Northern Dynasty Minerals (NDM-T)
Buy NDM � back of the envelope (due to poor sentiment) NDM shares likely to move to ~C$20.91 � upper end of range (Ivanhoe like performance) would be minimum C$32.63 all the way to C$36.55
Excellent news - Anglo enters as 50:50 equal partner in the world class Pebble project in Alaska � entry cost is US$1.425 bln in staged payments
Undiscounted implied value for project is US$2.85 bln which compares to our DCF value of US$4.37 bln (Anglo paying P/NAV of 0.65x) � (this is the most useful metric at this time given resource expansion potential) � market cap of NDM closed yesterday at US$1.4 bln
� Validation of project by yet another major
� Financing risk declines dramatically
� Potentially easier project execution with two large players - Rio Tinto (~19.8% of NDM) and Anglo 50% of project
Sell Ivanhoe (IVN-T: UNDERPERFORM target C$7.50) � NDM has the better project, superior deal with Anglo, more exploration news coming, 100% USD costs vs IVN which is fully exposed to rising Chinese currency
Anglo will fund:
Pre-feas US$125 mln (by end of 2008)
Feasibility US$325 mln (by 2011)
Construction US$975 mln (prod�n start 2015)
We estimate capex for project of US$3.1 bln � at debt:equity of 70:30, project equity requirement is US$930 mln � therefore very unlikely that NDM would see further share dilution
Unlike Rio Tinto who paid US$1.5 bln (in staged payments) for ultimately 33.35% and certain privileges for acquiring IVN shares in October 2006 (importantly not a direct position in the project) implying a value of US$4.5 bln for the company (incl at the time US$132 mln in cash, value for Monywa, Bakyrchick, Entr�e Gold, coal assets, Asian Gold, Jinshan Gold, Olympus Pacific) � IVN today trades at an outrageous US$5.5 bln and faces significantly more hurdles than NDM
Oct 6/06 IVN shares were C$7.02 and then traded to ~C$12.00 after the announcement that Rio Tinto would invest in IVN shares
First trade of the day, at the open was 196,100 shares at 15.11. I would guess this was RIO, selling to the new JV partner. The reaction to the stock may have been a result of this action.
This is only speculation on my part, as I believe RIO is the only holder with that number of shares, and divesting it's interest may have been a condition of the JV agreement.
Also, it is potentially an indication that RIO had first chance, and declined...that has to be the obvious first offer.
I think the more likely scenario is that Rio signed on to this deal with Nak management, or at the very least, did not oppose it in the least. Rio will probably end up buying Nak at the appropriate time. Makes a ton of sense. In the meantime, it is a helluva stock investment for them and they keep their tentacles on the project as well. When the Nak CEO said a "consortium," I take it to mean that Rio is part and parcel of that consortium already, is now and will continue to be part of the ownership group.
If that were the case it would probably be percieved as a positive by the market, as the rumers would start flowing. Thanks for the reply, I was concerned about those shares hitting the open market. Is that a possability? I know RIO can use the money right now, especially with their new interest in Ivanho
I don't see that as a concern in terms of share price. If they were to want to sell their entire position, that deal would be arranged off the market between them and the large buyer at an agreed on price imo. It would just cross as a huge buy and sell all at once.