MINING MARKETS AND INVESTMENT NEWS — Analyst weighs Tenke’s risk factors in Africa

Without ignoring various financial and political risk factors, the mining division of HSBC James Capel has issued a “buy” recommendation for Tenke Mining (TNK-T), based on the fundamentals of the its key asset, the Tenke Fungurume copper-cobalt deposits in the Democratic Republic of Congo (DRC).

Tenke holds a 55% interest in the project, now at the feasibility stage.

The study is based on oxide reserves totalling 84.5 million at 3.27% copper and 0.31% cobalt. The resource base is much higher, at 519.7 million tonnes grading 3.6% copper and 0.28% cobalt.

“Tenke-Fungurume is a world-class asset,” the firm’s mining group notes in a research report. “Although investment in Tenke is inextricably linked with the risk of investing in the DRC, the financial returns of the project are very attractive. The mining and processing methods are conventional and the deposits have a relatively simple metallurgy.”

HSBC James Capel notes that Tenke is negotiating with major mining companies to form a partnership to develop the deposits. At the time of writing, Tenke shares were trading below $3. The firm believes Tenke Mining will farm-out to a major company shortly and, accordingly, it valued Tenke’s stock at $4 to $5 per share.

The greatest risk factor, Capel states, is the long-term stability of the DRC. In addition, Tenke must pay Gecamines (a state-owned mining company) US$200 million by May 2003, and is required to secure financing by June of this year to avoid risk of default, hence the negotiations with majors interested in participating in the project. But Capel also notes that the technical risk of the project is low and the operation will be at the bottom of the cost curve of global producers.