I got a call from our man in Bougainville” say’s emerging markets expert Manraaj Singh, “I’ll get to the rest of the story in a minute. It’s a long story. But worth telling…because shares in this company are set to take-off.

We received some absolutely brilliant news from a far corner of the world yesterday. Exciting moves are afoot on the island of Bougainville in Papua New Guinea.

We’ve got a brilliant copper and gold mining play on the island… so far we are up by 122% on this investment and the news just keeps on getting better. The international media is taking a much greater interest in the Bougainville story… which means that our gains could be looking to jump up even further.

The mine shut down nineteen years ago due to civil unrest – but these problems have been sorted out, and money is now rolling in the direction of our investors.

Yesterday, Pacific Magazine ran an article on the improving situation on the island. The crucial bit was an interview with the Vice-Chairman of the local Landowners’ Association (PLA). He said that the PLA fully supports the re-opening of the mine after the feasibility studies are completed. “We are content with the way negotiations are going on and we fully support the initiative taken to restart the mine.”

Which is excellent, because it means that there will be no local disruption to the re-starting of the mining operation.

But there’s more to this story…

Our contact in Bougainville has sent us the latest version of the so-called “landowner’s proposal” which gives details on what the revised Bougainville Copper Agreement (BCA) might look like. No other financial publication has reported on it yet. So my Profit Hunter readers are probably the first ones to receive exclusive information.

The four-page-long document written by a long-time adviser to Bougainvillean landowners is supposed to provide the basis for an update of the BCA. It aims for a fairer division of future earnings than the old agreement – especially for local landowners.

It was the unfair distribution of profits that led to rebels attacking the mining site and forcing the closure of the mine. You can’t really blame them. Under the old agreement, local landowners received only 0.2% of profits between 1972 and 1989. The new proposal suggests paying them a royalty of 3.5% of sales.

It also suggests splitting taxes at the ratio of 50:50 between the Autonomous region of Bougainville (ABG) and the National Government.

Of course we would be happy to see the local population get a better deal than the old one. But what really grabbed our attention is the value that the proposal places on our plays mining shares should the mine re-open soon.

The proposal’s calculations are based on the following assumptions: the current price of copper is US$3.88 per pound and the price for one troy ounce of gold is $878; US$1.5bn capital investment is needed to reopen the mine, repayable at an interest rate of 7.5% over 7 years; there will be no issue of additional ordinary shares by the company; The company gets a tax free status for the first two years of production; there will be no dividend withholding tax; the tax rate will be 30% from year three on; there will be a royalty payment of 3.5% of sales to landowners.

We could be looking at a 2,414% gain

Assuming that the mine produces the same amount of copper and gold it did in 1987, total sales per annum would amount to US$1,948m. Even after the operating costs, loan repayment, royalties and taxes, the company would be left with a total profit after tax of US$1,157m, or US$2.49 per share.

On a conservative price earnings ratio of 12, that would value the shares at US$29.88 or A$31.17. That target is a lot higher than we had estimated and translates into a potential gain of 2,414% on the price of A$1.24 at the time of writing! And the company owns several additional licences on the island as well – so there could be additional upward potential beyond that.

This isn’t going to happen overnight though. And nothing is ever guaranteed – especially in Bougainville. But if things play out as we believe they will, we could bank the biggest gains that we have ever made in Profit Hunter’s history.

Our contact tells us that there is now a three-step plan in effect. Step one aims to get all, or most, of the 510 local landowners to sign the proposal. Secondly, to win support for the draft from a majority of ABG MPs. Finally, to attend the planned joint supervisory board meeting in July and win backing for the proposal. They have obviously got their work cut out for them…

The coming months are going to be very exciting for everyone who holds shares in this company. Reaching each off those three milestones should provide a further boost to the share price. And the mid- to long-term potential on this share remains huge.

As a subscriber to Profit Hunter you would have access to this and all our other investment recommendations.

At present we’re looking at one African company we think can do very well as it involves a small company that holds all the cards in a huge oil deal – involving the biggest super-powers and billions of dollars…

If gains of 122% (and that’s just for starters) are of interest to you… learn more about Profit Hunter opportunities right now

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: Our Bougainville Gold and Copper Mining Play Is Way Up, And Climbing