I am repeating my growth pick from last year, Lara Exploration (LRA.CA). The small exploration company focuses on Latin America and is advancing its main copper project, Planalto in northern Brazil, towards a sale, highlights Adrian Day, editor of Global Analyst.
The stock has moved over the past year, up about 85%, on the back of the publication of a Preliminary Economic Assessment (PEA) on Planalto. Given the strong economics of this PEA, the next year promises additional strong returns as the project moves towards a sale.
The study estimated total production of 1.2 billion pounds of copper (as well as 111,000 ounces of gold) over an 18-year mine life from an open-pit mine. Initial capex is estimated at $546 million, with a 3.5-year payback. Life-of-mine, all-in sustaining costs are estimated at $5,920/tonne of copper, barely more than half the current market price. The after-tax net present value is estimated at $378 million, which is almost three times Lara’s market cap (and Lara has other assets).
However, these numbers are using the “base case” in the PEA, which is normal. Were one to use current market prices, then the NPV on Planalto is about four times Lara’s market cap.
Planalto may not rank with the very largest copper projects in terms of size and grade as world-class copper projects are rare. But even at its current size (without further exploration upside), it is still one of the 10 largest copper discoveries of the last 12 years, and one of the largest currently available for sale.
Its biggest advantage is being a simple, robust project in a region (the Carajás district) with top infrastructure, including a highway, power access, and an experienced labor force, plus a strong mining culture and nothing in the way of environmental and social obstacles. The PEA identified no red flags. In sum, it is a project that can move quickly through the permitting process. As Sprott Capital commented in a report, “this will be a mine.”
But Lara will not be building it. Various mining companies are visiting the data room and conducting site visits. Meanwhile, Lara will continue to conduct more drilling, primarily to move resources from the inferred to the measured category, which improves confidence in the resource.
The team, led by CEO Ingram, Chairman Miles Thompson, and VP Corporate Development Chris MacIntyre, was the team that successfully developed and sold the giant Cukaru Peki copper project in Serbia. We are confident that they will do it again. Lara continues to be a buy.
Recommended Action: Buy LRA.CA.
