Valentine, you are RIGHT about value. The KRY bulls simply do not understand the concept of present value. They think that a dollar earned 25 years from now is worth a dollar today, when in fact it is only worth about 15 cents, assuming a rate of return of 10%. These
people arbitrarily take a number like $50 an ounce, multiply it by
20 million ounces, and mistakenly think the result has any meaning.
It would only have a meaning if the 20 million ounces could be mined
in ONE year. But at a mining rate of 500,000 ounces per year, it would
take 40 years to mine the last 500,000 ounces. The present value of
those ounces, in terms of profit, is only about 2 cents on the dollar!
In addition, KRY bulls forget about capital costs. Assume that the mine costs ONLY $250 million to build (highgrading scenario). The amortization (principal and interest) of a $250 million loan over 10 years at an interest rate of 10 % is $37 million per year. Now if 250,000 ounces are produced per year at a cash cost of ONLY $150 per ounce, the operating profit at $293 gold is $35.8 million a year, and that is before administration, travel, meals at 5-star restaurants, etc. Looks like a negative cash flow.
No surprise that John Ing of Maison Placements is quoted as saying that the economics of Las Cristinas is "shaky at best" even at $375 gold.
So why does Placer want LC? To keep it in inventory until gold prices
recover. They can afford to do this. KRY cannot.
BTW, I am a chartered financial analyst (retired).
Gutman |
