A Preliminary Economic Assessment (PEA) is the first opportunity an exploration/development mining company can provide to the market an independent assessment of the potential economic value of the company's mineral resource. A PEA is preliminary in nature and can include inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be characterized as mineral reserves, and as such, there is no certainty that the PEA results will be realized.
Understanding the preliminary aspects to a PEA, what % of the Net Present Value (NPV) of mineral resource should be considered in determining the appropriate Market Cap of a junior mining company? World Copper Ltd. recently announced a PEA for their Escalones resource in Chile. Escalones is the largest copper oxide project in development in Chile. The company reported an after tax NPV of $1.5 billion, assuming a copper price of $3.60 per pound, with an 8% discount. World Copper's market cap at the time of the announcement was approximately $60 million US. This market cap represents just over 4% of the NPV of the company's resource.
A PEA is a significant milestone for a project, one that most companies and projects in the mining space never achieve. Escalones and World Copper are entering an elite peer group of economically studied projects in South America. So significant is this achievement that listing all the projects comparable to Escalones in size and significance, dating back a decade, reveals a list of around twenty companies.
So, what's a fair benchmark at this monumental yet early stage of development? Circumstances are different with every project. A possible apples-to-apples comparison would be another junior Canadian miner, Marimaca Copper. Marimaca has a standalone project in Chile as well. Their project is very similar to Escalones, proposing copper oxide project that will use a similar heap leach processing method. Heap leach processing is much more environmentally friendly than that of the traditional sulphide floatation method, which is used by over 70% of the World's copper mines. As such, the "greener" mining methodology will help both companies navigate the mining permitting process smoothly.
In August of 2020, Marimaca reported a PEA with an after-tax NPV of $524 million, assuming a copper price of $3.15 per pound, with an 8% discount. In World Copper's Escalones PEA, if a $3.00 copper price is assumed, the NPV would be $1,009,000,000. Marimaca's market cap is currently $271 million. So why the huge discrepancy? When World Copper delivered its PEA, its market cap was just over 1/5 of Marimaca's, yet World Copper has a 92% higher NPV. The only answer this author can surmise is market awareness. Marimaca has been publicly traded since 2013, with almost a decade to build their story, and has an established base of institutional and retail investors. It's currently enjoying a market cap at right around 52% of its NPV. World Copper Ltd has been publicly trading for just over one year and does not yet possess a similar broad investor base.
Another junior miner with a PEA on a standalone copper project in Chile is Filo Mining which was originated in 2016. Filo reported an after tax NPV on their resource of $1.28 billion in early 2019. Their market cap is currently $1.265 billion. Almost 100% of their NPV! Filo has significant potential for a deep sulphide deposit, but Escalones, like Filo, is just scratching the surface, and has similar potential. With only one half of one of the four copper porphyrys believed to be on the Escalones property, drilled, there remains significant exploration potential at Escalones to expand on an already fantastic project.
Dr. Copper has never had greater significance with the evolution of the green revolution. A Preliminary Economic Assessment is an important step in determining the appropriate market value of a junior mining company. But it's also quite clear that informing market participants efficiently is just as important. Now that World Copper has the economics to back Escalones, astute mining investors should be seizing this amazing opportunity.