Re: Morning Comment prepared by Research Capital. (Bad download)
in response to
by
Chile, Australia & Argentina.
An Undervalued Copper and Iron Mining Opportunity in Chile
Message: Morning Comment prepared by Research Capital.
MINING 16 JANUARY 2009
F A R WE S T MI N I N G L T D . FWM -TSX: $1.35—
BUY
TARGET PRICE: $3.10; PROJECTED RETURN: 130% WAYNE HEWGILL 604.662.1816 FAR WEST FILLS DRILLS 216 METRES OF 37.5% IRON BETWEEN SANTO DOMINGO AND IRIS Price: $1.35 Basic Sh. O/S (mm): 56.6 Target Price (1 yr.):$ 3 .10 FD Shares (mm): 63.9 Projected Return: 130% Float (shares mm): 56.6 52-Wk High: $4.20 Market Cap (mm): $76 52-Wk Low: $0.51 NAV per Share $6.20 Cash(mm) $8.50 FY December 31 2008E 2009E 2010E 20011E EPS -$0.02 -$0.02 -$0.02 -$0.02 CFPS -$0.02 -$0.02 -$0.02 -$0.02 Target valuation parameter - 0.5x NAV (11%) Financial Metrics Courtesy of BigCharts.com Key Risks The Key Risks to Far West Mining is the effect of commodity prices on the project. While the project has been modelled at a range of commodity prices well below current spot prices, these prices are subject to demand side risks from China. The other key risk is the early stage of the iron metallurgy. Prof i le Far West Mining Ltd. (www.farwestmining.com) is a Canadian explorer based in Vancouver, British Columbia. The company’s principle asset is the Santo Domingo Sur Iron Oxide Copper Gold Project in Chile. The Candelaria/Santo Domingo Sur Project is a new discovery identified through a strategic alliance with BHP Billiton utilizing BHP’s propriety Falcon™ airborne gravity gradiometer system. The project has Other company assets are the Faralón Negro copper project in Argentina and the Georgetown silver/lead/zinc project in Australia. The company has 52.6 million shares outstanding and 58.3 million shares fully diluted. Share St ructure The company has 56.6 million shares outstanding and 63.9 million shares fully diluted. EVENT – DRILLING ADDS TO IRON RESOURCES Far West announced the highest grade i ron ore resul ts to date from the area between the companies Chi lean Santo Domingo Sur Deposi t the Iris Deposi t - including 216 metres grading 37.5 % i ron, as wel l as 62 metres grading 0.73% Cu and 32.5% Fe in a different hole. IMPACT – IRON ORE MAY CARRY THE WEIGHT Since Far West made the discovery of the Santo Domingo Sur deposi t in 2005, the company recognized the value of the i ron ore component but dril ling was primari ly focused on outlining a a copper deposi t. With the April 2008 Preliminary Economic Assessment by Amex Engineering, the company demonstrated the economic potential of i ron that hosts copper mineralization in i ron-copper mantos. Using our long term copper prices of $2.25 per pound and a $60 per tonne i ron price, the value of the contained metals leans somewhat towards Cu, wi th Cu contributing approximately 55% to the total revenue, i ron 40% and, gold adding less than 5%. With the recent long intersections in the i ron zone between Santo Domingo Sur and Iris, there is potential to expand the additional iron mineralization between the two deposits into the ul timate pi t shell . The company may indeed have an i ron deposit wi th a solid copper credi t rather than visa versa, as we had original ly thought. VALUATION – CLEARLY GOOD VALUE In December 2008, we raised our long term copper price from $1.75 to $2.25 a pound based on out belief that the current delays in new copper capacity wi l l give strength to the long term copper price when the economy recovers. Our risk adjusted valuation is based a 0.5x NAV using our of NAV of $6.20 per share (11% discount rate) We have based our risk mul tiple on the uncertainty surrounding a recovery in the Asian economy which we see as the principle market for ore from Santo Domingo as wel l as the most l ikely source of a potential sui tor. RECOMMENDATION – REMAINS A BUY We are maintaining
BUY RECOMMENDATION
and are maintaining the
target price of $3.10
VALUATION CATALYSTS – MET WORK AND DRILLING
We are stil l waiting for the detailed metal lurgical work that wi l l clari fy
the processing method for the i ron ore and facil itate the completion of
the next resource estimate which should add a signi ficant amount of i ron
resources.
This report has been created by Analysts that are employed by Research Capi tal Corporat ion, a Canadian Investment Dealer.
www. researchcapi tal .com
Toronto 416.860.7600 Mont real 514.399.1500 Vancouver 604.662.1800 Calgary 403.265.7400 Regina 306.566.7550
Page 2
Figure 1. Santo Domingo Infrastructure map
Source. Company Presentation, October 2008.
Figure 2. Santo Domingo Project Area
Source. Company Presentation, October 2008.
Page 3
RELEVANT DISCLOSURES APPLICABLE TO: FAR WEST MINING LTD.
LIST OF DISCLOSURE TERMS:
1.
This report was prepared by Wayne Hewgi ll , Analyst. At the date of release of this report, Wayne Hewgi ll did not own
common shares of Far West Mining Ltd.
2.
Within the last 3 years, Research Capi tal Corporation has managed or co-managed an offering of securi ties by the
subject issuer.
3.
In June 2007, Wayne Hewgi ll visi ted the Santo Domingo Sur project in Chi le. Transportation costs to Santiago and El
Salvador were paid by Research Capital Corporation and ongoing costs to visit the project were paid by Far West Mining.
ANALYST CERTIFICATION
Each analyst of Research Capi tal Corporat ion whose name appears in this report hereby certi f ies that (i ) the
recommendations and opinions expressed in this research report accurately ref lect the analyst ’s personal views and (ii )
no part of the research analyst ’s compensation was or wi ll be directly or indi rectly related to the speci f ic conclusions or
recommendations expressed in this research report .
1 Recommendations
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