Poly Met Mining: Base Case Of $477M Essentially Unchanged

SDEIS completed and released
Polymet Mining Corp., (PLM) achieved a key milestone in its NorthMet environmental permitting initiative with its SDEIS being posted to the Minnesota Department of Natural Resources website on 6 December. We have updated our forecasts and valuation for Q3FY14 financials. Our base case valuation is US$477m or US$1.36/share on a diluted basis. Our upside valuation, based on potential plant expansion to 90ktpd, is US$1,267m or US$3.23/share (diluted).

SDEIS released as expected
PolyMet Mining released its supplemental draft Environmental Impact Statement (SDEIS) on 6 December. As expected the 2,200 page report was very thorough and included no meaningful changes to the operating plan. But it did include extensive, albeit not material, changes to environmental control measures in Polymet’s development plans for NorthMet.

Permitting expected by year end 2014
Based on management’s projections, we believe PolyMet should receive its environmental permits by the end of calendar year 2014. The SDEIS was released on 6 December and, following 90 days of public comments, PolyMet and the co-lead agencies will incorporate the comments into the final EIS. We believe PolyMet should receive its environmental permits between August and November 2014.

Q314 financials as expected
PolyMet has a strong balance sheet with US$40.5m in cash and US$35.8m in debt at the end of October. Its cash should carry PolyMet through the permitting process. We estimate NorthMet’s capital cost at US$450m, funded in our model by US$100m of equity and US$350m of debt.

Valuation: Base case of US$477m essentially unchanged
We have updated our valuation to reflect the Q314 information including updated shares, options and convertible debenture dilution as at 31 October 2013. There is no material change to our underlying valuation. Our base case valuation is US$477m or US$1.48 per share. Our upside valuation, based on potential future expansion of permitting to 90,000tpd is US$1,267m, equal to US$3.93 per share undiluted.

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