Los Andes Copper Ltd (TSX-V:LA) stock is undervalued at current levels following the recent positive pre-feasibility study (PFS) for its Vizcachitas copper project in Chile and its potential as a takeover target, according to analysts at Stonegate Capital Partners.
The PFS for the copper project, located 150 kilometres north of Santiago, revealed promising results, giving investors greater insight into the strong economics of the project, the analysts said in a note on Friday.
“The project is situated within Chile’s prolific Central Copper Belt which hosts a number of Tier 1 copper projects,” the analyst wrote.
“Vizcachitas is strategically located to be sold to a mining major should the company choose this route. Aiding this optionality is the mentioned 100% ownership of the project making any sales easier to navigate as well as the large size of the project making it enticing to majors.”
The analyst noted that Vizcachitas is one of the largest undeveloped copper projects in South America, with the PFS setting its proven and probable reserves at 10.9 billion pounds (lbs) of copper equivalent (CuEq) and increasing the amount of measured and indicated resources by 16% to 14.8 billion lbs CuEq, and the amount of inferred resources by 130% to 15.4 billion lbs CuEq.
This results in a post-tax 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.
The analysts cited a strong management team, a controlling shareholder and access to capital as other positive factors.
At current levels, they said Los Andes’ shares are trading at an embedded value/net present value ratio of 0.11 times versus 0.33 times for peers with comparable projects - based on a long-term copper price of $3.50 and an 8% discount rate.
“Due to the advanced stage of the deposit, significantly larger resource that includes a large portion of proven and probable reserves (~9.6bn lbs.), the enticing potential as a takeover candidate from a major, and that only Filo Mining Corp (OTCQX:FLMMF, TSX-V:FIL) has also completed a PFS we believe the company deserves to trade at a premium to comps, applying a multiple range of .35x to .45x with a midpoint of .40x,” the analysts concluded.
That would result in a share price of C$38.86 to C$50.01 with a midpoint of C$44.44, the analysts calculated, bringing it more in line with the other large projects that have also completed the PFS stage.
Los Andes’ shares closed 1.5% higher at C$13.80 on Friday.
Contact the author at stephen.gunnion@proactiveinvestors.com