By Steven Ralston, CFA
Yesterday, Colt Resources (GTP.V) and (COLTF) announced that the Preliminary Economic Assessment (PEA) has been completed on the company’s Tabuaço tungsten project. The PEA estimates that a capital investment of $86.7 million will be required to develop and recover 1.24 million MTU WO3. Based upon WO3 pricing of $400 per MTU, the project can generate revenues of $496 million and $196 million in net operating profits. Over the 12 year life of mine, the project’s post-tax IRR is estimated to be 30.7%.
Having been granted a Trial Mining License (aka Experimental Mining License) earlier this year, management plans to conduct a pilot mill test on approximately 20 metric tons of scheelite ore from the São Pedro das Águias deposit to verify the preferred processing option laid out in the PEA, which involves ore sorting and an acid tungsten recovery process. The company will develop an adit to the ore body to acquire the bulk sample. Also, the metallurgical test work will be used to optimize the process flow sheets for the design of the final processing plant and to substantiate the estimated 90.25% recovery rate.
Management plans on further exploration and drilling results to upgrade the inferred resources to the indicated category, along with potentially identifying additional resources. The assessment completed by SRK Consulting included the inferred mineral resources in the analysis. A feasibility study and an updated NI 43-101 compliant resource estimate are targeted for completion during the fourth quarter of 2014. The company expects to receive full mine permitting in 2015, complete mine construction in 2016 and achieve initial production in 2017.
Management is seeking a partner for the development of Tabuaço, which we would expect to be structured in a manner similar to the Santo António joint venture with the partner providing capital and further developing the project in order to earn a substantial stake in the project. In this manner, Colt Resources would be able to focus its capital resources on the development of the Boa Fé gold project in southern Portugal.
We reaffirm our Outperform rating. Our price target is $1.95, which is based on an estimated share value of attributable resources indicated by Colt’s NI 43-101-compliant mineral resource estimates and utilizes the current prices of gold and tungsten. We consider our valuation model to be conservative in that it also includes prospective developmental costs of both the company’s advanced stage projects in Portugal: the Boa Fé gold project and the Tabuaço tungsten project.
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