Copper Fox 1st Offer Window Nears

As the company draws closer to the official BFS filing date Teck has a window to make an offer. It doesn't surprise me that a small group of investors shook the tree this morning (again). They have a rather large short position. Their idea is simple, try to cause fear. People who know the official filing is coming see the sp drop suddenly without reason should begin to question what's going on. In this case the BFS is rock bottom bare bones. They suspect Teck may make an offer and want to create a large difference between the sp and the offer price. The more the price drops the lower the offer should be based on 30 day averages.

This won't make a hill of beans! See below:

Summary of Economic Results
Item	Unit	Base Case	3-Y Avg* Case	Spot Price** Case	Real Options Case
Metal Price
Copper	US$/lb	3.25	3.63	3.69	3.25
Gold	US$/oz	1,445.00	1,445.00	1,736.00	1,445.00
Silver	US$/oz	27.74	27.74	32.71	27.74
Molybdenum	US$/lb	14.64	14.64	11.34	14.64
Exchange Rate	US:Cdn	0.97	0.99	1.02	0.97
Pre-tax Economic Results
Operating Cash Flow	CDN$ M	10,746	12,065	12,161	11,284
NPV (at 5%)	CDN$ M	1,694	2,348	2,419	2,665
NPV (at 8%)	CDN$ M	513	967	1,024	1,382
NPV (at 10%)	CDN$ M	25	388	437	836
IRR	%	10.13	11.9	12.14	15.4
Payback	Years	6.48	5.81	5.7	4.9
Cash Cost/lb Cu	CDN$/lb	1.15	1.19	1.12	1.15
Total Cost/lb Cu	CDN$/lb	2.09	2.14	2.07	2.09
Avg Annual operating Cash Flow***	Millions	371	414	425	640

Let's look at the ROV at 5%. This is the real world evaluation of operations.   The chart calls for a NPV of $2.66 billion. Due to the scale of the operation IRRs at 15% are actually very good. This demonstrates the very long term nature of the project. To go that long you have to be huge. But, more important to us is what the after tax figures look like so here's the chart.
Base Case and ROV (Case 4) after-tax economic results are:

After Tax Economic Results
Description	Base Case	ROV Case
Net Cash Flow (CDN$ million)	4,270	5,133
Discounted Cash Flow NPV (CDN$ million) at 5%	956	1,260
Discounted Cash Flow NPV (CDN$ million) at 8%	67	529
Payback (years from start of mill operations)	6.8	5.7
IRR (%)	8.3	12.7

The NPV at 5% is $1.26 billion. Oh, and why do I say use the 5% model? No mine is valued at 8% after derisking and just prior to the start of operation. That's just not how a mine is evaluated on paper. Once we have actual figures we expect them to be very close to the actual calculated annual figures. Not discounted! Highland Valley is a good example as the CEO (Elmer) tells us. If they valued it under discounted cash flow it would currently be worth ZERO.

In our case the real world figure if converted to gold at $1700/oz would mean a production of about 750,000 ounces a year after tax. That would mean cuu's share at full back in would be about 190,000 ounces. But, let's not forget that cuu will own about a 5% royalty that comes off the top. That's $63 million after tax dollars. Yes, it kicks in when the cap is paid off but then it's there for a minimum of a decade. Let's call it $630 million. But as we all know, the resources will get expanded and it sure looks like they will be mining this for 50 years. But 10 years of royalty is a known so let's just keep it there.

So, cuu has about 25% of the ATNPV and 5% off the top. $315 million NPV and in time $63 million for royalties. $5.355 Billion plus $630 million LOM. That's $6 billion LOM after tax! That's $14 a share LOM.
There's a number of things that also have to be accounted for. This assumes Teck pays the 4 times expenses to get its 75%. So about $400 million can go to expand the resources or it could even be used to pay down the capex. Then, Teck has to finance the project at a spread of 2% and that's pretty good for cuu considering what it would cost if they had to go get their portion of the money. The interest spread is substantial.

We also know that the real recoveries are higher than those stated and cuu says that can be improved. I've heard they could improve it by 6%. That's a lot LOM. As in that makes a huge difference. There's about 7 anomalies that drills proved (on a couple) have a 1 to 1 correlation with what's already proven. Those need work. One in particular has higher silver grades. We also know from the starter pit that there's another deposit under it. At 800 meters, we will have to figure out exactly how to get at those high grades. That will come in time.

Last, is the waste rock. There are enough historical holes to give us a pretty good idea what cash flow we can expect from what is now classified as waste. You saw the results in the NR from the limited data and that was outstanding. It's not really waste. I'm not going to do up my spec numbers for it. I just want to build a case for my idea of value. Lastly, the BFS was for just 1/2 of the deposit!

If we asked for 33% of the LOM value it's about $4.60 before waste conversion. Then add a $1 for the contract and you get a tidy $5.60 per share based off the lowest case info. Add in all the other factors and you get...

Now lets suppose Teck takes 20% just to keep a toe hold on the property. This makes sense over just taking the royalty since they also own 1/2 of Galore Creek. (Why build 2 air strips, 2 fuel depots etc). Now what are we worth with a much much larger royalty and 80% of the NPV?

You do the math.

The Curious Case of Curis Resourses

Here's a highly profitable proposal that's just got one of its permits in place.

But...
http://www.protectourwaterourfuture.com/
They have survived an inglorious attack of paid protests and hillbilly politics. There's been trumped up land battles and claims against the company for the protection of water rights and the list goes on and on. Yet, they got their permits. This included, drilling and mapping water underground, verifying the water bed protection layer and a whole host of other testing. While it's try that we don't know what will happen 100 years from now the same can be said for all mines.

In the past I warned that no one in their right mind should touch this stock. The hillbilly politics is a story all of it's own. I had a friend there check out the local gossip and could write a small book on it that would have you rolling on the floor. I would go so far as to say that it would contain spy novel intrigue but you can judge for yourselves. http://www.newswire.ca/en/story/1013685/curis-resources-announces-former-director-of-arizona-department-of-water-resources-joins-the-company-as-key-leader-of-arizona-operations. 

Then came the bloggers and bull board bashers. I won't post their links here because a few of them contain seriously foul language. One in particular appears to contain facts that if correct will scuttle the project. I'm not a chemist so I can't verify the claims by this certain blogger. They cite a number of documents and legal claims to back up their claims.  http://www.courthousenews.com/2012/09/25/50605.htm

The problem with all of this is too much information. It's becoming hard to ascertain what is trumped up and what is fact. I do not agree that this company behaved in a very Canadian way. I have not changed my position on this. Instead of transparency and engaging the public potentially effected by the operation they tried an end run around the people. Their chart show the results. Before they peaked I was advising a sell and run strategy.

What's changed? Not very much except that they will get to test and prove the technology. This news is the cause behind the rebound. Should it prove to be safe this stock will take off hard and fast. At the root of the Phoenix like recovery will be the economic case. This will be one of the most profitable copper mines in the world. At today's prices there's a very good chance of making 5 times your money. But, at today's prices there's substantial risk of a blow out costing serious losses.

I'm listing this one on the basis that the technology needs a chance to be proven. I plan to keep an eye on it because I know that with lots of rinsing sulfuric acid's ph can be lowered to back ground levels fairly quickly. One will have to pay a lot of attention to the technical documents.