11/lb of copper.

I listened to the conference call with a chipper David Strang, Lumina Copper CEO, and Marshall Koval, vice-president, corporate development, and was struck, again, at the gaping divide between fundamental value and share price performance in this market . A few quick takeaways and observations:

- Strang said the Taca Taca deposit compares “favourably” to Inmet/First Quantum’s Cobre Panama – he cited Taca Taca’s higher annual gold production – as well as other major undeveloped global copper deposits.

- Strang was asked by an analyst when the last site visits have been and his response was “Friday.” More site visits are expected this quarter, with the only hiccup Strang mentioned the difficulty obtaining visas. Strang said there was plenty of interest in China during his recent visit there.

- Lumina has about $6 million in working capital left. There are no drills turning, which should help contain the burn rate (as well as stifle news flow).

- The governor of Salta province and key cabinet ministers have been on-site recently and are very supportive. Strang referred to Salta as one of the most mining-friendly jurisdictions in the world, which seemed like a real stretch (he did qualify the remark by referencing the broader Argentina context).

- Strang ended the call with a statement that he hopes to give shareholders more updates “later this year.”

The stock shrugged on the news, closing out the day at $7.70 (up 1%) on 51,000 shares, barely above average daily volume. This junior mining bear market takes no prisoners.

Look, you either believe in the ability of Team Beaty to deliver a good deal for shareholders – yes, even in a terrible junior mining climate and with a business-unfriendly Argentinian government – or you don’t. Ross Beaty owns or controls 24% of Lumina shares and Strang owns about 1% of outstanding shares.

Skeptics should remember that this management team has come up with innovative ways to create shareholder value in the past, including not that long ago. In June 2011, Team Beaty spun out Lumina Royalty from Lumina Copper. Lumina Royalty was a private company made up of royalties on four of the old Lumina Copper’s projects in Chile and Argentina, including Relincho (Teck), Taca Taca (1% NSR royalty), San Jorge and Vizcachitas.

In September 2011, Lumina Royalty was sold to Franco-Nevada in a share-and-warrant deal worth $66 million.

But waiting for a deal on Lumina Copper will require patience, and with no foreseeable catalysts on the immediate horizon, gravity will continue to weigh on LCC shares. It might be dead money for now, but deploying capital elsewhere with the intention of returning to LCC pre-deal is a risk each LCC long will have to measure for themselves.

Disclosure: I own shares of Lumina Copper. Please read my disclaimer.

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