Los Andes Copper Ltd (TSX-V:LA) is undervalued following the release of a preliminary feasibility study for its Vizcachitas copper project in Chile, according to analysts at Stonegate Capital Partners.
The PFS showed ”‘very promising results,” setting the proven and probable reserves at 10.9 billion pounds of copper equivalent, increasing the amount of measured and indicated resources by 16% to 14.8 billion pounds and more than doubling the inferred resources to 15.4 billion pounds.
“With a mine life of 26 years, the location allows for operations 365 days per year,” analysts wrote in a note released Tuesday. “... This results in a post-tax net present value (NPV) of $2.8 billion assuming a copper price of $3.68 per pound and a discount rate of 8%. The payback period is estimated at 2.5 years after initial production."
However, Los Andes Copper's enterprise value/NPV of .11x versus average comps of .29x. That’s well below what it should be trading at, according to Stonegate.
“Due to the advanced stage of the deposit, significantly larger resource deposit, enticing potential as a takeover candidate from a major and the positive results from the PFS we believe the company deserves to trade at a premium to comps, applying a multiple range of .30x to .40x with a midpoint of .35x,” analysts said.
That results in a valuation range of C$34.04 to C$45.66 with a midpoint of C$39.85. Shares of Los Andes traded 1.2% lower at $11.30 Wednesday morning in Toronto.
The firm also pointed to Los Andes’ available capital given the company’s recent $10 million bought deal offering
“Given the early stage that the Vizcachitas project is in, we find it very encouraging that Los Andes is able to access large blocks of capital,” analysts said. “This capital will be used to support the planned drilling and corporate costs.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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