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Gold/Mining/Energy : Crystallex (KRY)
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To: Gutman who wrote (7318)3/23/1998 11:38:00 AM
From: E. Charters  Read Replies (2) of 10836
 
The final analysis of what NPV means is this. If we have distant future earnings that go much beyond payback period times three then They begin to add to the residual value of the business. It is meaningless to discount their earning to today because we are not trying to justify expenditure by those earnings. We try to justify expenditure at required rates of return by the earnings necessary to pay back debt in the near term. What we can make in future years due to the same outlay in the present goes towards making the NPV greater not lesser. The reason is what was paid out to get those earnings? If it is zero then any positive present value is pure profit isn't it?

And if there is zero pay out what % rate is required to valuate those
future earnings? It can be a lot less can't it? How much do you require to make on free money? So the future or FREE cash flows goes UP not down as they recede into the future.

If they go beyond 20 years they are infinite in financial terms. Then the business begins to be valuated more like a sinking fund or a utility requiring much lower rates of return and making its future earnings much more valuable in present terms. Beside are you going to try to predict future gold price and interest rates and operating costs 20 years ahead? Remember the plant and infrastructure are all paid for and the costs are figured to a minimum.

If you give me gold mine with a hundred year life in a stable country I would put those shares in an Orphans' fund.

echarter@vianet.on.ca

The Canadian Mining Newsletter
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