The King Of Copper Speaks

I love copper, I love stocks and my bread and butter is not speculative fluff; I like undervalued stocks that have the goods and are going into development!

I am sure all of you have seen the discovery - development – production, but for good measure I will throw it in here, as you can see the project development and production stage is just as lucrative as buying random speculative juniors.  This Chart was borrowed from the Alderon website; I would like to note Consolidated Thompson mines CLM on the TSX was recently bought out for 4.9 Billion. Another great thing about the advanced plays is you can buy 10 and expect 9 to succeed and become 5-6 baggers within a couple of years.

Now that we have established the great potential in advanced exploration stocks I will share with you my favorite 10 they will be ranked using my personal method of financing risk, country risk, production profile, cost per pound, Infrastructure, buyout potential, investors tend to overlook look these aspects, this will be an oversimplified version of my method.

1) TSX:DM   Duluth Metals  
Shares Outstanding Fully Diluted 113,760,497
Highlights: Politically Stable (Minnesota is a great mining state)  Infrastructure in place, skilled work force. Financing risk is negligible as they have a JV with Antofagasta  (60/40)
The Nokomis project is the world’s largest undeveloped Copper-Nickel-platinum-palladium-gold project. This huge deposit contains the following metals This is all based on a 1.0% Copper EQ cutoff :O most companies are mining .30-60 these days

METAL	INDICATED	INFERRED
COPPER	7.75 BILLION POUNDS	3.82 BILLION POUNDS
NICKEL	2.43 BILLION POUNDS	1.25 BILLION POUNDS
COBALT	121.26 MILLION POUNDS	60.37 MILLION POUNDS
PLATINIUM	3.11 MILLION OZ	1.63 MILLION OZ
PALLADIUM	6.93 MILLION OZ	3.60 MILLION OZ
GOLD	1.83 MILLION OZ	.80 MILLION OZ
SILVER	37.42 MILLION OZ	18.10 MILLION OZ

    The IRR of return on this project is 44%, NPV @ 10% is a whopping 5.144 billion, this stock hasn’t really ran up with the market so I expect it to move hard when it does. Cash cost per pound of copper is slated to be negative 1.94 per pound. Expect tons of catalysts such as  definitive feasibility report, construction, financing lots of news on this get in early. The base case scenario on this shows around 200 million pounds of copper eq per year. To top this all off Duluth still has 30000 acres of land in the Duluth Complex they are currently the largest holder of land in the up and coming mining district.
Like every project on the market this one also has a few concerns, my main concern is the metallurgy of this deposit are very complex, I have met with the head geologist and he is very experienced and very positive about the development of the assets. I would like to see them prove a way they can efficiently separate the metals cost effectively and I will back the truck up. I rate this a strong buy for medium risk accounts, stock is range bound and very liquid.


2) TSX: BAJ  Baja Mining
Shares outstanding Fully diluted 393.1 million

Highlights: Fully funded till construction, ALL major permits for mining and construction in place, safe mining jurisdiction (mexico), Infrastructure in place, mangament recently secured the lowest ever loan for a mine at 3%
The Boleo project will be one of the worlds lowest per pound producer. The project will also have a 30 year + mine life. The mine will produce 84 million pounds of copper a year 3.6 million pounds of cobalt and 28 million pounds of zinc
The Boleo project has a very desirable ore body, super easy to mine similar to mining underground coal and potash, it is a clay ore body perfect for surface  underground mining. The management team on this project recently secured the lowest ever rate for mine financing at 3.04%, HELL the bank would charge me more for buying a home. Management is top notch. This project contains 4.44 Billion pounds of copper, 350 million pounds of cobalt, and 3.74 billon pounds of zinc so this is another HUGE project. The cost per pound of copper on this project will be -29 cents so again another low cost producer.  Trades at 0.042 a pound of copper eq when the peer group trades at 0.063, most of the peer group doesn’t even have permits or financing in place, Copper Mountain trades at .25 per pound for example a project that is much further along in construction but it is only a speck of sand compared to the Boleo project. The after tax IRR on this is 26% and the NPV @ 8% discount is 1.3 billion. This company starts producing in 2013, I think they will be just in time for the perfect copper storm; emerging economies should be on fire and the western world will be back on its feet.
My main concern with this project is management is very conservative this will be the next EQN, they have hedged some production which I am sure was required by the bank that gave them the super low interest rate low. I would personally be buying this at these prices the stock seems like its on a downward spiral but I think that should reverse because its due to the recent highly dilute financing the new paper should be gone soon expect a huge uptick within 2 months. I rate this a strong buy for low risk accounts.

3) TSX: CUU  Copper Fox Metals
Shares outstanding fully diluted 377 million
Highlights: High insider ownership, lots of insider buying, HUGE deposit, safe mining jurisdiction, possible Teck buy in clause, ongoing drilling  indicates huge upside on underground mine, updated resource estimates looks good even though the market was not satisfied, robust feasibility report pending, North West Power Line has been approved . The cost per copper pound for this is negative 32 cents so again on my top three stocks I am stressing low cost producers, copper may be at 4 dollars today but 10 years down the road who knows, as we all know mining is a very cyclical cycle.
The Schaft creek project is not as highly advanced as the last two but it is one of the worlds biggest undeveloped Copper Moly Silver Gold project. This project contains 7.8 billion pounds of copper, 7.9 million troy ounces of gold, 69 million troy ounces of silver, and 583.2 million pounds of molybdenum, expect most of these numbers to double before everything is said and done according to my rough calculations as many new holes have to be accounted for and Schaft creek is a lot deeper than initially expected, The CEO has personally told me that Schaft creek is at least double what’s on paper. Annual production will be 211 MILLION LBS COPPER, 199 THOUSAND OZ

GOLD, 1.4 MILLION OZ SILVER AND 11.3 MILLION LBS MOLYBDENUM. The exit strategy for this company is a buyout from Teck I believe management has no intention of developing this project. The ore body on this is very simple to mine it is a typical Porphyry copper deposit

My main concern with this project is that capital costs for this mine are 3 billion+ without a Teck buy in it would be very hard for management to raise this kind of money, but I am almost 100% certain Teck will not let this giant gem slip.

4) TSX: NCU  Nevada Copper Corp.
Shares Outstanding fully diluted: 64.2 Million
Highlights: Cash rich, they currently have 26 million in the bank, trades at a low 2.9 cents per pound of copper, in a very safe mining state (Nevada) lots of near term catalysts with this one too, expect a feasibility report soon, excellent infrastructure lots of mines currently producing in the area.

There main project is the pumpkin hallow project it has contains: 9.3 Billion Pounds of Copper, including 1.45 Million ounces of Gold, 55 Million ounces of Silver and 183 Million tons of Iron. Again I am sticking with the HUGE project scheme for my top picks. They have been drilling and they have encountered more and more copper so a updated resource estimate should be upwards of 12 billion pounds of copper.

The PEA shows IRR of over 50%, the capital cost for this mine is estimated to be very low at around 250 million. The NPV @ 8% for this is 500 million using the open pit concept, a underground mine will hav be required to take copper out of the depth it will have a higher capital cost.

My main concern for this stock is Pala investment owns a huge portion of it and insider ownership is fairly low, I am very worried about a hostile takeover offer. I believe that this may be stolen from management at highway robbery rates, fair market value on this stock should put the share price at around 12 dollars a share! I rate this a strong buy for medium risk accounts.


5) TSX:  WRN   Western Copper Corp
Shares Outstanding Fully Diluted: 102,624,920
Highlights: Lots of world class properties; Casino, Redstone, Carmacks, Island Copper. There most advanced property is the Carmacks in the Yukon, this is a small property, which is slated to produce about 40 million pounds a year for 6 years with a cash cost of around  .80 cents. Capital costs are very low at 150 million currently they are waiting for a water license which should be confirmed sometime in February.
The project that really grabs my attention is the Casino project it hosts 8 million oz of gold, 4.4 Billion pounds of copper and 475 million pounds of moly. This project will have a negative 2 cent cost per pound of copper, capital costs are going to be around 2.2 billion and the payback is only 3 years!
The Redstone property has a copper grade of 3.92%, it is a very early stage project currently they have proved up 2.9 billion pounds of copper and 9 million oz of silver, a economic study has not really been done yet, the deposit has enormous growth potential, There is currently a field study in conjunction with UBC that is going on to decide what the next step should be.
My main concern with Western Copper is they may not get the water license from the Yukon government; they still have plenty of projects in the pipelines this is a bargain stock and expect it to run if the license gets approved. I rate this a strong buy for low risk accounts. Recently the company has decided to spin out the projects this will give the company the proper valuations soon enough.

6) TSX: AZC  Augusta Resources
Shares Outstanding Fully dilated: 148.9 million

Highlights: There main project the Rosemount project is located in Arizona, Arizona is a mining state 2/3s of the US copper output originates from there. The project contains 7.3 billion pounds of copper, 159 million pounds of Moly, 66 million pounds of silver. Annual production should be 220 million pounds of copper with 4.7 million pounds of molybdenum, and 2.4 million ounces of silver, The mine life is going to be around 22 years. Production should start in 2013. Hudbay minerals recently bought into Augusta resources the project is almost fully financed.  Capital costs are very low as major infrastructure is in place (897 million).

Operating costs per pound are .62 cents after credits. Using long-term metal price assumptions of $1.85 per pound for copper, $12 per ounce for silver and $15 per pound for molybdenum, the project generates an NPV (5%) of US$1.2 billion. These are very conservative numbers compared to what the  other  mining companies are using. Most use this scenario as the low metal price case, and calculate the NPV using a 8% discount

My main concerns on this project is getting the permitting, a lot of people are against the construction of this mine, but I feel like it will get approved as it will be the largest copper mine in the US. The US needs to create jobs and this mine will do exactly that by employing 1500+ people with high paying jobs. I rate this a strong buy for medium risk accounts.

7) TSX:  CUV Curis Resources

Shares Outstanding Fully Diluted: 57,489,642

Highlights: New listing, hidden gem, Hunter Dickinson company, fully permitted, close to all major infrastructure, ISCR mining method.

The main Florence project hosts 2.84 billion lb of copper; it was a BHP project that was sold in the early 2000s due to low metal prices. The project is fully permitted and ready to be mined. 76-84 million lb of copper produced annually in full operation, cash costs should be around .70 cents. The project geology is very favorable; it can be mined using the ISCR method, which is very clean and great for the environment. Commercial copper production is planned for mid-2012. At a long-term copper price of $3.00, the Florence Copper Project achieves an IRR of 39% and an NPV of $550 million. Capital costs are expected to be around 250 million dollars, financing will not be a issue as this is a part of the HDI group. The company holds 1,342-acre in Arizona so there is plenty of future drilling potential.

My main concerns with this project are it is not too big, generally I am interested in super mining projects as they have the best chance of being taken over, the robust economics and the fact that it is a hidden gem made it hard to keep out of my Top copper picks. I rate this a strong buy for medium risk accounts

8) TSX-V:  YMI  Yellow head Mining

Shares Outstanding Fully Diluted: 41,878,110

Highlights: 4.4 Billion pounds, another low volume hidden gem, located in BC the epicenter of junior mining. Great relations with the first nations, good management team tons of mining claims in the surrounding areas.

The Harper Creek Project was discovered by  Noranda Exploration and US Steel in 1966. A PEA and Feasibility study should be forthcoming soon, very early stage for an advanced exploration play, lots of news pending, and many short-term catalysts. The deposit is also somewhat open and has tons of room for expansion, the grade on this project is fairly low @.30 but there are some very high grade super zones.

My main concerns for Yellow head are it’s a very early play, lots of risk but with risk comes great reward. The grades are low so it may become uneconomical to mine at lower prices. This is more of a buyout stock than a development play. I rate this a strong buy for risk accounts only.

9) TSX: MAI  Minera Andes

Shares Outstanding Fully Diluted:  287,536,121

Highlights: Rob McEwen, Rob McEwen, Rob McEwen. The mining kingpin is the CEO of this company; he also owns a whopping 33% of the company. The company has 2 flagship projects one is already in production so it should help finance the development of Los Azules there copper property.

This property is located in a politically stable area near the Argentina Chile border. It has a geologic make up similar to the worlds largest copper mines. Los Azules deposit is a classic Andean-style porphyry copper deposit, I do not expect any geologic hurdles on this project

This property hosts 10.3 Billion pounds of copper with a cutoff grade of 0.35% Cu. This is the largest undeveloped copper project that I am currently aware of.

Preliminary economics for the Los Azules project show an initial capital cost of $2.7 billion, the NPV @ a 8% discount give this monster a value of 4 billion! The company is working towards a preliminary feasibility study to be completed in 2012. The preliminary feasibility study will confirm whether the mineral resource at Los Azules can be mined economically, personally I am positive there will be a very positive results.

My only concern with this project is that it may not benefit from the super high copper prices, this maybe a next bull market stock. I do not see this project being developed and fully producing until 2015, personally I expect copper to level off by then as supply shortages will be met with multiple mine openings. I rate this a strong buy for low risk accounts that have a LONG term bullish outlook on copper.

10) TSX:  MIN Excelsior Mining

Shares Outstanding Fully Diluted: 55 Million

Highlights: Politically Stable area, Great Management, Massive project, 2/3 is ISR minable. Currently drilling 10,000m, Updated resource in Q2 2011 pending.

The Gunnison Copper Project is located in Arizona it is about 60 miles south of Tucson, the project hosts 4.77 billion pounds of copper with a cutoff of .30%. The project is relatively underexplored and there is tons of exploration upside. The project can be mined using the in-situ recovery methods, which will require less permitting and less capital expense versus open pit mining. Only 53,000M have been drilled to date on this property, I expect the company will keep drilling to boost the size of the project. This company is also relatively unheard of it is another new listing on the TSX-V. This is a VERY early stage advanced exploration project Economic studies are pending; I expect the project will come up with favorable economics.

My Main concerns with this project are its very early stage, much of the risk of a junior explorer have been taking out by proving up copper resources but it’s still a very junior company. I rate this a strong buy for high-risk accounts.

Now that I am finally done this number jargon filled article time for the summary! All of the companies listed above should do very well in the next 36 months. Most of them are large-scale projects that will be bought out, I am almost certain CUU will get bought out within the next 12 months. Most of these stocks will have a comparable growth profile to CUM on the TSX, the reason I left CUM out was because I feel it is almost fully valued.

Investing in advanced exploration plays in my experience has led to the highest gains with the least risk, most of the risk is financing risk and it can be avoided by finding projects with JVs or massive projects, the seniors usually only buyout the really large projects that are almost fully developed examples are TSX:CLM, Red back Mining, TSX:WTN. The CLM deal is valued at 4.9 billion, The Red back deal was valued at 7.1  the WTN deal is valued at over 3 billion, and the conclusion is seniors don’t mind paying up the ass for quality projects that will be economical even with low commodity prices.

I would like to point out this is my personal opinion and that you should always consult an investment advisor and do your own D&D.

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