Korea Resources Corp. and LS-Nikko Copper are exercising their option to take a 20% stake in Cobre Panama, a large open-pit copper development project in Panama owned by Inmet Mining (IMN-T).
The two companies, partners in a joint-venture called Korea Panama Mining Corp., will be required to invest about US$155 million for their stake in the project. Under the option agreement, KPMC also gets 20% of the off-take rights at market terms.
The announcement follows news on Jan. 3 that the government of Panama approved the project’s Environmental and Social Impact Assessment, including mining operations and related infrastructure, a port facility and a coal-fired power plant.
Orest Wowkodaw, a mining analyst at Canaccord Genuity in Toronto has a buy rating on Inmet with a 12-month target price of $80 per share. “We view the ESIA approval as very positive and a key catalyst for Inmet shares,” he wrote in a note on Jan. 3. “Now that Inmet has the ESIA approval in hand, we anticipate JV discussions with other potential partners (Inmet plans to divest its stake to the 40-50% level) to crystallize over the next few months. A project update that includes capital and operating costs is anticipated to be completed in early 2012. The [roughly] US$6.0 billion project is anticipated to begin production in 2016.”
He noted that Inmet is currently trading at a 2012E and 2013E EV/EBITDA of 4.8x and 3.5x, and at a 30.6% discount to his 8% NPV of C$97.90 per share, which compares with his mid-cap base metal producer coverage universe average of 6.2x, 4.6x, and at a 39.6% discount to NPV.
Cobre Panama is 120 km west of Panama City and 20 km from the Caribbean Sea coast in Colon province. Access to the project is via the Pan-American Highway system from Panama City to Penonome, surfaced all-weather roads to Llano Grande, and gravel roads via the town of Coclecito.
At presstime in Toronto Inmet was trading at $66.11 per share within a 52-week range of $39.88-$82.14 per share. Inmet has about 69.3 million shares outstanding.
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