RELOAD: a mountain of copper, silver and gold

PXC has consolidated the former Empire copper mine (which recovered a startling 3.64% copper before WWII) and five other former mines/deposits located nearby into a potentially world-class copper, gold and silver project in Idaho. Our estimated DCF valuation is 60p/share, based on the initial near-surface copper-gold mine only. Given better funding conditions, the company is considering simultaneously developing a silver mine at its nearby Red Star resource. If greenlighted, we estimate a combined valuation of 95p/share (139p/share using recent highs in copper and silver prices).

• Strategy: PXC is focusing on maximising returns to its shareholders by developing the Empire mineral system in stages, to accelerate near-term cashflows. The first mine focuses on copper and gold, which we believe have positive outlooks due to battery technology/structural shortage (copper) and currency debasement (gold). Idaho is one of the world’s most favourable regions for mining investment.
• Starting gun fired: Following the £18.4m equity raise, a Feasibility Study for the Empire copper-gold mine is under way, and production is planned by end-2022. PXC is now also positioned to explore Empire’s much larger sulphide ore body at depth and move forward on Red Star, which should have almost equal priority.
• Upside: It is likely that only ca.1% of the ore body around Empire has been explored so far, and that it extends several km from the former Empire mine, north through Red Star to the former Horseshoe mine. Geologically, the deposit shows similarities with Peru’s Antamina, the world’s largest skarn-hosted copper mine.
• Risks: PXC is subject to the normal risks for a junior miner, including volatility in metal 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 of 60p/share for Empire only (8% discount rate) incorporates long-term copper, gold and silver prices of $3.60/lb, $1,825/oz and $27.00/oz, respectively. The 95p/share valuation for Empire and Red Star applies a cautious 15% discount rate to the latter (with an additional uplift of 23p per share at 8%, which could be justified by further successful development).