MWE.TO - Mawson West Ltd.

[ItsAValueTrap]

The debt carries an interest rate of 12%.  The effective interest rate may be higher once you factor in the warrants and dilution* from the private placement.  (*Assuming that you believe that the shares were sold at a fair price or below market value.)

 

Any company paying more than 10% interest is highly distressed.  You would rather prefer to issue debt below 10%, do preferred shares, sell overpriced shares, get financing via a joint venture, sell a royalty, etc.  Normal companies borrow at very low interest rates.  You only pay usurious interest rates as a last resort.

 

According to the reserve update (http://www.mawsonwest.com/IRM/Company/ShowPage.aspx/PDFs/1664-30732455/KapuloMineralReservesUpdate), MWE is estimating 122,000 tonnes of copper will be recovered from Kapulo over a mine life of 6.3 years.  The estimated cash cost per pound is $1.92, or $4,233 per tonne.  Using the current copper price of $6,445 (https://www.lme.com/metals/non-ferrous/copper/#tab2) and an estimated tax rate of 36%, I am calculating the total after tax cash flow to be $172.72 million.  This equates to an average annual after tax cash flow of $27.465 million over the 6.3 year mine life. 

 

Using a discount rate of 15%, I calculate a NPV of $107 million.  According to page 5 of the presentation on the Galena financing, there will be a maximum of 484.8 million diluted shares outstanding.  This still gets me to a value of Kapulo of 22 cents per share.  The current stock price is $0.055 CAD.  Seems like there is still some decent upside here.  Additionally, the reserves at Kapulo are now 86% proven. 

 

If they are sitting on something so valuable, they would not have to pay such a high cost of capital.  Their numbers will likely turn out to be massively overoptimistic.  That is the reality of junior mining.

 

If you want to learn something about resource investing... look at the threads on:

ATPG

sandstorm metals and energy

alderon (in the altius thread)

sandridge energy

go to valueinvestorsclub.com and look at old resource writeups... e.g. ATPG, GORO, gold resources, LODE, MILL

etc. etc.

[siddharth18]

90% decline YTD...wow...it just seems there's so much trouble with commodity producers (be it oil, or gold or silver or copper) and yet it manages to find suckers.

 

Is it even worth developing a circle of competence in mining? I mean this is a sector that has an unrivaled history of destroying value, over-promising & under-delivering, being at the mercy of commodity prices. The only ones seem to be getting rich are the insiders/execs, on the backs of shareholders. The problem is your DCF calculator would be right and, in theory, the company could be called undervalued, but there are so many independent moving parts (commodity prices, financing, operational issues, geopolitical factors) that could bring the whole company to a halt.

 

 

The chances of anyone finding margin of safety or any value in mining seems too remote. Better to stick with good companies (or at least companies in good sectors), no?

[thepupil]

1. I think this is a zero,  the base case with these things is always -100%

 

2. the people that know the most are management and the rescue finance guys

 

3. the rescue financing guys are injecting equity at 0.12 and their warrants are struck at 0.15. the equity ($5MM) is not a completely immaterial portion of the financing package and if that is a zero it will wipe out a large portion of the profit from interest on the sopranos loans

 

5. I bought a little at 0.05 on the day they announced the financing. this is an opportunity to coinvest in the equity sliver of  PE rescue/distressed financing for 41% of what the PE firm is paying and at zero fees. size accordingly, roll the dice, and be ready for the almost inevitable tax loss.

[ItsAValueTrap]

Is it even worth developing a circle of competence in mining?

 

I wish I had learned about cable companies instead.