details - Kallpa SAB

EQUITY RESEARCH | Update
May 23rd, 2014
Alberto Arispe
Humberto León
Junior Mining Industry
Head of Research
(511) 630 7500
[email protected]
Analyst
(511) 630 7527
[email protected]
Candente Copper
Corp.
(LSE: DNT)
Candente Copper Corp.
Equity's Fair Value (USD MM)
89.61
Share's Fair Value (USD)
0.625
Previous Fair Value (Sep-13)
0.680
Recommendation
Hold
Market Capitalization (USD MM)
22.15
Fair Value
USD 0.625
HOLD
Dilution affects the FV, Canariaco in feasibility stage
Kallpa Securities SAB updates Candente Copper Corp.’s (DNT) valuation
model with a hold recommendation. We reduce our USD 0.680 fair value
per share (September 2013) to USD 0.625, which exceeds in 278.8% its
USD 0.165 market price as of closing of May 22nd, 2014.
0.165
Share's Market Price (USD)
278.8%
Upside
134.25
Shares Outstanding (MM)
147.30
Shares Outst. - Fully Diluted (MM)
We present this report in order to update our valuation model due to the
CAD 1.37 MM private placement, whose closing was announced on May
23rd, 2014.
0.15 - 0.27
Range 52 weeks (USD)
-34.0%
YTD Change
ADTV - LTM (USD 000')
13.72
Traded Volume - LTM (000' shares)
66.37
TSX
Main Trading: Toronto Stock Exchange
BVL, OTC
Secondary Stock Exchanges
What changed in our model?
We increased the number of shares in 9’131,516, in order to
consider the dilutive effect from the issuance of 6.80% of DNT’s
current equity.
ADTV: Average daily traded volume
We reduced the cash position in USD 3.21 MM, from USD 4.76
MM registered in our last report to USD 1.55 MM. This is due to the
USD 0.35 MM cash reduction registered in 1Q2014, net from the
USD 1.20 MM increase that we estimated as net funds from the
placement. It is worth mentioning that DNT paid finder’s fees for CAD
60,478.20 (USD 55,530.44).
LTM: Last twelve months
Source: Bloomberg, Candente Copper, Kallpa SAB
Chart N° 1: DNT vs S&P TSX-V
USD
S&P TSX-V
DNT
0.40
S&P TSX-V
1,200
1,150
0.35
Event: Private placement for CAD 1.37 MM
1,100
0.30
1,050
0.25
1,000
950
0.20
900
0.15
850
Apr-14
May-14
Mar-14
Feb-14
Jan-14
Dec-13
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
800
May-13
0.10
Source: Bloomberg
Chart N° 2: Resource's breakdown by metal
Copper
Gold
Joanne Freeze, CEO of DNT and Sean Waller, President of DNT,
subscribed 333,333 units and 210,000 units from the placement,
respectively.
10.8%
4.0%
20%
Source: Kallpa SAB
40%
DNT issued 9’131,516 units at CAD 0.15 per unit in order to obtain
gross funds for CAD 1.37 MM. Each unit will include 1 common share
and 0.5 warrant to purchase 1 common share. Each complete
warrant will allow to purchase additional DNT shares at CAD 0.25
each share until May 22nd, 2016.
Silver
85.2%
0%
On May 23rd, 2014, Candente Copper announced the closing of a nonbrokered private placement, for CAD 1’369,727.40. Among the highlights,
we have:
60%
80%
100%
The net funds from the placement will be used for the Environmental Impact
Assessment’s development, for current metallurgic studies, and for working
capital purposes. Let us recall that Canariaco Norte is currently developing
its Feasibility Study’s stage (with a 50% progress), which will update data
such as the CAPEX and the OPEX from the previous Pre-Feasibility study
and Preliminary Economic Assessment (PEA).
For these reasons, we reaffirm our hold recommendation over DNT’s
shares with a USD 0.625 fair value.
Junior Mining | Candente Copper Corp.
Production
2016e
2017e
2018e
2019e
Project's development status
Canariaco Norte
Copper (MM Lb.)
302
329
296
256
Gold (000' Oz.)
46.8
52.7
46.8
35.1
Silver (000' Oz.)
1,309
1,138
974
1,037
Cash cost (USD/Lb.)
1/
1.24
1.24
1.24
1.24
Cash cost (USD/Lb.)
2/
0.99
0.99
0.99
0.99
and 2/ Include costs inside and outside the mine, and charges for refining and
mineral treatment.
2/
Also includes credits for gold and silver sub-products.
2016e
Sales
2017e
Scoping
study
Construction
Production
Canariaco Norte
Deposit discovery
Canariaco Sur & Quebrada
Verde
Drillings
1/
Income Statement - USD MM
EIA
Feasibility
PreFeasibility
Exploration
Construction & Production
Development
2018e
Project
Stage/Status
Location
Canariaco Norte
Develop. - Feasibility
Lambayeque, Peru
Canariaco Sur
Exploration
Lambayeque, Peru
809.2
878.0
787.7
-375.1
-407.7
-366.9
Gross income
434.1
470.3
420.8
Quebrada Verde
Exploration
Lambayeque, Peru
Operating expenses
-6.00
-6.00
-6.00
Don Gregorio
Exploration
Cajamarca, Peru
EBITDA
428.1
464.3
414.8
La Grama
Exploration
Cajamarca, Peru
Cost of sales
Depreciation
-76.2
-76.6
-76.9
Miraflores
Exploration
La Libertad, Peru
EBIT
351.9
387.7
338.0
Las Pavas
Exploration
Ancash, Peru
Royalties
-22.6
-24.9
-21.7
El As de Zinc
Exploration
Huanuco, Peru
Profit sharing
-26.3
-29.0
-25.3
Arikepay
Exploration
Arequipa, Peru
-103.0
-113.5
-98.9
200.0
220.3
192.0
Taxes
Net income
Resource estimation - Canariaco Norte
Resource's breakdown by metal - Canariaco Norte
Technical report NI 43-101, AMEC (2010)
Copper
Canariaco Norte @ 0.3% Cu Cut-off
Ag g/t
B Lb
Cu Eq.
0.08
2.00
4.1
0.43
0.06
1.70
4.6
0.41
0.06
1.70
1.7
MT
Cu %
Au g/t
Measured
338.1
0.48
Indicated
414.3
Inferred
157.7
Candente Copper's valuation breakdown - USD MM
Mine/Project
Methodology
A. Canariaco Norte
DCF
B. Canariaco Norte
In Situ
Disc.
Value c/D
171.17
0.5x
85.58
4.95
0.5x
2.48
C. Canariaco Sur
-
-
-
D. Quebrada Verde
-
-
Total (A+B+C+D+E)
Equity's structure as of 1Q2014
Debt
Silver
85.2%
10.8%
4.0%
0%
20%
40%
60%
80%
100%
Candente Copper's valuation breakdown
Value
E. Cash
Gold
Cañariaco N. - DCF
Cañariaco N. - In Situ
Others
86.6%
8.2%
-
5.2%
1.55
89.61
USD MM
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Fair value
USD
-
Equity
Cash position (including the new issuance)
Shares outstanding - MM (including the new issuance)
Options outstanding - MM
Shares Fully Diluted - MM
62.68
Equity's value - USD MM
89.61
1.55
Shares outstanding - MM
143.38
143.38
Fair value - USD
0.625
13.05
Market price - USD
0.165
156.43
Potential upside - %
Main shareholders (according to Bloomberg)
Name
278.78%
Board & Management
Name
Position
Joanne Freeze
1.62%
Joanne Freeze
CEO & Chairman
Geology
Glover Steger Michael
0.35%
Sean Waller
President & Director
Mining
Waller Sean Ivor
0.29%
Cameron Dong
CFO
Finance
Larraín Vial SA
0.26%
Michael Thicke
Explorations VP & Director
Mining
Egusquiza Oliveros Jenny
0.18%
John Black
Director
Mining
Thicke Michael J.
0.14%
Andres Milla
Director
Finance
0.12%
George Elliott
Director
Finance
Wolf Nickel
Director
Metallurgy
Federico Oviedo
Director
Legal
Montagne Maria Eugenia
Others
www.kallpasab.com
%
97.04%
Background
Update
2
Junior Mining | Candente Copper Corp.
Appendix – Disclaimer
Analyst certification
The analyst that prepared this report hereby certifies that: i) the opinions and views expressed in this valuation report, in regard with
the issuer and with the company’s overview, reflected his/her personal opinion and ii) No part of his/her salary compensation was, is
or will be related directly or indirectly to the recommendations expressed in this report.
The economic compensation of the analyst that prepared this report is based in several factors, including but not limited to Kallpa
Securities SAB’s profitability and the profits generated by its different areas, including investment banking. In addition, the analyst
does not receive any kind of economic compensation from the companies he/she covers.
This valuation report was prepared by Kallpa Securities SAB’s employees that maintain the position of Analyst. Persons involved in
the elaboration of this report are authorized to maintain shares.
Share prices in this report are based on market prices as of closing of the day prior to the publication of this report, unless it is strictly
stated.
General statement
This document is for informative purposes only. Under no circumstances it should be used / be considered as an offer of sale or an
application of purchase of shares or any other securities mentioned in this document. The information herein has been obtained from
sources which are believed to be reliable, but Kallpa Securities SAB does not guarantee the trustfulness or accuracy of the content
of this report, or the future market values of shares or other securities mentioned in this document. The views and opinions
expressed in this document constitute our opinion at the time of this report and are subject to change without any notice. Kallpa
Securities SAB does not guarantee analysis updates before any change in the circumstances of the market. The products referred in
this document may not be available for purchase in some countries.
Kallpa Securities SAB has reasonably designed policies to prevent or to control the exchange of non-public information used by
areas such Research and Investment, Capital Markets, among others.
Definition of qualification ranges
Kallpa Securities SAB has 5 qualification ranges: Buy +, Buy, Hold, Sell and Sell - . The analyst will assign the coverage one of these
ranges.
Sell Sell
Hold
< - 40%
-40% to -20%
-20% to 0%
> + 40%
+20% to +40%
0% to +20%
Buy +
Buy
Hold
The range assigned to each company covered by the analyst in these reports is based on the analysis/monitoring Kallpa Securities
SAB has been developing for the company. In some cases, the analyst can express his/her short-term points of view to traders,
vendors and some Kallpa Securities SAB’s clients but this point of view may differ in time by market volatility and other factors.
The fair value calculated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts,
including but not limited to discounted cash flows, In Situ valuations or any other applicable methodology. It should be noted that the
publication of a fair value does not imply any guarantee that the value will be achieved.
www.kallpasab.com
Update
3
Junior Mining | Candente Copper Corp.
KALLPA SECURITIES SOCIEDAD AGENTE DE BOLSA
MANAGEMENT
Alberto Arispe
CEO
(511) 630 7500
[email protected]
COMMERCIAL
CAPITAL MARKETS
CORPORATE FINANCE
Enrique Hernández
Manager
(51 1) 630 7515
[email protected]
Ricardo Carrión
Manager
(51 1) 630 7500
[email protected]
Andrés Robles
Manager
(51 1) 630 7500
[email protected]
Edder Castro
Analyst
(51 1) 630 7529
[email protected]
Humberto León
Analyst
(51 1) 630 7527
[email protected]
Javier Frisancho
Trader
(51 1) 630 7517
[email protected]
Jorge Rodríguez
Trader
(51 1) 630 7518
[email protected]
EQUITY RESEARCH
Marco Contreras
Senior Analyst
(51 1) 630 7528
[email protected]
Sebastián Cruz
Analyst
(51 1) 630 7533
[email protected]
Fiorella Torres
Assistant
(51 1) 630 7500
[email protected]
TRADING
Eduardo Fernandini
Head Trader
(51 1) 630 7516
[email protected]
CHACARILLA OFFICE
Hernando Pastor
Representative
(51 1) 626 8700
[email protected]
MIRAFLORES OFFICE
Daniel Berger
Representative
(51 1) 652 6453
[email protected]
Gilberto Mora
Representative
(51 1) 652 6453
[email protected]
Walter León
Representative
(51 1) 243 8024
[email protected]
AREQUIPA OFFICE
Jesús Molina
Representative
(51 54) 272 937
[email protected]
Ricky García
Representative
(51 54) 272 937
[email protected]
OPERATIONS - SYSTEMS
Alan Noa
Head of Operations
(51 1) 630 7523
[email protected]
Mariano Bazán
Analyst - Treasury
(51 1) 630 7522
[email protected]
Ramiro Misari
Head of IT
(51 1) 630 7500
[email protected]
INTERNAL CONTROL
Elizabeth Cueva
Internal Control Officer
(51 1) 630 7521
[email protected]
www.kallpasab.com
Update
4