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Research Report von GMP mit Kursziel 19,85 CAD (hoch von 14 CAD)
Blue Pearl announces a new resource estimate for the
Endako Mine
• BLE announces a new resource estimate for the Endako
Mine in British Columbia
• At current mining rates the new resource would extend
the life of the mine by six years or more
• More updated resource and reserve estimates expected
during 2007
• We are maintaining our BUY recommendation and have
increased our target to C$19.85 (from C$14.00/sh),
based on a 1.5x multiple (up from 1.2x and above our
coverage universe average) to our NAV of $11.39/sh (up
from $10.01/sh)
Share Data
Shares – mm (basic/f.d.) 103.3/140.1
52-week high/low C$17.87/C$1.70
Market capitalization (mm) $1,536
Enterprise value (mm) $1,743
Dividend yield nil
Total projected return 15%
Financial Data
YE Dec. 31 06E 07E 08E
EBITDA (mm) $52 $367 $559
EV/EBITDA nm 4.8x 3.1x
EPS ($0.15) $1.42↑ $2.33↑
P/E nm 10.5x 6.4x
CFPS ($0.11) $1.99 $2.93
P/CF nm 7.5x 5.1x
Mo prod\'n (mm lbs) 3.8 21.3 27.0
Mo forecast ($/lb) $24.75 $26.50 $28.00
Current
Working capital (mm) $180
Net debt (mm) $207
NAV/share $11.39
P/NAV 1.3x
Note: All figures in US$ unless otherwise stated.
On Monday night BLE released a new resource estimate for the Endako Mine (75% BLE, 25% Sojitz) in
British Columbia. New estimates were calculated using cut-off grades of 0.02%, 0.03% and 0.04% Mo
(versus 0.04% Mo previously). At a 0.02% cut-off the Endako property contains 464 mm lbs of
molybdenum, a significant increase versus the old estimate which contained 272 mm lbs (as of
September 30th 2005). The effective date of the new estimate is April 15, 2007. The new estimate has
roughly doubled the Ni 43-101 estimate of the molybdenum resource at Endako. BLE is currently
studying an increased mining rate scenario and consultants are working on an estimation of mineral
reserves and detailed pit design as part of a new mine plan for Endako, incorporating updated
operating costs and a long-term molybdenum price assumption of $10/lb. The previous reserves
estimates and existing mine plan (that extended into 2013) assumed a long-term molybdenum price of
US$3.50 per pound. The average grade of the new resource as it is converted into reserve may
improve materially. While it is difficult to value the effect of the new resource without a detailed mine
plan, it would extend the life of Endako from 6 to at least 12 years at current mining rates. This means
lower annual depreciation and therefore an increase in earnings in the near term. An accelerated mining rate (currently being studied) would lead to increases in cash flowing from the Endako
operations.
BLE is in the process of re-evaluating the resources at all of its properties. The company plans to
release additional resource and ultimately reserve estimates as they become available during 2007
from the consulting firms that are producing them.
At a cut-off grade of 0.02% molybdenum (Mo), Wardrop consultant estimated measured and indicated
molybdenum resources at the Endako Mine of 492 million tonnes a grade of 0.043% Mo (on a 100%
basis). Measured resources are 138 million tonnes at an average grade of 0.05% Mo and indicated
resources are 354 million tonnes at an average grade of 0.04% Mo. In addition, inferred resources of 76
million tonnes at average 0.033% Mo were also estimated.
The previous estimate for the in-pit resources at the Endako Mine (NI 43-101 compliant) using a cut-off
grade of 0.04% Mo, contained 51.8 million tonnes at an average Mo grade of 0.07% and contained 80.4 mm
lbs of molybdenum (as at of September 30th, 2005). The newly released estimate includes additional
diamond drilling data from areas surrounding the current Endako, East Denak and West Denak pits as well
as modeled resources to depth below the pits. Wardrop is also examining the feasibility of constructing a
super-pit, unifying the three existing pits into a large single pit, and of increasing mine production to 50,000
tonnes per day (tpd) from approximately 30,000 tpd, with a proportionate increase in roasting capacity. BLE
reiterated prior 2007 production guidance for the Endako Mine (11.3 mm lbs of molybdenum, 8.5 mm lbs
attributable to BLE). In 2008, the company expects production at Endako to increase to 13.3 mm lbs of
molybdenum (10 mm lbs attributable to BLE).
In response to the newly published resource we have extended the life of the Endako mine in our BLE
model from 6 to 12 years resulting in an increase in the NAV for the company and a modest increase in
2007 and 2008 earnings expectations. As noted above, if the company decides that the new resource
justifies an increase in the mining rate (from 30,000 to 50,000 tpd) this would lead to an increase in cash
flow and NAV for BLE.
We have also incorporated a DCF valuation of the company’s Davidson Project which we had valued
previously using the pre-TCMC acquisition value of Blue Pearl as a proxy for the value of the Future mine.
While the feasibility study is not yet complete we have used conservative estimates for cost and capex in
our DCF of Davidson and we are comfortable with the value we are currently attributing the Project. This
change in valuation technique has resulted in an increase in the NAV assigned to Davidson from $138.3
mm to $189 mm (from $0.99/diluted share to $1.35/diluted share).
Finally, we have increased our long-term (2011 and beyond) molybdenum price assumption from $9.00 to
$10.00/lb. The updated resource for Endako is based on a $10/lb molybdenum price and we believe the
marginal cost of production for the molybdenum industry is now $10/lb or slightly higher. Using a 10%
discount rate, this $1/lb increase in the long-term molybdenum price increases the NAV for BLE by $77 mm
or $0.55/diluted share.
We believe Blue Pearl may further increase its mineral resources as a result of the re-calculation
process that is underway at the company’s Flagship Thompson Creek Mine. We believe the market is
discounting some of this upside into the current stock price. However, we have not yet changed our
assumptions for Thompson Creek pending the new resource estimate. We have chosen instead to
increase the multiple to NAV that we use in calculating our target for the stock from 1.2x to 1.5x NAV
(which has increased from $10.01 to $11.39/diluted share). This has resulted in an increase in our
target from C$14.00 to C$19.85/diluted share. We believe this higher multiple is also justified by the
indicated Pricing for the IPO of China Molybdenum Co. whose shares are going to be priced near 14.0x
2007 earnings (the IPO is reported to be oversubscribed considerably). Based on a similar valuation
technique this would suggest a value for BLE shares of approximately $23.00.
RECOMMENDATION – MAINTAIN BUY RECOMMENDATION AND RAISING TARGET TO C$19.85 (FROM C$14.00)
We are maintaining our BUY recommendation and have increased our target to C$19.85 (from
C$14.00/sh), based on a 1.5x multiple (up from 1.2x and above our coverage universe average)
to our NAV of $11.39/sh (up from $10.01/sh).
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