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Hardman & Co

Phoenix Copper Ltd Potential world-class copper-gold-silver mine

Phoenix Copper Ltd (LON:PXC) has consolidated the former Empire mine (which recovered a phenomenal 3.64% copper before WWII suspension), three other former mines and two deposits into a potentially world-class copper/precious metals project located in one of the most favourable mining regions, Idaho, US. The planned initial silver mine will provide cashflows to develop the extensive copper-gold-zinc mineralisation in the rest of the ore body. Our estimated DCF valuation (based on silver mine only) is 31p/share. Substantial development work has been done on a first-stage (shallow oxide ore) copper mine, for which we estimate a £17.3m NPV if greenlighted today.

  • Strategy: PXC focuses on near-term cashflow and will maximise returns/minimise risk to shareholders by developing the Empire system in stages. The project’s polymetallic nature has enabled PXC to change the phasing of mine development, substituting a silver mine for the previously planned open pit copper mine.
  • Silver mine: Careful mine planning has reduced the capital cost to $31.8m, versus the $51m cost for the first copper mine. The new plan sees 23.0m oz silver equivalent (Ag Eq.) during 2022-31, with cash production costs of $7.60/oz Ag Eq. Permitting is under way, and commissioning is expected in 2022.
  • Major upside potential: Only ca.1% of Empire’s potential ore system has so far been explored. Geologically, the deposit shows similarities with Antamina in Peru, the world’s largest skarn-hosted copper mine. Further work will confirm whether there are additional copper-tungsten-molybdenum porphyry resources at depth.
  • Risks: PXC is subject to the normal risks for a junior miner, including volatility in silver prices, identifying additional ore resources, operational risks in executing the mining plan, running processing facilities, and funding risks. However, we believe that jurisdictional risk is significantly reduced in PXC’s case.
  • Investment summary: Our DCF valuation is 31p/share, based solely on the silver mine, a cautious (for now) 15% discount rate and a long-term silver price of $19.00/oz. Phoenix Copper’s share price is highly geared to the upside thesis for silver (and copper), with each $1.00/oz adding an estimated 6.2p-6.3p/share.

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