Coppermoly, The Laggard

This story features COPPERMOLY LIMITED. For more info SHARE ANALYSIS: COY

– Coppermoly has prospective ground in PNG and  Barrick is farming in to Coppermoly's leases
– The shares have lagged peers and the copper price
– Intersuisse initiates on Coppermoly with Speculative Buy rating

By Chris Shaw

Coppermoly Limited ((COY)) is a copper and gold explorer with a 100% interest in three exploration leases on New Britain island in Papua New Guinea. Intersuisse sees huge potential upside for Coppermoly and thus the stockbroker has initiated coverage with a Speculative Buy rating.

The three exploration leases held by Coppermoly -Simuku, Nakru and Talelumas- cover a total area of 170 square kilometres. Intersuisse notes in 2009 Coppermoly announced an inferred resource at Simuku of 200 million tonnes at 0.47% copper equivalent. 

This covers an area of less than one-third of the known surface mineralisation. Intersuisse has estimated the value of contained metal at Simuku is around $8.0 billion at present, based on inferred resources of 196Mt. There remains upside given porphyry deposits can be very large.

Porphyry deposits can also require significant drilling work, so here Coppermoly has been fortunate as the exploration leases have attracted attention. Intersuisse notes Barrick of Canada, the world's largest gold producer, is farming into the leases by spending $20 million, which would give Barrick a 72% interest.

What the agreement also means is Coppermoly won't need to contribute cash to the development of the leases until after a Bankable Feasibility Study is completed. Coppermoly will then be required to contribute, but Intersuisse points out the agreement allows for payments to be made out of project cash flows.

Since beginning on-site activities in May of 2010, Barrick has been active in exploring the leases, spending $9 million to the end of last year with a focus on the Nakru lease. Intersuisse expects drilling will restart in April, which coincides with the end of the wet season.

Drilling results to date at Nakru have been positive, Intersuisse noting the first hole drilled by Barrick last year recorded results of 214 metres at 0.92% copper and 0.33g/t gold at Nakru-1. Drilling also confirmed mineralisation extends more than 500 metres in strike length and to a depth of at least 200 metres. This implies better results at Nakru than at Simuku to date.

There is a risk further work by Barrick doesn't give good enough results to justify spending the total $20 million required to achieve a 72% interest in the leases. Barrick could then delay a final decision for the complete term of the farm-in agreement, which runs eight years.

Intersuisse points out Coppermoly is trying to mitigate such a risk by taking out two exploration leases at Powell and Fullebon. These cover a total of 1,500 square kilometres and give Coppermoly additional options for the future.

Factoring in known exploration results and what appears realistic at Simuku and Nakru, Intersuisse estimates Coppermoly at current levels is trading on an enterprise value (EV) of around $27 per tonne. This suggests the stock is cheap when compared to similar companies trading on EVs of between $57-$240 per tonne.

What also attracts Intersuisse to Coppermoly is that over the last six months the shares have failed to follow copper price rises. This is in contrast to share price performance prior to this period, where Coppermoly shares tended to follow copper price moves.

This may reflect a lack of market attention given limited project work during the wet season. A market capitalisation of only around $17 million also doesn't help, as the FNArena database shows no coverage of Coppermoly.

Shares in Coppermoly today are unchanged with a last sale price of $0.14. Over the past 12 months the stock has traded in a range of $0.085 to $0.185.

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