NGEx, large upside of several hundreds of % to be expected in the near future, with relatively low risks.

2015-11-26 13:36, Edited at: 2015-11-27 10:19

Summary • Large deposits of copper • Low production cost • Low geopolitical risk • Upside in the potential hundreds of % (example given below of 4.25 CAD/share or 27.9 SEK/share) • More potential resources to be found with new future updates

By John Nilsson (Civ. Eng. ) 2015-11-25

Summary

· Large deposits of copper

· Low production cost

· Low geopolitical risk

· Upside in the potential hundreds of % (example given below of 4.25 CAD/share or 27.9 SEK/share)

· More potential resources to be found with new future updates

With the new inferred resources updates of their Filo del Sol project new updated break downs of the potential assets in all of the projects were needed. To do so the inferred and indicated resources have been compiled and valued at the exchange prices of copper (Cu), silver (Ag) and gold prices as of the 24th of November 2015. These are 2.13 USD/lb, 14 USD/oz and 1075 USD/oz respectively.

The upside of NGEx is enormous, unfortunately the mining industry is in a bearish phase and interest in new prospects have been low. The net market value of NGEx assets depends on two main factor, production costs and recovery rate as seen below (in billion USD):

Share capital and market value

NGEx current market cap as of november 25th 2015 is barely 150 million CAD (112 million USD, 985 million SEK, roughly 0.8 CAD). The net resource value varies from 31.98 billion USD in the most bullish scenario shown above to negative values in less than plausible bearish scenarios where a combination of drastically increased production costs are combined with even lower metal prices than today’s already bullish market. As can be understood, the upside from today’s low market cap is very significant.

There are 193 260 494 shares and outstanding options as of November 25th 2015. The possibility of new share rights being issued is however very likely in the future to finance operating and prospecting costs. This is a normal and standard procedure in the prospecting market. However with the assumption that Cu recovery rate lands at 80% with 100% net production cost, each existing share reflects an asset value of 85 CAD (64 USD, 558 SEK). Understandably the full value of the mineral reserves cannot be fully given to NGEx as there is no ongoing production, but only if solely considering 5% of those mineral values as a fair market cap for NGEx when the company sells its assets will allow a market price per share of 4.25 CAD (27.9 SEK). Se further belowin the "net value" section for assumptions and calculations made.

NGEx’s prospects relative to similar active mines

It can, to the uninitiated, be largely difficult to grasp the size of the available prospects, therefore it is interesting to compare them to other working mines in the world.

The prospect have following copper contents in tonnes (metric tons).

· Los Helandos: 8 million tonnes of indicated Cu + 5.8 million tonnes of inferred Cu

· Josemaria: 3.8 million tonnes of indicated Cu + 0.9 million tonnes of inferred Cu

· Filo del Sol: 1.5 million tonnes of inferred Cu

The world’s mine with the largest total reserves is the Escondia mine in Chile with total proven and probable reserves of 34.7 million tonnes of copper, of which 22.5 million tonnes is estimated to be recoverable. However the world’s 10th largest operated mine by proven reserve is the Grasberg mine in the Papua province of Indonesia. The mine's open pit and underground copper reserves as of December 2012 were estimated at 10.47 million tonnes. The mine produced 315,246t of copper in 2012.

Los Helandos’ 8 million + 5.8 million tonnes of total reserves is therefore a large deposit that could plausibly be in the 10 largest mines in the world given. The 3 projects cumulated definitely places NGEx’s inferred and indicated assets in the big league of copper deposits reserves.

Evaluating the three ongoing prospects

Raw value

These are the estimates that are to be found on the official page of NGEx.

Los Helados, NGEx stakeholder part of 60%:

Indicated resources:
Cu: 37.488 billion USD (17.6 B lbs)
Ag: 1.295 billion USD (92.5 M oz)
Au: 10.857 billion USD (10.1 M oz)
total: 49.640 billion USD (Ngexs part: 29.784 billion USD), Cu equivalent grade of 0.48%

Inferred resources: Cu: 12.354 billion USD (5.8 B lbs)
Ag: 0.491 billion USD (35.1 M oz)
Au: 2.903 billion USD (2.7 M oz)
Total: 15,748 billion USD (NGExs part: 9,445 billion USD), Cu equivalent grade of 0.39%

Josemaria, NGEx stakeholder part of 60%:

Indicated resources: Cu: 12.972 billion USD (6.09 B lbs)
Ag: 0.408 billion USD (29.12 M oz)
Au: 7.041 billion USD (6.55 M oz)
total: 20.421 billion USD (NGExs part: 12.253 billion USD), Cu equivalent grade of 0.53%

Inferred resources:
Cu: 4.132 billion USD (1.94 B lbs)
Ag: 0.132 billion USD (9.42 M oz)
Au: 1.885 billion USD (1.75 M oz)
Total: 6.149 billion USD (NGEx part: 3.690 billion USD), Cu equivalent grade of 0.41%

Filo del Sol, NGEx stakeholder part of 100%

ONLY Inferred resources: Cu: 7.019 billion USD (3.3 B lbs)
Ag: 2.100 billion USD (149.8 M oz)
Au: 0.430 billion USD (4.0 M oz)
Total: 9.519 billion USD. Cu equivalent grade of 0.69%

Summary:
NGEx raw part of Indicated resources: 42.037 billion USD
NGEx raw part of Inferred resources: 22.654 billion USD

Net value

To assess a net value of resources in a prospecting company is always difficult and subject to many informed guesses as well as uncertainties. When it comes to production/transportation costs for copper new information available online points out that the consensus average cost for copper mines lies close to 1.3 USD/lb, which also takes in account profits-deductions made by secondary metals, in this case often gold, silver or molybdenum.

However the technical report done in 2014 on the Los Helandos prospect (http://www.ngexresources.com/i/pdf/2014-11-25_LosHelados_NI-43-101.pdf; page 282) does give out valuable clues and the assumptions are therefore based on that report and its relatively low net production cost of 1.1 USD/lb of copper. Fixed/static costs are included and due to the Josemaria and Filo del Sol projects being smaller, those will naturally increase the production cost for these prospects. The assumption of a cost of 1.2 USD/lb Cu for Josemaria and 1.25 USD/lb for Filo del Sol have consequently been made. The comparatively low production cost increase of Filo del Sol takes in account the high Cu equivalent grade of 0.69%. Those aforementioned production costs are defined as 100% of the base production cost.

To reflect uncertainty in both the estimate of the resources and the evolution of metal prices a grid of scenarios have been calculated. The scenarios depend on the production price per lbs from 60% to 150% of the base production costs. This variance of the production price permits furthermore to take in account the changes in market value of the recovered metals resources. The recovery rate of the resources is evaluated from 30% to 100% (100% equals to full recovery of all indicated and inferred estimated resources as presented by NGEx).

Following grid of scenarios were calculated, numbers are in billion USD and both Los Helandos’ and Josemaria’s resources are calculated at NGEx stakeholder part of 60% while Filo del Sol is calculated at 100%. No distinction were made between inferred and indicated resources, instead the Cu recovery rate expressed in % should serve as a plausible mean of estimation.

Cu revovery rate\ % of net prod cost60%70%80%90%100%110%120%130%140%150%100%

31,9829,4426,9124,3721,8419,3016,7714,2311,709,1690%27,2624,7222,1919,6517,1214,5812,059,516,984,4480%22,5420,0017,4714,9312,409,867,334,792,26-0,2870%17,8215,2912,7510,227685,142,610,07-2,46-5,0060%13,1010,578,035,502,960,43-2,11-4,64-7,18-9,7150%8,385,853,310,78-1,76-4,29-6,83-9,36-11,90-14,4340%3,661,13-1,41-3,94-6,48-9,01-11,55-14,08-16,62-19,1530%-1,05-6,59-6,12-8,66-11,19-13,73-16,26-18,80-21,33-23,87
As visible on the above excel grid with 100% of net production cost and a recovery rate of 80%, the market value of NGEx’s assets is 12.4 billion USD. The sensitivity is low and the high likeliness of increased Cu, Ag and Au prices in the future expressed by experts (reflected here as lower % of base production cost) shows a very potent and possible mining complex at these locations.

It is to be noted as of the 25th of November 2015 that the market cap value of NGEx is at roughly 0.112 billion USD (150 million CAD), which is only a small fraction of the plausible resource value of these three prospects. NGEx is a prospection company and should not or cannot be valued at those resources full value, nevertheless NGEx’s current market cap value is considerably undervalued.

The mining industry as a whole has suffered from declining metal prices and NGEx has obviously suffered its share in that decline. However the fundamentals speak for themselves and an upside of several hundred of % is quite possible when copper prices start to rise again and investors seek new interesting prospects to acquire. Risk lie with every prospecting company, these are amongst others failure to prove new resources, downturn in the global economy, increase in productions costs, etc. More of those risks can be read in the aforementioned technical report. These risks are though not unique to this project and are outweighed by the real and very plausible possibility of large mineral deposits with high market values.

Sources

For Los Helandos the following calculations were made:

Cu recovery rate Indicated resources in B $Inferred resources in B $cost of 1.1 USD/lbNet in B USD100%22.4937.412415.44414.46190%20.243526.6711615.44411.47180%17.994245.9299215.4448.48070%15.744965.1886815.4445.49060%13.495684.4474415.4442.49950%11.24643.706215.444-0.49140%8.997122.9649615.444-3.48230%6.747842.2237215.444-6.472For Josemaria the following calculations were made:

Cu recovery rateIndicated resources in B $Inferred resources in B $cost of 1.2 USD/lbNet in B USD100%7.783.2.47925.78164.48190%7.004882.231285.78163.45580%6.226561.983365.78162.42870%5.448241.735445.78161.40260%4.669921.487525.78160.37650%3.89161.23965.7816-0.65040%3.113280.991685.7816-1.67730%2.334960.743765.7816-2.703For Filo del Sol the following calculations were made:

Cu recovery rateIndicated resources in B$Inferred resources in B$cost of 1.25 USD/lbNet in B USD100%07.0194.1252.89490%06.31714.1252.192180%05.61524.1251.490270%04.91334.1250.788360%04.21144.1250.086450%03.50954.125-0.615540%02.80764.125-1.317430%02,10574.125-2.0193Links:

http://www.mining-technology.com/features/feature-the-10-biggest-copper-mines-in-the-world/

http://www.mining.com/mining-copper-just-got-lot-cheaper/

http://www.ngexresources.com/i/pdf/2014-11-25_LosHelados_NI-43-101.pdf

http://www.ngexresources.com/s/Home.asp

Disclaimer:

The author owns a small portion of shares in NGEx resources.

Copy of parts of or the entire analysis is permitted as long as you clearly state the authors name and the source of the copied material.

All statements other than statements of historical fact may be forward-looking statements. Forward-looking information is necessarily based on estimates and assumptions that are inherently subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to: risks and uncertainties relating to, among other things, the inherent uncertainties regarding cost estimates, changes in commodity prices, currency fluctuation, financing, unanticipated resource grades, infrastructure, results of exploration activities, cost overruns, availability of materials and equipment, timeliness of government approvals, taxation, political risk and related economic risk and unanticipated environmental impact on operations as well as other risks and uncertainties.