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Calm down, we will turn to our own Avanti Communications (LSE:AVN) next week as it reports results. There is a legitimate bull vs Bear debate here too. But today’s Avanti is a TSX listed miner capitalised at $37 million. It is pure comedy.
The Avanti Communications Bull vs Bear denate is here.
Now back to Avanti Mining (TSXV:AVT), which really is a dog.
First is cash. Or lack of it. The companies has a C$20 million loan due for repayment in June 2013. It had ( at 30th Sept 2012 cash minus trade payables of c$5 million. It appears to be burning cash at a rate of at least C$750,000 per month and that is not helped by directors & key managers billing fees and services of c$600,000 pcm. Admittedly a good portion of that is accrued but it is a cash drain none the less. Needless to say it has no revenue. I think you can do your maths.
But it has a great flagship project with which to tantalise investors on which it has just released a Feasibility Study. I quote from the excellent Roger Bade of Whitman Howard:
Avanti Mining (AVT-TSX-V)Yet another challenging use for the term “robust economics” for the updated National Instrument 43-101 compliant Feasibility Study (FS) for their 100% owned Kitsault molybdenum project in British Colombia, Canada. An after-tax Internal Rate of Return of 11.5% and an after-tax Net Present Value of only $67m is not much to show for this US$1,044m ($938m up front) 40,000 tonnes per day open pit mine and mill. A US$12.50 per pound (/lb.) moly price was used for this estimation. Considering the current spot price for moly is only $11/lb., this appears aggressive. The previous FS was undertaken in 2010. Since then a 13% increase in capital costs has been seen, whilst the investigation into the desulphidation of tailings for environmental reasons has seen a potential 39% recovery of the silver previously deemed unrecoverable.
And so if just over a billion dollars is spent you get a project with a Net Present Value of $67 million IF you assume that the moly price during the entire Life of Mine is $1.50 per pound higher than it actually is today. Yeah right.
If, on this dressed up scenario, the IRR is a dismal 11.5% you would be bonkers to be funding this project. Kitsault is an old mine, shut down in 19782 in a era of very low moly prices. Avanti none the less described it when buying it in October 2008 as “world class.” Whatever. The words lifestyle business and screaming short spring to mind.
Tom Winnifrith writes for 10 UK and US publications and links to all of hos artocles can be found on his website www.TomWinnifrith.com – you can also follow him on twitter @tomwinnifrith
Tom also runs the finest Celtic Italian restaurant in London, Clerkenwell’s Real Man Pizza Company offering far more than just pizza as you can see here
