Selkirk Copper

SCMI was featured in the Northern Miner this month as a mine restart project with a significant level of First Nations ownership (the Selkirk First Nation owns 22% of SCMI's shares). The article also highlighted the $300 million in infrastructure at the Minto mine site. I think that the presence and value of that infrastructure (in terms of both time-savings and money) is a key differentiator when it comes to this story. Drilling is ongoing and SCMI has a plan to produce 30,000 tonnes of copper-equivalent per year from the Minto mine for 12–15+ years. The asset hasn't been focused on by anyone for quite some time and the back-of-the-envelope restart economics still make sense at copper prices a lot lower than where we are today. I've increased my weight in SCMI as I take the view that this is a company that can grow into one of the market's next emerging small-to-mid cap junior growth stories. I like management's experience and approach and I think that this is the kind of story that I can own for the long term. If the stock got cut in half I'd just buy twice as much. The company is valued at far less than the replacement value of its infrastructure and I think that the mid-year preliminary economic assessment will show a project with a very favourable capex/NPV (capital expenditure to net present value) ratio. The Minto Mine has a short path to production restart (~3 years) and its First Nations backing gives me confidence that this will move forward. This doesn't mean the stock can't go down, but it means that if it does, it just represents even better long-term value.

SCMI was mentioned to me by a very smart friend of mine not that long ago. I bought a toe-hold position initially, but added to it recently as I tried to think about what I was going to replace my FOM and ASCU with in terms of keeping some copper exposure. SCMI has three things going for it... 1) management is very strong... the CEO came out of a senior role at Teck Resources and has a very pragmatic view of the project and his goals, 2) the Selkirk First Nation is the largest holder of SCMI stock, virtually guaranteeing social licence for the mine restart, and 3) this is a mine restart, not a greenfield development, and as such it has a significantly shorter path to production than most peers in the sector. The asset is the Minto Mine, last owned by Capstone, where it was never really a focus. SCMI is actively expanding the resource through an ongoing step-out and exploration drilling program which will help feed the hungry mill that is onsite. Drilling to date has shown resource expansion potential in multiple directions. The company is well funded with around $40 million in cash at last report (though that is being actively spent) leaving it with a circa $100 million enterprise value. At its peak, the Minto mine produced 60-65 million pounds of copper per year, plus 40,000 ounces of gold per year, plus some silver. Restart capex will be modest and future share dilution is expected to be minor, which I believe makes its $100 million enterprise value quite compelling. The market is going to get tired of buying the same five or six copper names and with FOM gone, I think that some of that money will come to emerging-producer stories like SCMI. Time will tell. At these copper prices, I think that once an updated resource is calculated, an updated economic study will show an impressive NPV, modest capex, and a relatively short path to production (perhaps 3 years) relative to other "new builds" out there.