Asiamet announces a significant major resource upgrade at over 400,000 tonnes of contained copper at the BKM deposit.
Asiamet announces a significant major resource upgrade at over 400,000 tonnes of contained copper at the BKM deposit:
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Asiamet provide confidence in today’s RNS (21 October 2015) which implies significant blue sky upside: In summary, the resource has been upgraded with more than 20% now in the Indicated category. In our opinion, this has given us confidence in the valuation we dervived earlier in September at US$79m. Asiamet has a 100% interest at the the BKM Deposit and supported by a NI 43-101 compliant technical report provided an Indicated Resource of 15Mt at 0.69% Cu containing 104,000 tonnes of copper, and inferred resources of 49.7mt at 0.60% Cu containing 298,000 tonnes of copper.
We estimate a mine life of 12 years, capital expenditure of US$6,250 per ton and a cash cost of US$1.40 per pound for the KSK project: However, if Asiamet can increase annual production based on the recent resource upgrade we would expect the cash costs decline to US$1.30 per pound which would make the Company one of the lowest cost producers. The below chart shows the capital expenditure per metric ton and the cash cost pound for all new global copper projects that will come into production between 2015 and 2020. Projects which fall in the bottom left-hand window on the chart would represent cost efficiency and low capital expenditure projects. Asiamet is represented as the red bubble and falls into the bottom left box which implies low capital expenditure and low cash cost per pound.
Valuation: We have left our valuation unchanged at US$79m. Our valuation is based on the 100% owned BKM Deposit (KSK Project). We have assumed an annual production of 20,000 tonnes of copper with an average selling price of US$5,700 per tonne or US$2.6 per pound and cash cost per tonne of US$3,000 or US$1.4 per pound. We estimate an EBITDA of US$52m per annum. We have used a discount cash flow model over a 12 year period and a discount rate of 13% and derived a valuation of US$79m. If we assume all existing warrants/options are exercised it would imply an intrinsic value of 9 pence per share based on an exchange rate of US$1.55/£1. In our view, today’s share price reaction presents a strong buying opportunity. It does not reflect the intrinsic value after the a significant resource upgrade. Asiamet Resources has reduced signicant risk associated with an early developer company. We would like to highlight that for every 10 cents per pound increase in the spot price for copper it would add a further US$18.9m to the Company’s valuation.