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12/11/12

AQM Copper (AQM,v) and its PEA

The long-delayed PEA (scoping study in old money) from AQM Copper (AQM.v) on its 50/50 (with Teck) Zafranal project hit the wires today. Normally with delayed 43-101 reports one fears the worst but I have to say, even through the rose-tinted specs of owning some stock (that's my disclosure folks, long AQM and underwater to boot) it's really not that bad. The capex hurdle at $1.5Bn is reasonable for this type of 80k tpd copper machine, there are plenty of conservative looking parameters factored in and even at a $2.70/lb copper price and an 8% discount, a baseline if ever there were one, the IRR comes out over 11% (though I'm quite sure the company will want you to home in on the parameters of the $3/lb Cu price). Having been to the site, I can also say there's plenty of optimization potential here as well (costs could drop, resource count rise, mine life improve etc etc). 

For a project in a good location in Peru (community issues are unlikely, esp as the plan includes a de-sal plant for water supply) it's really not bad and the current AQM share price, giving the company a market cap of $11m with half of that covered by cash treasury, looks very cheap compared to 50% ownership of this thing. 

The problems AQM has are 1) it needs its big partner Teck to move forward and assign budget to Zafranal in 2013, 2) it'll need more cash than it has to fund its 50% to pre-feas and beyond 3) the low share price means dilution on the way. Those are problems and must be considered, but all the same its current beaten-to-an-inch-of-its-life market cap compares to 50% of the low-end NPV, which is over $400m. That's a steep discount, so if the copper market picks up again AQM could supply a decent percentage win from this low price. I'm holding my shares through and consider them a no time limit call option on copper from now on.

ps: published at 09:20am local time, 10 minutes before the opening bell.