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Excelsior Mining: THE INVESTMENT CASE

Excelsior Mining advancing toward low-cost, high-margin copper production in Arizona

Excelsior released a feasibility study showing its Gunnison Copper Project with a pre-tax NPV of US$1.17bn.
Excelsior Mining advancing toward low-cost, high-margin copper production in Arizona
INVESTMENT OVERVIEW: MIN The Big Picture
Excelsior is developing the Gunnison copper project

Shares in Excelsior Mining Corp. (TSE:MIN, OTC:EXMGF) have rallied strongly over the past 15 months, rising some 300% to a current price of C$0.80.

What is behind the performance, and is there more to come?  The numbers tell the story.

Excelsior released a feasibility study at the end of 2016 showing its Gunnison Copper Project with a pre-tax NPV of US$1.17bn. Yet getting it up and running will take just US$46.9 mln. 

For those unfamiliar with the typical ratio of capital spending to NPV in the mining world, putting a billion-dollar project into production for under $50 million is exceedingly rare.

Low capital cost...

The low capital cost is largely explained by the acquisition of a processing plant for pennies on the dollar from a bankrupt neighbour in late 2015.

But it’s also due in part to the reason the company’s shares seem to trade at a discount: the method to be used for extracting the copper.

Excelsior plans to use in-situ leaching to mine the copper at Gunnison, an extraction method well-known to uranium miners, but less common in the copper world – only a handful of copper mines worldwide use in-situ leaching.

Clearly, there have been factors offsetting any caution regarding the mining method to fuel the big move in Excelsior shares, the 4.5bn pound probable copper reserve at Gunnison being among the most important.  Copper’s rally of around 30% in price over the past 6 months hasn’t hurt either.

Then there are comparisons...

Atalaya (LON:ATYM) has 1.5bn pounds in reserve and a market capitalisation of £146.3mln (US$184 mln).  Atalaya is now in production following some finessing of the Spanish legal system.

Central Asia Metals (LON:CAML), which is also in production, has a recoverable copper resource of just over 500 mln pounds and a market capitalisation of £240 mln (US$300 mln).

Both companies are useful for estimating the valuation Excelsior might expect – or expect to exceed – once it reaches production.  At present, Excelsior’s market capitalization is around US$100 mln.

But a couple of hurdles still stand between today and those potential higher valuations. One is permitting.

“There are two main operating permits we need,” says Stephen Twyerould, Excelsior Mining’s chief executive.

“We need the Arizona state permit and the Federal EPA permit. We’re working through the technical review process with the relevant agencies on that, and we fully expect to finalise that permitting process in the second or third quarter of this year.”

The other hurdle is funding..

Again, given the NPV of the project, the amount of up-front capital required is comparatively small. And in developing the project to its current status, Excelsior has enjoyed the support of cornerstone investor Greenstone Capital, which has put US$36 mln into the company so far.

“The construction capital is very low, so the risk of not financing is also low,” says Twyerould.

The financing should sort itself out given Gunnison’s compelling return proposition. 

According to the feasibility study, the internal rate of return is around 48% pre-tax and 40% post-tax, with post-tax payback taking just 2.8 years.

“We want to do as much of the raise as we can in debt,” says Twyerould. That is understandable, though with the recent strength in Excelsior’s share price a project financing partially involving equity would seem possible as well.

Overall, the project is slated to be in production for 24 years, with annual output set at 25 mln pounds of copper cathode at the start, rising in stages to 75 mln pounds and then to 125 mln pounds as new wells and a new and scalable SX-EW plant are added, paid for from internal cash flow.

The all-in cost per pound of copper produced is modelled at US$1.23, allowing plenty of margin even if the copper price drops back, which seems unlikely in the current context of plans for spending on American infrastructure and ongoing growth in the Chinese economy.

The risk from the market’s point of view seems to lie in the mining process.

Once Excelsior’s mine plan is fully validated with permits mid-2017 and production in 2018, however, a significant re-rating could be in the cards.



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