Geovic Mining (GMC, TSX; GVCM, OTCBB)  A World Class Cobalt-Nickel Play

Geovic has been on my radar screen for a couple of years now. The company first caught my eye due to their stellar economics and the fact that it is perhaps the only primary cobalt resource in the world.

Two years ago cobalt prices soared to $50 per pound and nickel at the time was trading well over $15 per pound. With these prices, Geovic’s deposit in Cameroon Africa was destined to become one of the most profitable mines in the world with projected rates of return of over 100%.

Last fall Geovic was ready to start raising development capital when the global recession hit. The prices of cobalt and nickel have fallen steeply since then however the economics of this deal are still outstanding due to reasons the market still isn’t aware of.

The key reason why Geovic’s cobalt play has always been one of the highest potential mining projects in the world has been due to the geology of the deposit. This hasn’t changed. The cobalt mineralization in Cameroon is higher grade than any other laterite cobalt deposit you will find. The cobalt itself has large grains which are unusual. Given the unique structure of the cobalt and the ease of mining it, the ore grade is increased by a factor of 3 by using low cost mining methods which triples the rate of return for the company.

After processing the course concentrate on site, the end product would be pure enough to send directly to a battery manufacturer or other industrial user.

The untold story behind this project though is the fact that the management have been working on ways to optimize the development and operation. A couple of years ago the focus was on their Nkamouna deposit that was slated to produce 9 million pounds of cobalt per year and 7 million pounds of nickel over 19 years starting in 2010.
The projected grade of the cobalt at the time was 0.25%. However Geovic now plans to introduce more through solution-processing technologies that will improve the ore grade to 0.7% and perhaps as much as 1.2%.

This may not sound like much but in an analysis by Gord Selko of MineralStox.com, this improvement in the minable grade could equate to an added profit of $176 per ton or an overall 71% increase in the project’s cash flow.

While the engineers have been working on new processing improvements, Geovic has also been drilling the Mada and Rapodjombo deposits. The grade is the same as Nkamouna but there are many high grade areas that can be mined first to get a quick payback on the mine. The present schedule would see production begin in 2012.

An updated 43-101 resource calculation is expected to come out this fall. The expectation is that the resource numbers will be larger, the grade higher and so greater profitability for the mine.

Though the effect of the recession has slowed the development of Geovic’s mine development, a multi-billion dollar benefit has emerged in Geovic’s favor. Over the last several months, the capital costs for mine construction have dropped to around $350 million from the $420 + million of a year ago. This is a significant advantage for Geovic who are planning on having their financing in place by mid 2010 in order to build their mine.  And capital costs around the world continue to drop.

The Properties

The Nkamouna deposit is the first of seven deposits to be developed. It has proven and probable compliant reserves of 54 million tonnes. Immediately north of the Nkamouna deposit is the Mada deposit which has a 43-101 resource of 145 million tons. Both these deposits will have revised 43-101 calculations by the fall of this year.

In addition there are five other deposits, so this project will be around for a long time – beyond anyone’s lifetime!

Conclusion

Geovic is now trading at cash value and no credit is being given for holding one of the world's largest primary cobalt deposits which is ready for construction. There is no research coverage on Geovic by any securities firm in North America or Europe, where its capital has been raised.  It is not even mentioned as a comparable in cobalt statistics issued by brokerage firms and mining companies.  Geovic seldom appears in mining trade publications.  And even though Nkamouna is scheduled to produce approximately 7% of the world’s cobalt supply, the company is almost invisible.

Geovic’s share price had been trading quietly all year until June 1st when a huge 3 million share cross took the stock up to 70 cents, up from the established floor price of 50 cents. Though the source of the buying has remained a mystery, it did raise a few eyebrows on the street.

I would expect the stock to drift down again to the 50 cent range over the summer.

The major news announcements to watch for are the new resource calculations due out this fall. Next year, the financing is projected to be done by mid-2010. And by the end of 2012, full production is expected.

The company has stated that a number of groups have been interested in off- takes of the production, particularly from Asia. Some have also interested in partaking in debt and equity financing. By all accounts, there should be no problem in either financing this project or finding buyers once production begins.

The best time to buy a stock is when no one has heard of it or wants it. Geovic is one of those sleeper stocks that could provide triple digit returns for the patient investor.

Post from: Gold News from Gold Editor

Winston: Geovic Mining – A World Class Cobalt-Nickel Play

www.geovic.net

Cobalt and nickel are two commodities which are currently trading at record high prices.

Combine that fact with the world�s largest primary cobalt deposit which just happens to be the most easily and economically mineable cobalt/nickel project on the planet - and you�ve got yourself an easy double for investors with Geovic Mining as they gear up for production in 2009.

In fact, Geovic is positioned to become the world�s largest producer of cobalt going forward with their projects in Cameroon.

About Cameroon

Cameroon is one of those countries most people couldn�t identify on the map and that�s because nothing bad ever happens there to warrant our attention. Located in West Africa, the country is politically and economically stable. They are also receptive to foreign investment. Aside from this cobalt deal, Exxon Mobil built a 3.5 billion-dollar pipeline in Cameroon which is a testament to the confidence in the government and the stability of the country.

The Properties

Geovic has a 60% interest in a 1,631 square km property that encompasses seven deposits.

The first one in development is called the Nkamouna. Its surface area is quite small, encompassing about 10 square kms. However, its internal rate of return (IRR) is quite big.

A prefeasibility and 43-101 study were done on the Nkamouna project which showed the property could produce with an IRR of 78%. That was based on a three year average price for the metals. It has proven and probable reserves of 53 million tonnes at an ore grade of .24% cobalt and .72% nickel. This deposit is 35 meters thick and is only 15 meters deep.

The payback on the Nkamouna mine alone is only 1.2 years and would be producing 4,000 tonnes per year of cobalt. The net present value using a 10% discount and after tax would be US $317 million for Geovic�s 60% share. With the stock price at $2.90, the fully diluted market cap is $250 million. The mine life of Nkamouna is estimated to be 21 years.

The capital cost on this project is the lowest in the industry at $129 million. One of the reasons for this is that all the deposits occur near surface so extraction is easy. Thus, operating costs are only 42 cents per pound, pre-tax and including nickel credits. Using three years of nickel prices in the model, nickel will be providing about 20% of the revenues.

Pre-Feasibility Numbers

� Internal Rate of Return - 78% - 3-year average metal prices

� Payback - 1.2 Years - produce 4,000 tonnes per year cobalt

� NPV 10% Discount - $317M US - this is Geovic�s after tax share)

� Capex - $129M - An Industry Low

� Operating Expenses - $0.42 Cobalt - pre-tax and net of nickel credits

� Current Mine Life -21 years - 1st of seven deposits

� Projected Cash Flow per Year - $US100M (100%)

The final feasibility and permits are expected to be completed by mid 2007.

Immediately north of the Nkamouna deposit is the Mada deposit which has a 43-101 inferred resource of 145 million tons with a grade of .21% cobalt and .48% nickel. This area has not been fully drilled in strike length or to depth. Geovic�s management believe they could triple the resource on this deposit.

In addition there are five other deposits, so this project will be around for a long time � beyond anyone�s lifetime!

The unique characteristics of the cobalt make this project a world class deposit:

The cobalt mineralization in Cameroon is higher grade then any other laterite cobalt deposit in the world. The cobalt itself has large grains which are unusual. Given the unique structure of the cobalt and the ease of mining it, the ore is upgraded by a factor of 3 by using low cost concentration methods which triples the rate of return for the company and the net present value.

This is what makes this project such a good investment and that�s why the economic performance of these deposits will be so strong.

Because of the simplicity of this project and given the low capital costs, production can be doubled on the first project at 8,000 tonnes of cobalt for less then $60 million.

The open pit will be less then 16 meters deep and is easily dug out with front end loaders and bulldozers.

After processing the course concentrate on site, the end product would be pure enough to send directly to a battery manufacturer or other industrial user.

The Supply and Demand of Cobalt

The supply side of cobalt is extremely tight right now. All the production now mined is immediately bought up in the market which has left inventories empty. Not surprisingly, the price of cobalt has recently doubled to $30.

Though market watchers don�t expect these heady prices to last, demand will stay strong for years to come.

In my mind, the biggest reason for this revolves around our favorite mode of transportation, the car.

Today the world produces 60 million cars and light trucks per year. In 25 years that will number will grow to over 90 million.

Now with oil and gas prices at much higher levels and with air pollution creating health concerns in major cities around the world, the auto industry and governments alike are pushing toward hybrid vehicles.

With global warming becoming such a HUGE disaster in the making as well, I can see this transition occurring very quickly over the coming years.

Cobalt is a key ingredient needed to make the batteries in hybrid cars.

When you consider today�s already tight cobalt market, there won�t be enough supply to handle those projected demands except Geovic has deposits which could double, triple or quadruple production very quickly going forward.

Cameroon and Geovic could very well become the world�s �swing producer� of cobalt in the same way that Saudi Arabia turns on the oil taps when global supplies get tight.

Cobalt is also used in the construction of jet engines, batteries for cell phones, laptops and other battery devices.

Last year the market for cobalt was 55,000 tonnes and this demand is expected to increase to about 95,000 tonnes over the next decade according to the number crunchers who are not projecting the rapid production rise of hybrid cars.

Management

Jack Sherborne � Chairman and CEO � 36 years executive management experience in energy and mineral industry with Unocal.

William Buckovic � President � 32 years of mineral exploration experienced. 20 international laterite nickel cobalt deposits for Unocal and others.

David Beling � Executive VP and C00 � 42 years engineering, management and executive experience having financed, developed, and operated international mines.

Gary Morris � Sr. Vice President � 32 years mineral exploration, land, resource and environment management with Unocal and Western Nuclear.

Greg Hill � CFO � 30 years experience in mineral, energy, and technology finance and strategic planning.

Conclusion

Given projected first year cash flow of $100 Million for the project, I would say those are bonanza type figures. However we are just talking about the first project that has a mine life of 21 years. There are six more deposits just waiting in the wings.

The rest of the district has potential of 1 billion resource tonnes, though not 43-101 compliant numbers, the upside is potentially very blue sky while the downside risk is manageable.

Currently the Net Present Value of Geovic�s share of production are $317 million using a 10% discount. With the price at $2.90, the market cap is $250 million on 86 million shares � leaving 78 cents in valuation. The kicker is that the Nkamouna mine alone can easily double production � and hence it�s NPV � for only US$60 million. Plus there�s ample potential with the other six deposits. Going forward I would expect a big increase in Geovic�s reserve numbers which will also increase the NPV.

Geovic is the type of stock you can buy now while it�s cheap and ride up in the years ahead as the cash flow and production start to build.

Accumulate

This is a great long term buy growth play that you could pass on to your Grandchildren.

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Post from: Gold News from Gold Editor

James Winston: Geovic Mining A World Class Cobalt-Nickel Play