International Consolidated Minerals— Initiation of coverage with a Buy recommendation at 285p and a target price of 725p

	Key Data
	EPIC	ICMI
	Share Price	285p
	Spread	270p-300p
	Total no of shares	37.68 million (Warrants outstanding 10.576 million)
	Market Cap	£107.39 million
	12 Month Range	277.6p-378.2p
	Market	AIM
	Website	www.icmplc.com
	Sector	Mining
	Contact	Greg Smith, Executive Chairman 0771 7880 923
	Net cash reserves	£9 Million

Company Background

ICM was formed in September 2005 with the objective of acquiring and pursuing the exploration, development, and production of mineral resources in Latin America. The company’s focus was in Peru, which was used as a springboard by the company to pursue and enhance the value of additional mining assets throughout Latin America, either through acquisition, exploration and development. Lead by the experienced Greg Smith, who is currently the executive chairman of AIM-listed PetroLatina, ICM’ strategy is to secure high quality mining assets at an advanced stage of development and bring them into production as quickly and as efficiently, for all stakeholders involved, as possible.

Source: ICMI - Peru and its Main Mines

In December 2005, ICM acquired 100% ownership of 32 mining concessions and one beneficial concession in Peru from HIRI. The acreage covered 2,170 hectares. The consideration for the transfer of rights and shares in the concessions plus related assets was $26 million, which was met through the issuance of 23.5 million ICM ordinary shares, a cash payment of $4 million plus three million warrants. The main attraction among the mining concessions was the non-operating Pachapaqui Mine, which was on ‘care and maintenance’ status at the time and came with an on-site concentrator. The acquisition was funded through a $25 million convertible loan note issue through the then AIM-listed Taghmen Energy (now reversed into PetroLatina) fund. A further $6 million in two equity tranches was raised in January and July 2006 to fund the construction of a mill to bring the on-site concentrator into working condition.

Asset Background

The Pachapaqui mine was built in the early 1980s and Minera Pachapaqui SAS was formed following the acquisition of the mining concessions by a Peruvian family-run business (Ganuza family) in 1971. A concentrator, built on site in 1981, processed 1.6 million tonnes of concentrator feed tonnes over the next 13 years of mining operations at an average rate of 500-650 tpd, until it was shut down in early 1990s due to a variety of reasons, including increased guerrilla activity in the region; low metal prices; unhelpful government policies, and lack of corporate financial resources.

The mine was subsequently nationalized, but in 1995 it was denationalized and was soon taken over by the Babcock Consulting Ltd (BCL), Sucarsel del Peru and Minera Aquia SA, which consolidated the reserve base as Plata Peru Resources and listed it on the Toronto Stock Exchange (TSX). Following a limited refurbishment of the on-site concentrator, mine production recommenced in the same year, albeit on a much reduced scale of some 50 tpd until it was placed on a care and maintenance programme. Reasons for the mine never meeting its potential or staying true to its early promise had less to do with the quality of asset but more with poor quality of management. An amalgamation of unsatisfactory mining and operating methods, lack of financial resources, the presence of unsettled debts, an unhappy Peruvian mining workforce, and an increasingly nervous local community, culminated in jeopardizing the potential success of the Pachapaqui mine.

Since the acquisition of the Pachapaqui asset, ICM has engaged in a programme of settling previous debts, rehabilitating selected areas of the mine (including work on upgrading the on-site concentrator and updating the mine infrastructure), winning back the trust of the mining community, and engaging local and regional parties to the prospect of restarting mining operations under the promise of a better economic future for the parties involved. The Pachapacqui asset is located within the department of Ancash, approximately 240 kilometres north of  Lima, and within the central mineral belt (Miocene metallogenic province of Central Peru) operating intermittently at a reduced rate of 50 tonnes per day (tpd).

ICM’s initial plan was to bring the asset immediately back into operation, which lead to the company preparing for a public offering of its shares on the AIM market during 2006. However, the company concluded that it would make much more economic sense if it worked towards extending the economic viability of the Pachapaqui asset and expanding its development programme towards numerous target areas of mineralization within the property. This is an asset with a substantial drilling and other geological data from past exploration, consisting of 32 mining concessions and 1 beneficiation concession totaling 2,170 hectares. Included in the property is an 800 tpd milling and concentrator complex, associated infrastructure, such as housing, roads, electrical distribution, and two hydroelectric generating stations capable of producing up to 2,500 KVA of electricity. This related infrastructure required some capital investment from the company towards rehabilitation and upgrading. Other road access and power infrastructure includes a first class highway running 370 kilometres to Lima and its port facilities

Consequently, ICM postponed its IPO on AIM in favour of pursuing a long term drilling and development programme with the objective of raising and upgrading (to JORC compliant status) the Pachapaqui reserves and expanding the economic parameters of the asset. This culminated to the company raising $10 million in a private fundraising and, in September 2007, ICM completed the reverse acquisition of an AIM listed SPAC (special purpose acquisition company) named Platinum Diversified Mining Plc, a Cayman Islands incorporated ‘exempt’ company since January 2006.

Platinum Diversified—SPAC Vehicle Reverse Acquisition

Platinum Diversified was formed in January 2006 by its founders—Mark Nordlichjt, Bobby Cooper, Thomas Loucks, John Ryan and Howard Crosby—as a mining investment vehicle. Subsequent to its formation, Platinum was admitted to AIM in March 2006 as a special purpose acquisition vehicle (SPAC) for investing in the metals and mining industry through asset acquisition. At the time of its AIM listing, the company raised $77.9 million net of expenses via the placing of 9.935 million units at $8.0 per unit with institutional investors. The company was structured to offer investors choice and flexibility and earmarked approximately $79.5 million in gross funding to fund acquisitions and costs. One of the terms of its structural overview was that Platinum would be liquidated if there was no acquisition within 18 months of its listing, and any acquisition required at least 80% shareholder approval. As part of the reverse takeover, PDM shareholders retained the right to redeem some of their investment as long as the requirement for the enlarged company to retain unrestricted minimum cash reserves of $40 million ($34.44 million net of expenses) for working capital purposes following the conditional exercise of the conversion and redemption rights mentioned above. This capital cushion has allowed ICM to proceed with funding the extensive long range drilling and exploration programme at the Pachapaqui Mine.

The Pachapaqui mine is located in the central mineral belt of Peru, formed during the Miocene period, and host to some of the world’s most important and largest mines, such as Antamina, Pierina, Atacocha Milpo, Cerro De Pasco, Morococha, and Millotingo. The Antamina asset is the world’s largest copper-zinc mine and the third largest mine in the world, with an estimated 559 million tons of reserves. The mineral rich belt of central Peru has attracted majors such as BHP Billiton, Xstrata, Rio Tinto, Tek Cominco, Newmont, Barrick, and Estrada. Mining has proved the catalyst behind Peru’s economic growth, with metals and minerals making up to 50% of the country’s exports.

Source: ICMI-Map of Central Peru showing world class assets in relation to Pachapaqui location

The January 2008 results are consistent with historical data and, along with recent drilling results (over the past12 months), they have validated the quality and extent of mineralization zone patterns in some of the project areas. ICM has most of the licences and permits in place to start a 1,500 tpd mine. The Pachapaqui mine has around 4Mt of proven reserves but the recent drilling results to date (25 diamond drill holes on the Mantos Zone) indicate at least 15 Mt gross of in-situ mineralization in the Mantos area. The potential for establishing an increased Resource and Reserves base over time at Pachapaqui property cannot be underestimated. With 32 mining and one beneficiation concession totaling 2,170 hectares, containing 59 known poly-metallic (Ag, Pb, Zn & Cu) mineralized structures, and four distinct mining areas (Riqueza, Mantos, Arabia and San Antonio), the Pachapaqui asset is already an attractive mining property. To that, one must add the several mineralized zones with excellent exploration potential and an unrealized reserves growth rate from unexplored areas, which are situated in a location hosting some of the largest mines in the world (Cerro de Pasco, Antamina and Milpo Atacocha).

Source: ICMI Pachapaqui Mining and Beneficiation Concessions

Geology and Mineralisation

The central mineral belt of Peru is largely underlain by Mesozoic sedimentary rocks, with local intrusive igneous stocks of early Tertiary age. The Pachapaqui mine is located within the Cordillera Huayhuash mountain range in the district of Aquia in the province of Bolognesi, a department of Ancash in Peru. The mine, along with the nearby Huanzala and the Uchucchacua mines are among the most famous producers in Peru. All three mines are located near the crest of the Cordillera Blanca mountain range on the southern end, some 250 kilometres north of the capital Lima and 50 kilometres east of the Pacific coast. The well known mines at Cero de Pasco, Antamina, and Milpo Atacocha, have produced 1.65 million tonnes of concentrator feed between 1991 and 1994 at an average grade of 9.9 oz per tonne silver, 2.1% lead and 3.02% zinc.

Source: ICMI Pachapaqui Property geology with substantial showings of veins, skarns and breccias.

 

According to CSA’s competent persons report (updated August 2007), the Pachapaqui mining properties have, between 1981 and1994, produced approximately 13.1 million oz of silver, 29,816 dry metric tonnes (DMT) of lead metal, 45,463 DMT of zinc metal and 6,618 DMT of copper metal in a bulk mineral concentrate, before treatment losses or deductions. There are several mining areas within the concessions accessible by adits of which Arabia, Mantos and Riqueza are the largest and are expected to supply the bulk of the mine’s future ore.

Two related mineral deposit types can be mined at Pachapaqui: vein breccias and breccia pipes, as well as elongated tabular bodies known as mantos. Overall deposits generally range from 10-13 million tonnes of ore, while the larger ones can be more than 50 million tonnes in size. Average grades typically range from 2-12% lead; 2-18% zinc; 2-20 oz/t silver; 2% copper from trace, and 6g/t gold from trace. Individual ore zones that have been mined in the past range from 200-500 metres high, 20-100 metres long, and 0.8-15 metres wide. There is further potential to increase the economic mineralization as the ore zones remain open at depth.

Some 59 mineralized structures have been identified at the Pachapaqui mine, including veins, vein breccias, chimneys, and mantos within the limestone, fine-grained sediment and calc silicate rocks. Since early 2007, an extensive drilling and exploration campaign has commenced primarily in and around only a small portion of the Pachapaqui property, a mineralized zone known as the Mantos zone. The January 2008 drilling results indicate at least 15 million gross tonnes of in-situ mineralization just in the Mantos area. There are four distinct mining areas, namely Riqueza, Mantos, Arabia and San Antonio. Each area contains several high potential prospects and discoveries, with each zone hosting several mineralized veins. The impetus for the company now is to prioritize its drilling targets and press ahead of releasing a JORC compliant resource estimate in Q2 of 2008. Admittedly, the company’s drilling progress has been delayed by the analytical labs long waiting lists, with only 25 (over 5,700 metres) of the successfully 59 diamond drill holes (over 14,000 metres) drilled and logged in the Mantos area to the middle of December 2007.

The drilling programme has included surface mapping, trenching, diamond drilling, logging, sampling, and assaying at an independent laboratory in Peru. Preliminary results from the first 25 holes are listed in the table below, which indicate in-situ mineralization in the order of 15 million gross tonnes just in the focus area. The metals grades are reasonably consistent with the ore grades contained in the existing proven and probable ore reserves for the Mantos area (2.2 million tonnes at 4.42 oz/t Ag, 2.40% Pb, 4.87% Zn, and 0.63% Cu).  The focus of the remainder current exploration programme will be an additional 1,700 metres of drilling and 400 metres of tunneling by the end of March 2008. Furthermore, preliminary test drilling of 1,200 metres will be undertaken in adjacent areas to Mantos to assess the mineralization in these areas.

	Assays Results to 15 Dec 07  (25 out of 59 holes)
		Inters'ns	Avg Width	Average Grades
	Vein			Au	Ag	Pb	Zn	Cu
		No.	(m)	g/tne	oz/tne	%	%	%
	Esperanza	18	6.4	0.25	2.93	1.57	3.70	0.44
	Intermedio	19	3.3	0.24	3.34	1.18	2.31	0.34
	Matter	23	6.6	0.13	8.94	1.68	3.61	0.39
	Amelia's	23	7.5	0.33	4.73	1.73	3.43	0.71
	Total	83	23.7	0.24	5.41	1.61	3.41	0.50
	These holes are drilled in attempts to define the boundaries of the veins of the Mantos area, and may not be representative of the entire Mantos area veins. (Source: ICMI Ltd)

Pachapaqui Mine Permits, Reserves and Resources
An independent CNI 43-101 quality report was conducted in January 2006 (revised in December 2006) and an independent competent person’s report was completed by CSA Consulting International Ltd (CSA) in June 2006, which subsequently was updated in August 2007 in line with ICM’s Admission Document.

Previous estimates by the company in 2006 forecast that the mine would be producing at around 12 million oz of silver equivalent per annum, with a daily peak production rate of 1,000 tonnes per day for the next nine years. The capital costs of re-opening the mine and sustaining operations over a nine year term could be around $35-$40 million, which will include construction of a mill, power supply, improvement of infrastructure, with the remainder covering working capital requirements and financing costs. According to ICM’s estimates, an operating cost of around $45.44 per tonne of mill feed ore could be achieved over a nine year production term using modern mining techniques. The operating cost per ton of ore mined is expected to improve as the new mill is built, leaving the company a respectable margin over an expected revenue of $200 per ton of ore mined.

There are approximately 190 people working on the project but this is expected to fall to around 155 over the next 18 months as the mine moves from its development phase and into production. ICM has initiated several community projects and has been actively involved with the local community, which owns the land surface rights of the mine, and these efforts were rewarded with the signing of a 10-year land surface use agreement in July 2006.

Following the acquisition and the earmark of a respectable amount of funding in place, the company has proceeded with its 18-month mine development. The company has already submitted an updated 1500 tpd EIA for approval to the authorities, and according to company sources, almost all relevant permits and authorizations have been obtained, with the exception of the water permit, to allow the mine to operate at 1,500 tpd. An environmental impact assessment (EIA) study for a 1,500 tpd mining operation is expected to be commissioned in the nearby future to replace the existing 1997 EIA for a 450 tpd mining operation.

CSA has produced a detailed description of Pachapaqui’s mining properties, requirements for re-opening of the mine plus comment and financial analysis of the commercial viability and technical feasibility of the project. The Pachapaqui concessions contain ore reserves and resources (see tables shown below) that can support a minimum nine year mining operation at a production rate of 1,000 tpd.

Table 1: JORC-compliant Measured and Indicated Resources in the Pachapaqui mining area
Category			Tonnages	Silver (Ag)	Lead (Pb)	Zinc (Zn)	Copper (Cu)
			(million tonnes)	(oz/t)	(%)	(%)	(%)
Measured			3.61	5.46	2.55	4.19	0.65
Indicated			2.14	6.01	2.94	4.79	0.72
Total			5.75	5.66	2.70	4.41	0.67
Source: International Consolidated Minerals Ltd
Table 2: JORC-compliant Reserves in the Pachapaqui mining area
Category			Tonnages	Silver (Ag)	Lead (Pb)	Zinc (Zn)	Copper (Cu)
			(million tonnes)	(oz/t)	(%)	(%)	(%)
Proven			2.90	5.47	2.51	4.17	0.72
Probable			1.12	6.07	2.92	4.78	0.76
Total			4.02	5.64	2.62	4.34	0.73
Source: International Consolidated Minerals Ltd

Production Plan and Costs

ICM has prepared a proposed mine production plan for a term of nine years, which includes tonnage derived from inferred resources. The company expects that it will be able to increase the reserve tonnes basing its confidence on the continuity of the mineralized bodies both along strike and down dip.

The production plan has been reviewed by CSA, which found it to be realistic. The plan expects to generate a concentrator feed consisting of blended ore derived from four of the five mining areas. It is recognized that, unless additional resources in the Arabia and Riqueza zones are discovered, the proven and probable reserves in those two areas will be depleted during the fourth year of operation which will mean that subsequent concentrator feed will be derived from the Mantos and San Antonio areas. The Mantos area currently has 2.21 million tonnes proven and probable reserves, containing metal grades of 4.42 oz/t Ag; 2.45% Pb; 4.87% Zn; and 0.63% Cu. The San Antonio area has proven and probable reserves of 135,495 tonnes with metal grades of 6.16 oz/t Ag; 4.92% Pb; 4.38% Zn and 0.93% Cu.

ICM expects to use underground mining methods and equipment, with concentrator feed increasing from an initial 100-400 tpd (month 1-5) to an average 1,000 tpd from the thirteenth month of operation. First year concentrator feed is expected to reach a total of 147,000 tonnes, and from year 2, ICM is planning to use a density media separator plant (DMS) on run of mine (ROM) ore in the Mantos area. DMS is a sorting system which creates a density contrast allowing heavier minerals to be separated, which means that the 1,000 tpd concentrate feed will be of a higher metal grade than that of the raw mined ore. As a result, the run of mine ore from year two will consistently exceed the 1,000 tpd mill feed tonnes.

ICM has put together a detailed exploration plan for Pachapaqui, as well as a detailed analysis of probable capital expenditure and operating costs. The proposed exploration plan for the mine will cost $20 million over a two-to-five-year period and will include geological mapping, sampling, and geophysics plus a comprehensive diamond drilling programme. According to ICM, to bring the mine into production and mill capacity at an average 1,000 tpd mill feed rate will require a capital spend of $18.39 million plus $16.62 million in ongoing sustaining capital and development costs spread over nine years. The initial capital investment includes underground development; mill and equipment rehabilitation; expansion and upgrade, underground workings, surface infrastructure, working capital, and inventory repair and maintenance. The company expects to achieve a total on-site cash operation cost of $45.44 per tonne of mill feed ore over the nine year period.

 

Following the reverse acquisition of Platinum Diversified, ICM is well placed and remains fully funded to accelerate the development and re-opening of the Pachapaqui mine within a set timescale of 18 months. In order to meet its targets the extensive exploration and drilling campaign commenced in early 2007 will accelerate in 2008, which will lead to the completion of a bankable feasibility study during 2008.

The company is not short of exploration targets and it is expected to continue the delineation of identified mineralization structures across the project area. There is significant potential to extend the mine southwards, with those close to the company believing that there is a real prospect of an extra estimated 70 million oz silver equivalent discovery being made. ICM will continue to update the mine-related infrastructure and to undertake engineering and mine optimization studies in order to maximize operating efficiencies.

The cashflow from the Pachapaqui mine will fund exploration of other targets within the concessions with a view to increasing both the life and annual output of the facility. However Greg Smith and his team are already looking at additional development prospects in Peru and the cash can be used to bring subsequent, as yet unidentified, targets into production.

Strengths

ICM owns 100% of the Pachapaqui mine, a very attractive asset in a mineral rich province of Peru, a country known for its mining history and infrastructure. Peru is the world’s largest producer of silver and one of the largest producers of base metals. Due to its poly-metallic nature, the Pachapaqui mine represents a better economic proposition relative to single metal mines, as the company can exploit the silver, copper, zinc and lead concentrates.

The strength of the mine’s economics can be attributed to a number of factors, which include the ability of the mine to replace reserves on an annual basis by drift development, the currently 54 different ore zones in the ore reserve which remain open at depth and along strike, plus the presence of additional identified prospects that do not form part of the current resource/reserve base.

The industrial and investment demand for precious and base metals has provided further inducements for mining nations such as Peru to implement fiscal policies and improve mining areas infrastructure. Peru is an attractive place to mine for precious and base metals. The country is the largest gold producer in Latin America, and the fifth in the world. It has 16% of the world’s silver reserves and is the second largest silver producer in the world. It has 15% of the world’s copper reserves, and 7% of the world’s zinc reserves and produces 33% of the world’s zinc and copper.

In turn, ICM has chosen to engage in a long-term exploration programme which would potentially see the Pachapaqui mine producing more for longer periods, thus extending the potential for more new discoveries for the entire property. The company’s objective is to increase and improve the quality of the mineral reserves and resources and turn it into a world class poly-metallic mining property. Attractive features include a combination of low open-pit mining plus low-cost underground stope mining, the presence of a mill concentrator, and other related infrastructure that improve the technical feasibility and economic viability of the whole project.

Weaknesses

Like all mine reopening plans, bringing Pachapaqui back into production is not devoid of risk. At a legal level, in order for ICM to continue exploration and beneficiation activities at the Pachapaqui mine, the 10-year land agreement with the local community, effective 1st January 2006, needs to be registered in order to become enforceable. A number of other permits still need to be obtained although the company appears confident on all counts.

There are project-specific risks in relation to the tailings impoundment facility which could effect the economics of the project. Question marks over execution and permitting risks remain, whilst there is no certainty as to the successful EIS commissioning for the expanded 4,000 tpd mining operation phase. As a result, production and extension risks remain, hence the importance of ICM showing real progress in the next couple of years becomes more prevalent.

ICM has taken reasonable steps to compile a detailed exploration and development programme as well as a production plan over a term of nine years. Whilst historical production over a long period of 13 years provides some comfort and confidence to the company that a nine year mine life is achievable, the Pachapaqui mine has no operating history at 1,000 tpd concentrate feed. Critically, there is no certainty that further exploration along strike or in the area surrounding current deposits will yield a significant uplift in the mineable reserves.

The mine is subject to political risks. Peru currently enjoys relatively stable political conditions and there is no civil unrest. The Peruvian government determines internal affairs pertaining to the economy and to the regulatory position of mining activities. The country has a clear system of title. However, political stability cannot be assumed forever. There is a clear relationship between metals prices and the economics of this project. GE&CR takes a modestly optimistic view of the medium term outlook for metals however a sharp fall in prices would reduce the NPV of this project significantly. Any increase in metals prices—or indeed maintenance of current levels—would increase the NPV well above the base case outlined above.

Opportunities

ICM and its independent consultants have shown that Pachapaqui is an attractive project where restoration and re-opening is both technically and economically feasible. The mine has produced, in the past, for a continuous period of 13 years, whilst more recently it operated intermittently before it was placed on a care and maintenance basis. The company already has a JORC-compliant resource and reserve base which it can built upon, and the indications from activity undertaken in 2007 are that additional exploration will result in a significant increase and upgrading of the resources/reserves which would increase both minelife and annual output and so make a dramatic impact on the NPV. To meet this goal, the company will press ahead with a $15 million exploration and drilling programme spread over a period of two to five years, which is likely to test further existing mineralization zones and proceed with step-out drilling in areas where mineralization remains open along strike and down dip.

Threats

Political instability at national or regional level could derail ICM’s preparations and cause further delays. The need to re-apply for permits for the proposed expansion could hinder the project and push the production timeline schedule further back, thus affecting production revenues and cash-flow generation. Peru has a long history jostling between
democracy and military rule. The current president, Alan Garcia (in his late 40s), who was democratically re-elected for a five-year term in 2006, is in a better position to govern the country. The economy of Peru is in a much healthier state and the government has made in-roads towards a policy of sustainable future growth and financial stability. The next elections, set in 2011, could disrupt this continuity and affect the economy of Peru as a whole.

On the completion of the reverse acquisition of ICM and the company’s re-admission to AIM on September 14th 2007, Platinum’s founder shareholders, Mark Nordlicht, John Ryan, Bobby Cooper and Thomas Loucks plus Brian Burgess retired from the enlarged company’s board.

ICM’s board now consists of Greg Smith as executive chairman and chief executive, Marvin Pelley as president and chief operating officer, complemented by non-executive directors Jesse Rodriguez and Louis Rodrigo. ICM as a group holds three closed companies operating under Peruvian law, ICM Millotingo, ICM Pachapaqui and ICM Procesadora.

Gregory Charles Smith, executive chairman and chief executive Officer, aged 46. Mr Smith is executive chairman of PetroLatina Energy Plc, an AIM listed oil and gas exploration company with an initial focus on Latin America. Before establishing ICM, he was the managing partner of TVL, a company that specializes in raising venture capital for the energy and mining sector. Between 1998 and 2001, he was the chairman of Powder River Basin Gas Corporation, which was a successful operator of coal bed methane in Wyoming, US. This merged with Imperial Petroleum in April 2003. From 1993 to 2001, he was president of Renaissance Companies Inc, a structured finance group specializing in fund raising for the energy and real estate sectors in the US. Mr Smith obtained a degree in managerial sciences from the University of Nevada in 1984.

Marvin Hugh Pelley, president and chief operating officer, aged 59.
Mr Pelley has been involved in the resources sector for almost 40 years. He has a wide breadth of senior management and executive experience, having been associated with underground and open pit mines across Canada in copper, zinc, precious metals, coal, iron ore, and industrial minerals; hydro development in Labrador, Canada and the Philippines; government and community development engineering and construction services; and mining contracting and consulting services between 1999 and 2005. From 1993 to 1999, Pelley was the president of Alagnak Enterprises Inc., a mining and hydro-electric consulting service. Between 1986 and 1993, Mr Pelley was president of Curragh Inc., overseeing start up mining and mineral concentrates. Between 1982 and 1986, he was manager at Quinette Coal Limited, overseeing engineering and technical aspects of mining and mineral concentrates. He has investigated potential mining investments throughout many parts of the world, and potential electrical energy generation investments in Kyrgyzstan, throughout the Far East, and in New Zealand and Australia. Pelley is a past member of the board of directors of several corporations and the Mining Association of British Columbia (Canada).

Jesse Michael Rodriguez, Non-Executive Director, aged 42. Mr Rodriguez is a managing director of Millennium Americas LLC and has 16 years’ experience in principal investing, mergers and acquisitions, merchant banking, and corporate governance. He has invested in, and worked on, situations in the United States, Europe, Asia and Latin America, and he has advised the government agencies of Mexico, Venezuela, Colombia and the Dominican Republic. Rodriguez’s investment and advisory experience extends to a variety of industry sectors including mining, metals, telecommunications, media, financial institutions, technology, business services and diversified manufacturing. Prior to his work at Millennium, Rodriguez served as a managing director of Huron Consulting Group where he focused on distressed and restructuring situations in the United States. From 1999 to 2002, Rodriguez was managing director and head of Latin America mergers and acquisitions and merchant banking for Bank of America Securities. In this capacity, he managed a portfolio of private equity and mezzanine investments

Subsequent to the reverse acquisition of ICM, 42,173,752 ordinary shares of the company were admitted to AIM, accompanied by 9,935,000 warrants. 4,496,200 ordinary shares were redeemed during the 30-day period following re-admission, leaving the company’s share capital at 37,677,552 ordinary shares in issue, of which 55.3% is in management/vendor hands and 44.7% in public hands. There are 10,576,308 warrants outstanding, consisting of the original 9.935 million warrants and consideration warrants of 641,308, pursuant to the acquisition. Each warrant entitles the holder to purchase one ordinary share in ICM at a price of US$6 and they expire in March 2010.The shareholders with more than 3% interest are as follows:

Shareholder	Shares Held	Percent of Outstanding shares
Management*	17,332,007	46%
MGSSA	6,371,082	16.9%
Founders of Platinum Diversified**	2,483,752	6.59%
Plata-Peru Resources	2,344,299	6.2%
Euro Americas Securities	2,137,691	5.7%
Anchorage Capital Master Offshore	1,274,351	3.4%

* These are Greg Smith, Marvin Pelley and Jesse M. Rodriguez

**These are Mark Nordlicht, Bobby Cooper, Howard Crosby, John Ryan and Thomas Loucks

The most recent financial results for ICM were for the period ended 31 December 2006. ICM reported an overall loss on ordinary activities of $12 million, a net asset figure of $24.46 million and cash at bank of $1 million on its balance sheet. The company reported a modest gross profit of $149,271, with the main costs going through the profit and loss account being $7.55 million in administrative costs and $4.11 million for a provision for intangible assets. The provision was made due to the fact that the company was unable to obtain full legal title on San Luis and Milliontingo. Intangibles assets of $35.29 million were shown on the company’s balance sheet at 31 December 2006.

PDM’s latest results were also for the period ended 31 December 2006, and showed a loss for the period of $4.77 million or 38 cents loss per share. The loss was attributable to operating expenses of $7.695 million netted off against interest receivable earned during the period of $2.93 million. PDM had $77.946 million in a trust fund, showing under investments on its balance sheet, in line with its SPAC status, resulting in total net assets of $78 million. Other cash and cash equivalents were, a modest, US$91,000.

Following the acquisition, the enlarged group is estimated to have a net asset base of approximately $289 million, consisting of $237 million in fixed assets, $63 million in current assets, $6 million and $5.28 million in current and non-current liabilities respectively. Cash in the bank is estimated to be around $21.44 million.

Following the exercise of the conversion and redemption rights of ICM shares, the enlarged group’s trust fund has been reduced from $77.945 million to $40 million. The table below shows how the company proposes to use this amount within the next 18 month period.
 

Application of Funds					Amount
					US$ million
Drilling and exploration programme					2.8
Preparation for bankable feasibility study for Pachapaqui Mine					2.2
Maintenance, operation, equipment, building of Pachapaqui mine					6.3
Working capital, including consumables and overheads in Peru					9.0
Redemption of former debt obligations					8.6
Repayment of existing liabilities of PDM					4.4
Advisory services in relation to Acquisition					5.6
Balance to go towards ongoing working capital requirements					1.1
Total					40

We have prepared a detailed DCF model for restarting mining operations at the Pachapaqui mine over a nine year mine-life plan. We assume that ICM will continue funding the project from its available liquid resources (currently around $18 million) plus the potential $60 million from the exercise of the 9.9 million warrants @ $6 each.

Over the nine year period, our estimates show the mine producing around 64.5 million oz/Ag, 737,900 tons Zn, 398,400 tons Pb, and 84,200 tons Cu in-concentrate. We view these estimates to be conservative in nature, and hence we consider them as base case production schedule estimates. The next four years will be very important for the success of the Pachapaqui mine. 2008 will be a period of continued drilling exploration and development activity with the establishment of a targeted 15Mt-20Mt JORC status resource base. 2009 will see the completion of a feasibility study, upon which point the construction of a 4,000 tpd mill will commence.

This is estimated to take 2 years to build and hence it is estimated that the increased 4,000 tpd operation will commence in early 2012, and it is on this basis we have arrived at a Net Present valuation for the Pachapaqui asset. During 2008-2011, we allowed modest production throughput rates on the basis of a 1,500 tpd operation. During this initial period, we estimate an initial in-concentrate production of 6.85 million oz/Ag, 45,600 tons Zn, 25,400 tons Pb and 6,500 tons Cu. Between 2012-2018, we expect a ramp-up to the production schedule leading to a peak annual in-concentrate production of 8.25 million oz Ag, 107,000 tons Zn, 55,000 tons Pb and 11,500 tons Cu. We used modest metal prices in our model, discounting by an average of 10%-15% the present metal prices and allowing for modest metal prices increase over the nine year period.

Taking into consideration capital expenditure of $75 million, a discount rate of 10%, conservative taxation and royalty rates plus the employee participation scheme, we arrive at a Net Present Value for the Pachapaqui mine of US$745 million. Assuming all 11.073 million outstanding original PRM and ICM warrants plus original PDM options are exercised, this values the Pachapaqui property at US$14.5 per ICM share on a fully diluted basis.

A number of very early stage development projects such as San Luis are not included in our valuation, given their early stage exploration status but they, clearly, offer long-term upside potential. We recognize that this company faces considerable risks in bringing the mine at Pachapaqui into production, however, the company remains fully funded and the enlarged entity following the reverse acquisition, has a capable and experienced management team in place. Our base case valuation allows for limited exploration upside at Pachapaqui and none elsewhere in Peru and therefore there is significant upside potential for ICM. At 285p, we initiate our coverage with a buy recommendation and a target price of 725p.