Here's an essay I wrote about just some of Inmet's assets. I wrote it for my own edification. Perhaps it might start some discussion.
I took the time today to peruse the "reasons for judgment" posted on Inmet's website. Starting at clause 410 there is reference to an expert's market appraisal of the Troilus mine. As at the trial date, the expert evaluated the Troilus mine on a DCF basis between $76M and $90M. The judge took the higher figure and awarded Inmet the difference between that and the negotiated sale price of $178M, an award of $88M. Inmet keeps the mine.
Until recently, IMN had ~35M shares outstanding. Even the lowest evaluation of $76M represents $2 per Inmet share. Add in the award $88M and you reach ~$4.25 per Inmet share, its current market price. We speculators concentrate our attention on the wrong end of a mine's life. It is at the end of its life that a mine really pays off.
And why did the market express such enthusiasm for IMN's purchase of a mine in Finnland, which required capital, while apparently failing to recognize its interest in Antamina, which requires no capital?
.If IMN had retained a full 3.3% participating interest in Antamina, it would have had to contribute ~US$75M of the cost of the mine. Instead, it retained an interest in only the profits (Free Cash Flow) of the mine. Other people paid the price and, of course, other people will recover the price they paid.
. Because it didn't retain a participating interest in Antamina, IMN was able to pay that ~$75M to buy a mine in Finland. Just as the people who paid the price for Antamina will receive no benefits until the price they paid has been recovered, so IMN will receive no benefit from the Finnish mine until the price it paid for it is recovered .. All mines are the same in that regard. While the owners are recovering their capital from Antamina, IMN will be recovering its capital from the Finnish mine.
. What happens when capital has been repaid and the benefits begin ? IMN will start to receive the free cash flow from its interest in BOTH MINES ! 3.3% of Antamina and 100% of the Finnish mine. It's like getting the benefits from two mines while paying the price for only one. "Getting your money back" is NOT "enjoying profits", even though accounting practises may make it seem so .
In all these cases it is legitimate to add the rider "they haven't got the money yet !". Even Antamina may not generate any benefits, and it certainly won't do so for any of the participants for years. That's situation normal in mining ! However, it's important to recognize that IMN will start to enjoy "benefits" at the same time the major participants do; after equity has been recovered. |
