Have a read of the Reuters article linked above for a good idea of what's going on, including important details about the starter-pit project that will make the project profitable in the early stages of operation. Also check out the company website, with all the fun facts & figures you can handle. That's because this post is less on the bones of the company (you can look at all that yourself as part of your own DD*) and more on why DNT stacks up as a great takeover play right now.
- April 2007: Anglo bought the Michiquillay project from the Peru gov't
- June 2007: Chinalco bought Peru Copper (CUP), then-owners of the Toromocho project concession
- December 2007: China Minmetals/Jiangxi bought Northern Peru Copper (NOC.to), then-owners of the Galeno project (as well as a couple of other good looking greenfield sites)
- PCU are ramping up a new bigbigbig mine called Tia Maria, and are also beginning to drill at another promising spot held by another company.
- Cerro Verde (we mentioned them this week) has just finished a $1Bn upgrade that has doubled production.
- In 2004 Xstrata bought the very big-looking Las Bambas project from the Peru gov't and will be working on its feasibility study next year,and look to produce in 2011 or so.
- Milpo opened its new U$110m Cerro Lindo mine June 2007 and has earmarked U$67m for exploration expenses in 2008. Not bad for a medium sized producer. In fact, Milpo has got so good that Brazil's Votorantim want to take a controlling share of the company, and has just upped its bid yesterday.
Now this is where it gets interesting
Remember back at the top of the page, where Ms Freeze said there would be a new resource estimate in May? Well, the current 8.1Bn lbs resource is calculated on the first 82 drill cores from the site done by April 2007. Since then Candente has drilled a further 121 holes (they've been busy people) and the resource estimate in May is expected by most analysts to blow the present estimates away.
Here's a little chart (click to enlarge) that puts it into focus. What we can see here is what the company would be worth per share at 2.5c, 3c or 3.5c/lb copper, depending on how much copper they declare as resource at the project (also assuming the fully diluted share count stays at 81.5m).
My best guess right now is that DNT is going to come in with around 10Bn Lbs copper resource under the revised calculation, but that just a guess. It could be less, but really I'm tipping my hat at 10Bn lbs Cu because I'd rather stay on the conservative side right now. It's no market secret that DNT has not explored the whole of Cañariaco, and the poundage could go to 14Bn or more once the whole thing has been surveyed. That's big copper, dude.
But based on 10Bn lbs copper in situ, if we say that 85% is recoverable that puts our pounds in the ground at 1.47c. If Candente sells out at 3c (my happy medium forecast), that's a C$3.13 target, and that's where I'm setting my bar. I know it's conservative to base the in-situ price on recoverable copper and not contained copper, and I know that NOC.to was the last deal struck and it was a sexy 4.6c/lb Cu ex-credits, but keeping things low-key also means nicer surprises later.
Bottom line: DNT is a big copper greenfield in Peru, with a management team that have a sale to the highest bidder as its principal objective. This is just the kind of mix that worked in 2007 (even December 2007, when there was no hiding from the subprime slime) and as Votorantim shows, there's plenty of interest in Peru mining 2008 vintage as well. There are plenty of worse places than DNT to put some speculative money.
Disclosure: I don't own personally, but I recommend to clients.
* ALWAYS do your own DD before investing in anything. Remember you got to read this note for free. Think about that.
* *With junior miners, better to run with the FD#