Terrane Metals' Next Step to Success
Boris Sobolev
Apr 15, 2008
Several days ago, Terrane released the results from a feasibility study on its Mount Milligan project. Key indicators remain very positive and closely in line with the pre-feasibility report issued a few months ago.
Production cash costs decreased from negative $190/oz gold to negative $268/oz gold net of copper credits at $2.65/lb. The capital cost of the project is estimated at $917 million (slightly higher than a few months ago) and commercial production is scheduled to begin in Q1 2012. Less that 5% of expenses are expected to be incurred offsite due to an excellent infrastructure in the area. The project is environmentally friendly with a low stripping ratio, an innovative tailings design which reclaims most of its water and has a simple closure solution.
Even at low base case metal assumptions ($2.75/lb copper, $600/oz gold), Mt. Milligan's economics are highly robust.
Together with the feasibility, Terrane issued its first mineral reserve estimate. "The Proven and Probable Mineral Reserve totals 333.7 million tonnes, averaging 0.217% Cu and 0.428 g/t Au containing 1.60 billion lb copper and 4.59 million oz gold. The Mineral Reserve was optimized at a US$4.20/tonne cut-off value using US$1.60/lb copper, US$550/oz gold and an 0.88 US$/C$ exchange rate, conservative by any measure. Both the Mineral Resource and the Mineral Reserve take into account metallurgical recoveries, concentrate grades and transportation costs and smelter treatment charges in determining NSR values. The Mineral Reserve incorporates allowances for grade dilution, mining dilution and ore losses."
What is next for Terrane?
- The Company has to conclude negotiations with local first nations and obtain environmental approvals from the federal and provincial governments. Undoubtedly, these are the two main factors holding Terrane's stock price back.
a - The Company states that "an Environmental Assessment Certificate Application for a provincial Certificate and information required for a federal Comprehensive Study Report will be filed in Q2 2008. Necessary approvals including construction permits are anticipated by the end of Q2 2009 which would allow for the commercial production in Q1 2012."
a - Terrane will also begin evaluating financing / joint venture options for the $917 million bill needed to build the mine.
There are some very exciting developments going on at Terrane but the market paid almost no attention to them! The conference call conducted by the Company on April 1 generated only one question. The market for junior exploration companies is the worst we have seen in years. Being contrarian at heart, I think that this depressed market continues to offer exceptional investing opportunities, such as Terrane. Terrane Profile
One more point about Terrane's valuation: based on only proven and probable reserves, Terrane is now trading at similar valuation levels as:
- Gold Reserve - a US company operating in Venezuela under a constant threat of nationalization by Hugo Chavez;
a - Crystallex (Terrane is trading at 1/2 of Crystellex's valuation levels) - a Canadian company operating in Venezuela;
a - Mundoro Mining - a company operating in China with no business license since 2005;
a - Nevsun Resources - a company constructing a mine in the volatile African nation of Eritrea.
(Check this for yourself by going to the RSG comparison tables, selecting Gold and P&P in the filters, and then sorting by the EVPU column)
We do not think that Terrane, which owns two excellent assets in the safe and well-developed British Columbia, deserves this.
And after a recent nod of approval from Goldcorp, we believe Terrane will be trading a multiple of today's price in the next 18 months.
Apr 14, 2008
Boris Sobolev
Denver, Colorado
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