Korean consortium buys into Inmet’s Cobre Panama

Korea Resources and LS-Nikko Copper are exercising their option for a 20% stake in Inmet Mining‘s (IMN-T) Cobre Panama, a large, open-pit copper development project in Panama.

The two companies, partners in a joint-venture called Korea Panama Mining Corporation (KPMC), will be required to invest US$155 million for their stake in the project. Under the option agreement, KPMC also gets 20% of the offtake rights at market terms.

The announcement follows news on Jan. 3 that the government of Panama approved the project’s Environmental and Social Impact Assessment, including mining operations and related infrastructure, a port facility and a coal-fired power plant.

Orest Wowkodaw, a mining analyst at Canaccord Genuity, has a “buy” rating on Inmet with a 12-month target price of $82 per share. “We view the ESIA approval as very positive and a key catalyst for Inmet shares,” he writes in a note. “Now that Inmet has the ESIA approval in hand, we anticipate joint-venture discussions with other potential partners [Inmet plans to divest its stake to the forty-percent to fifty-percent level] to crystallize over the next few months. A project update that includes capital and operating costs is anticipated in early 2012. The US$6-billion project is anticipated to begin production in 2016.”

He noted that Inmet is trading at a 4.8-time and 3.5-time 2012E and 2013E enterprise value/EBITDA, and at a 30.6% discount rate to his 8% net present value (NPV) of $97.90 per share, which compares with his mid-cap base metal producer coverage universe average of 6.2 times and 4.6 times, at a 39.6% discount rate to NPV.

Cobre Panama is 120 km west of Panama City and 20 km from the Caribbean Sea coast in Colon Province. The project is accessed by the Pan-American Highway system from Panama City to Penonome, all-weather roads to Llano Grande and gravel roads through the town of Coclecito.

At presstime Inmet traded at $66.11 per share within a 52-week range of $39.88-$82.14 per share. Inmet has 69.3 million shares outstanding.