V.EPK 27 cents: MCap $31M, NPV $957M, IRR 20%

Danny Deadlock Danny Deadlock, TickerTrax
5 Comments| April 11, 2014

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This is a long report (19 pages) but necessary to fully understand the valuation and growth potential.
>>Below is the intro followed by a link to the full report in a PDF format.
 
The subject of this report is EPM’s Sevier Lake Sulfate of Potash (SOP) project in Utah.  SOP is a niche high value segment of the global potash industry (86% of the global supply is MOP). EPM may have the right elements to eventually become a takeover target and I address why in this report.  If nothing else the company should make for a very attractive mid to long term speculation within the agriculture industry.
 
“Pressures on Food Worse Than Anything Else”
 
In addition to the strong future market dynamics for SOP, an investor should take into consideration comments from Jeremy Grantham - a brilliant fund manager and investment strategist who called the Internet bubble and the housing bubble.
 
"I think oil, the metals and particularly the fertilizers, I would own—and the most important of all is food. The pressures on food are worse than anything else,"  [Wall St Journal, Sept 2013]
 

 
EPM MINING Ventures Inc. (TSX: V.EPK, Stock Forum) (27 cents)  - EPKMF on the OTCQX
www.epmmining.com
 
Shares Outstanding: 113 million / Market Cap. $31 million
 
Preliminary Feasibility Study (Q4/13)
 
Total Capital Costs: $378 million
Pre-Tax project Net Present Value (NPV) $957 million
After Tax Internal Rate of Return (IRR) 20%
Payback period 5.5 years / Life of Mine 30 years
 
While the potash world has struggled since the summer of 2013, there is one niche segment of potash (SOP) that commands a high price per tonne and has held up very well this past year (detailed below). EPM Mining owns one of the only pure Brine (SOP) deposits in the world - low operating cost and low capex.
 
EPK has a market cap of only $31 million (because few investors have ever heard of them) yet:
 
1) Sirius Minerals (publicly traded in London) just raised $72 million for a VERY expensive and high risk potash project in the UK. Their plan is to produce SOP and other products from a rock known as Polyhalite (I have provided more detail on this below). Sirius issued a huge amount of paper in this financing and now has a market cap in the range of $350 million!  The capital costs to build a mine are estimated at $2.2 Billion and the economics show an IRR of 21%
 
2) April 9th Stornoway Diamond (SWY.T $1.00) was able to secure one of the largest public company financings in Canadian history ($944 million) to build their northern Quebec Renard diamond mine. While the commodities are vastly different, the economics are not as much. Renard estimates an IRR of 20.3% over an 11 year mine life (EPK 20% IRR with a 30 year mine life). Renard shows a NPV of $683 million (EPK $957 million) and the Renard capital costs are close to $1 Billion versus EPK at less than half that.
 
The Stornoway financing is a combination of equity and debt (including forward sales of their diamond production). There was no mention of price on the equity portion of the financing but they will raise approx. $427 million through common share subscription receipts. Stornoway has approx. 150 million shares outstanding so assuming they raise this new capital near $1 per share, I will assume Stornoway might end up with almost 480 million shares outstanding.
 
VALUATION BENCH-MARKING
 
a) The Net Present Value (NPV) of the EPM Mining SOP project is $957 million with an IRR or 20% and capital costs less than $400 million. The mine life is 30 years.  The current market cap is $31 million.
 
b) Stornoway was able to raise almost $1 Billion with a mining project that has an 11 year mine life, IRR of 20% and a NPV of $683 million. The market cap will be in the range of $480 million after the financing.
 
c) Sirius Minerals with a prohibitively expensive capital cost of $2.2 Billion and IRR of 21% was still able to raise $72 million in March and boasts a $350 million market cap.
 
 
THE FULL REPORT IS TOO LARGE TO DISPLAY ON THIS WEB PAGE SO PLEASE CLICK HERE FOR THE .PDF VERSION [Here is the Link}

  ** TWITTER NOTE:  I maintain a twitter page at - twitter.com/tsxalerts  


Tags: INDUSTRIAL METALS & MINERALS

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Wisee
dmsb001, Name me two companies out there with IRR of > 20%, low capex and payback in < 2 years. Please don't mention RGX. They're going to run out of money before their plant ever gets built.
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April 15, 2014
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BlueSky88
BUY RGX NOW. LAST CHANCE.. PLEASE LOOK AND BE REWARDED.. IRR OF OVER 40%.. UNREAL INVESTMENT
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April 15, 2014
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Wisee
As one of the oldest members on Stockhouse, I have seen everything. Thank you Danny Deadlock's for introducing EPK. EPK possesses a 500% investment opportunity that does not come along too often. I strongly believe a major potash producer or Compass Minerals (CMP on NYSE) will buy EPK. Twelve Reasons Why: 1) Limited global supply of SOP 2) China - a major producer of SOP is still an net importer 3) Relative low CAPEX 4) 30 year mine life with potential for expansi...
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April 12, 2014
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dmsb001
I have news for you. A project in this industry with a 20% IRR has an excess value (beyond the capital invested) of approximately ZERO. There are an unlimited number of these kinds of project out there: high $ cap ex, long payback periods (>2 years), long project life (i.e. tremendous uncertainty) and mediocre (~20%ish) IRRs. Capital providers now require much higher returns for these kinds of projects. If so, the current equity value is probably truly negative. The entire project ret...
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April 14, 2014
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tcalandra
Danny, thank you on behalf of our TCR$ audience for a splendid choice in the area of specialty potash. A big winner for The Calandra Report, thanks to your research. Best, Thom at thomcalandra.com
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April 14, 2014
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