According to the PEA, the pre-tax net present value of the Dotson Ridge portion of Bokan Mountain is $577 million. This value is based upon some rather conservative assumptions. First of all, the future revenues are reduced based upon a 10% discount rate. In today's extremely low interest rate environment, a 10% discount rate is extremely high. Second, the prices for the rare earth elements which will be produced at Bokan Mountain are figured based upon the average price for these minerals over the last three years except for four minerals for which there are only reliable figures for the last two years. For those who worry that this may include inflated figures from the period after China threatened a cut off of exports of the rare earths, Ucore also provides figures based upon the average prices for the last six months and three months. These figures bracket the longer term price average and provide a measure of reassurance as to the propriety of using the three year average. Third, the estimated cost to get the mine and processing facility up and running includes a contingency of about 12%. Given the nature of the development, this ought to be sufficient.
So let's translate the net present value into a per share figure. Ucore has about 170 million shares on a fully diluted basis. That means that the Net Present Value for this portion of Bokan Mountain come to about $3.40 per share. Since the stock is selling at roughly 50 cents per share, this project should provide a significant up side to stockholders.
But simply translating the Net Present Value to a per share figure in this way does not accurately project the true value of the company for a number of reasons. First, the Dotson Ridge portion of Bokan does not include the entire site owned by Ucore at that location. There is no way now to accurately project how much, if anything, these other claim locations hold in the way of rare earth elements, but it would not need to be much to allow for a substantial profit for Ucore. Remember that the processing facities and the control and shipment areas will be built as part of the Dotson Ridge section of the project. This means that about 70% of the capital costs that might be needed for the new areas can be avoided by using those already in place.
Second, the mineral estimates used for Dotson Ridge do not include all portions of that section. Minerals below the areas that were drilled and those adjacent to the drill areas could be substantial. The point is that both the other claim areas and the other portions of the Dotson Ridge claim could provide a significant up side to the value of the project. The only down side is the potential drilling cost to examine the potential of these areas.
The total expected capital expenditures for the Dotson Ridge section is just over $220 million. This is not a small sum, but as mining ventures go, it not a large sum either. For Ucore, however, there are a number of advantages that it possesses when it comes to obtaining financing. First, the federal and the Alaska state governments both want the project to go ahead. Bokan would be the only domestic source of heavy rare earth elements that are needed for many defense and other critical applications. In one way or another, the could well be state or federal money put into the project. Second, there are a great many manufacturers who need the rare earths and who want a source other than the Chinese. These companies may also be willing to invest in the mine in order to develop a second source. Third, the economics of the mine are good enough that a large mining company may want to form a joint venture to develope this mine.
The simple truth is that the PEA is a big step towards the final development of Bokan Mountain. In my opinion, Ucore stock is a strong buy at its current price.
DISCLOSURE: I am long Ucore stock.
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