Just when you thought Abacus Mining and Exploration (CVE:AME) couldn’t get any cheaper, they discover a possible near surface copper/gold deposit on their Ajax property. This occurrence could possibly change the way AME mines and values their deposit. Regardless of this new discovery, AME is significantly undervalued.
The Ajax property is AME’s pride and joy, housing ore reserves of 2.9 billion lbs of copper and 2.65 million ounces of gold, with the possibility of expanded ore reserves. Previously, the property was jointly owned by New Gold and AME, but New Gold opted for a 10 % NPI, or a 10 % share of net proceeds from production. This agreement has allowed AME to move forward much more quickly with the development of its property. What is this property worth?
Base Case Senario (All figures in US dollars and pre-tax and based on US $2.00 per pound copper and US $700 per ounce gold)
- NPV of $192.7 million, with a 8% discount rate
- IRR of 12.4% and an initial capital cost of $535 million
- Average annual production estimated at 106 million pounds of copper and 99,400 ounces of gold in concentrate
- Mine life of approximately 23 years
- The pit inventory resource contains 2.6 billion pounds of copper and 2.4 million ounces of gold in the measured and indicated category
CVE:AME is currently valued at 0.215 $ per share and a market cap of 28 million CAD, the stock should have a value of at least six times that!
Now let’s look at the value of this company with current metal prices…
*all data in italics was interpreted by the author
In the bottom right corner of both charts you get an IRR of 43% and an NPV of 2 billion, making this one of the best investments in the mining industry.
*Full Disclosure: I do not own shares in (CVE:AME), but it is my intention to buy some in the next few months.
Disclosure: Long on CVE:AME