Win us with honest trifles

As for the Integra Resources (ITR.v) news today, three things:

  • Those pesky 43-101 rules
  • Straw Men
  • Have Cake/Eat Cake

Here’s the link to the NR, first up is the rulebreaking:

“Integra’s 2022 DeLamar PFS highlighted an abundance of optionality derived from a myriad of development scenarios to advance the asset. The core financial engine of the DeLamar project is the heap leach. Based on data provided in the PFS, and despite the fact that the project was costed out during a period of high inflation, the heap leach operation at DeLamar showed solid returns with an after-tax NPV(5%) of US$314 million and an after-tax IRR of 33% at US1,700/oz Au and US$21.50/oz Ag and produces close to 1 M ozs of gold equivalent on its own. Leverage to higher gold and silver prices amplifies the economics, with an after-tax NPV(5%) of US$435 million and an after-tax IRR of 43% at US$1,900 Au and US$24.03 Ag. During the 8-year heap leach operation, the Project averages 136,000 ozs per year AuEq with a site level AISC of US$814/oz Au Eq.

If that’s not pulled up by market authorities they will be lucky, as it’s sailing very close to the wind. The CIMM rules are clear, you cannot have two concurrent 43-101s on the same property. In this case, ITR has decided to separate out a part of a 43-101 and then present separate economic criteria for the component and, while you could argue with the way it’s worded, in effect all that means is the company is using semantics to get round the rules. So what’s it going to be, ITR? You going to run with the current PFS to permitting, or not? Because if you don’t change the PFS all that blather we heard today about a simplified permitting track is just hot air and if not, you need to re-write it. Do you honestly think you can go to the USACE and say “Okay nice Army guys, we want to permit pages 39 and 40, but not 41 and 42 so just ignore those ya okay? Thanks!” It’s asinine.

Second is the straw man. The market didn’t turn its nose up at the high capex, sustaining capex or the opex of the orginal PFS, its problem was the small size and reduced economics. By trying to blame inflation or the economics of the mill, ITR ignores the real reason for the original market disdain for its PFS, captured in this succinct phrase from our post in March; Long story short, ITR didn’t go big and the market went home. Whether they ignored it deliberately or not is up to you, but all the nonsense about “Oh, inflation caught us and we were unlucky!” is a straw man argument and unconnected to the main issue.

So with straw man set up, what’s the company solution? Why, get even smaller! The decision to strip out the mill project and just go with the heap-leach could be taken as an implicit admission that the sulphides don’t offer robust economics, but more salient is the way it drops overall NPV even further. We’re now down to U$314m at U$1,700/oz and, if even if you run with the U$1,900/oz model, we’re still only getting U$435m (and even then using a thin 5% discount rate, try getting that as your cost of capital). In other words, even if the permitting goes to schedule (a debate for another day) they want us to hold a C$100m market capper for five years until the project comes to fruition, one that will dilute its share count every year in order to pay its background burn rate and development costs, for a prize that wasn’t big enough in February and just shrunk again!

Third is Have Cake/Eat Cake on the other ounces at DeLamar, the ones now excluded from its economic plans and permitting track. Clearly, ITR wants to convince us on the optionality of the other ounces at DeLamar, insists they haven’t gone away and wants to keep them in their back pocket. What for? It isn’t up to us to value the “extra ounces” excluded from the permitting process, it’s up to them! THEY are the ones who’ve been paying $XXX,000 to themselves and to some of the world’s top consultants to make those sulphide ounces work, THEY are the people who’ve been studying and exploring and drilling and developing the project for years, but now THEY want to pretend there are 3m oz or 5m oz hanging around as some sort of bonus prize for the company dumb enough to buy this story out? Give me a break! It starts to become clear why Kinross sold this asset in the first place; Special K was looking for a sucker and found one, now it’s ITR’s turn to seek the greater fool.

This part is very simple: After years of exploration, drilling, development, a PEA, a PFS and a “new simplified plan”, there are only two possible reasons why the bulk of the M+I ounces are not included in future plans:

  • ITR hasn’t done enough work on those ounces. It means they’ve rushed to PFS and left DeLamar’s promise, upside and the true equity value on the table. If so, company strategy has been wrong for years and now, with the mistake exposed, this team just keeps on walking down the same bad road by making the NPV smaller, not bigger. When in hole, stop digging.
  • Those ounces are not economic. Period.

Bottom line: There may be good reason to buy this project one day, but that’s going to be way further down the line and there’s precious little reason to buy ITR shares at the moment, unless you’re really into bagholding or sponsoring the lifestyles of mining executives. Today was just more of the same from a management team that cannot admit its mistake.


    Nice work George “Gabagool” Salamis.


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