Financial Press: Prophecy Platinum Reports $3 Billion Project Valuation, 3.55 Year Payback Period, and 38% IRR
Vancouver, BC (PRWEB) June 20, 2012
Canada-based Prophecy Platinum (TSX Venture:NKL) shares have recently bucked the downtrend in the minerals and mining sector after the release of an economic valuation of its 100%-owned flagship Wellgreen project. - (Financial Press)
Prophecy Platinum’s shares jumped more than 11% on June 18th following the announcement of the final results of the company’s official Preliminary Economic Assessment (PEA) of its assets.
The PEA valued the Wellgreen project at $3 billion – nearly 20 times higher than the company’s current market capitalization of approximately $150 million.
The key valuation numbers from the PEA are:
Net Present Value: $3.0 billion (at 8% discount rate)
Internal Rate of Return: 38% (with 100% equity financing)
Payback Period: 3.55 years
The PEA includes all the estimated costs to build the mine, future revenues, financing costs, an estimated timetable of construction and mine life essential to determine a mining project’s net present value.
The PEA’s estimated costs included a 25% “contingency fund” provision to account for cost overruns. And the estimated revenues from the Wellgreen deposit were based on assumptions Consensus Economics’ Energy and Metals Consensus Forecast from Q2 of 2012. The target metals prices under the forecast include some prices discounted to current market prices: Copper $3.11/lb, Nickel $10.82/lb, Cobalt $16.70/lb, Platinum $2043.50/oz. Palladium $932.00/oz, Gold US$1347.40/oz.
The PEA was prepared by a number of geologists and mining engineers. They included Todd McCracken (P.Geo.), Andrew Carter (C.Eng.), Pacifico Corpuz (P.Eng.), Philip Bridson (P.Eng.) and Wayne Stoyko (P.Eng). They are officially Qualified Persons as defined under Canada’s National Instrument 43-101 regulations.
In the end, the economic evaluation contained in the PEA is strong relative to many other mining projects in the world. But there’s more to the Prophecy story here delve into the details of the PEA. The key details include both what is included in and what isn’t included in the assessment.
The PEA was based entirely on the Wellgreen project’s main deposit which contains an estimated 5.39 million ounces platinum, 4.24 million ounces palladium, and 2.38 million ounces of gold. That’s a total of more than 12 million ounces of PGM and gold. All estimates are in both the inferred and indicated categories.
In addition to the PGM and gold, Wellgreen is estimated to contain more than 2.64 billion pounds of nickel, 2.43 billion pounds of copper, and more than 207 million pounds of cobalt. Again, all estimates are both the inferred and indicated categories.
In short, the Wellgreen deposit is big. The PEA’s final NPV of $3 billion is a result of that. And yet there is still more potential for growth of the resource base at Wellgreen.
To attempt to realize the additional potential, the company has planned an expansive drill program of 20,000 meters for 2012. This program is aimed at increasing the value of the Wellgreen project in multiple ways.
The first part of the program has targeted drilling the known resource to upgrade resources into higher categories (e.g. from “inferred” to “indicated”). This will be accomplished in part by drilling the current main Wellgreen resource.
The second part of the drilling program will be aimed at investigating another mineral-bearing zone on the Wellgreen project with similar geology to the main Wellgreen deposit. The new zone has been identified by the company to hold potentially significant additional resources. Surface sampling and other geological reconnaissance has allowed Prophecy to target the most prospective drill targets in the new zone.
Of course, the geologists and engineers who put together the PEA did not include any of this additional potential into the PEA’s assumptions to arrive at the $3 billion net present value. And despite the inability to include the exploration potential left on the property, the economics of the project are still large relative to many other mineral assets under development and Prophecy’s current market value.
John Lee, the Chairman of Prophecy, summed the company’s reaction to the PEA by stating, “We are pleased with the PEA results. The numbers indicate Wellgreen as one of most exciting mineral projects in Yukon. The Company is currently drilling to both upgrade and expand the resource base. The infrastructure is excellent as the project is merely 1,400 meters in altitude and 14 km from the paved Alaska Highway that leads to Haines deep seaport. Discussions are underway with support from local stakeholders regarding permitting and logistics.”
Prophecy Coal trades on the TSX under the ticker symbol “NKL”.
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