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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers
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To: koan who wrote (13737)6/18/2006 8:14:00 PM
From: tyc:>  Read Replies (2) of 78418
 
Hi Koan,

Thanks for your reply. I would like to counter;

>> 1) they are still too far out of the money....But Rio Narcea just never seemed to move

I talked about leverage from the present price points. That 1.8x I mentioned suggests that the warrant would move up 1.8 times as much as the stock; e.g as the stock moves up 5% the warrant might move up 9%. In the past 90 days the stock has had a "historic volatility" of 70%. This is high volatility. (I wonder if DAK would comment on this if he reads this ?)

>>2) The banks forced Rio Narcea to sell a lot of their production forward at pretty low prices relative to today.

The presentation following the AGM (on the web-site), says that the the hedges represent only ~50% of expected copper production until September 2008. The company enjoys the full market price for all the Nickel. Moreover, with Nickel @ US$7 per lb and copper @ US$2 per lb the mine is expected to generate operating cash flow of ~$60M this year. The current prices of both nickel and copper are higher than this. (What even-higher cash flows will be generated when the copper hedges have expired ?).

I was too conservative in quoting the original feasibility figures of the gold mine being built in Mauritania. That AGM presentation now estimates the capital cost @ $68M and indicates that with gold @ U$500 per oz, the IRR is expected to be ~ 40%. (see the presentation, it's worthwile)

(Anyway, it's my kind of mining speculation ! )
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