>>By PM this morning a suggestion that Inmet imn.to might look good in a comparison with Aur , with Antamina developments cited as reason ... sounds like something to look into ...
AntaIMNa;
(The usual disclaimer; the writer accepts no responsibility for accuracy nor for any inferences you might draw from the tale!)
Suppose there was an orebody that would produce 2,300 tonnes of ore per day for more than 20 years. The grade of the ore would be 1.3% copper equivalent and cash costs over the mine life would be about US.35 cents per lb of copper. Production would be about 20,000,000 lbs of copper per
annum. The mine could be built for US$75,000,000.
Now suppose there were benefactors who said, " We'll own the mine and the risks that go with it. WE will provide the money to build it. WE want our money back before you get anything. but you can have ALL the benefits (free cash flow) after we have our money back"
2,300 tonnes per day is 3.3% of the 70,000 tpd that will be mined by Antamina, and US$75M is 3.3% of US$2.3Bn total cost (including interest on project debt). One of the owners of Antamina with a 33.7% interest, says its share of production should be 200,000,000 lbs of copper per year, so 20,000,000 lbs would be 3.3% of total annual production.
For details of Inmet's interest in Antamina see page 20 of its Annual Information Form available at SEDAR.
On its web page ROM says;
"With US$1.2 Bn project financing in place (including interest), we expect that the project will provide a leveraged 15% return on equity". That implies 57% debt(incl int) and 43% equity. For our imaginary mine the same ratios would require $33M in equity and $42M in debt (incl int) .
My pencil tells me than 20 annual payments of US$8M would be sufficient to provide a 15% return on $33M equity and sufficient to repay the $42M in debt. If this were so, the payback period for our imaginary mine might be 9 years and the BENEFITS after payback might be (say) 11 annual payments of US$8M.
Subsequent drilling at Antamina has increased expected mine life , so perhaps the benefits of our imaginary mine would increase accordingly. What present value you place on the benefits depends on what return you demand on your investments (i.e. what discount rate you use). Mr. Market doesn't seem impressed.
There are other assets in Inmet that might make it valuable to a major. Perhaps the best indication of what is going on here is contained in a presentation by the president dated 13 September and available on the website. Incidentally, in the last six months Inmet appears to have bought back almost 2 million of its shares. |
