I admit to knowing very little about figuring NPV, but the numbers posted by Maintenance on the WSP thread don't make a lot of sense to me. For one thing, isn't taking 10% as the discount rate very high in this interest rate environment? Aren't you supposed to use as a discount rate the risk free rate of return? Am I wrong on that?
Anyway, here's a summary of the numbers from the scoping study, Maintenance's numbers, and my numbers. I wish somebody with an MBA or business background who knows of what he or she speaks would set us straight, since the there's a big difference between the $6 plus figure of Maintenance and the $31 number I come up with. BTW, I think I used 67% instead of 67.75% in my calculations of WSP's percentage interest.
Scoping Study;
Model 2: Assumes Combined Open pit and Underground Operation (Processing Rate = 1000
tonnes per day)
Assumed Total Tonnage of Kimberlite Mined: 3,500,000 tonnes
Mine Life 10 years
Assumed Ore Value* $Can400 / tonne
Assumed Diluted Ore Value $Can380.95 / tonne
Assumed Total Capital Costs $Can 103.8 million
Assumed Total Operating Costs Over
Mine Life $Can 305.0 million
Total Cash Flow (Assuming Current
NWT Tax Structure) $Can 572.4 million
Discounted Cash Flow Rate of Return
(After Tax) 55.6%
Maintenance Take:
Assuming model 2 from MRDI, and assuming management , office and other overhead
costs of $1,000,000 per year, and assuming 60% tax, and assuming 2 years to start
production.
Tons/year...............350000
Rev/ton....................400
Cost/ton....................87
Net/ton....................313
Gross margin.........109550000
fixed costs............1000000
Gross profit.........108550000
Tax...................65130000
Net...................43420000
Ten year life.
Discounted at 10%.....227324376
Discounted 2 yrs......187871385.5
Startup cost..........103800000
NPV...................$84071385.5
NPV/Share..........$2.272199608
If you assume 2200 metres instead of 850, and all else
equal, you may get 25 year life, or NPV/Share of $5.99,
again at 10%
To: VAUGHN (1306 )
From: Tomato
Wednesday, Oct 7 1998 1:01PM ET
Reply # of 1374
I was trying to figure out a value per share
of WSP based on that David James report
posted by VAUGHN. See if these figures check out..
In Situ Value: $400/tonne X 3.5 mil tonnes = $1,400mil
Less $87/tonne operating costs - 304
Less capital costs - 104
Net value 991.5
WSP's 67% share 664
Divided by 37 mil shares fully diluted 17.95/sh
or another way to do it...
In Situ Value: $400/tonne X 3.5 mil tonnes = $1,400mil
WSP share of 67% 938
Less 67% of $104m capital costs - 70
less 67% of $87/tonne operating costs -204
Net value 664
Divided by 37 mil shares 17.95
at 10 mil. tonnes, multiply by 3, or approx. $54/sh.
Discount rate? What percent should one use? The current Fed. rate? 10% seems way too
much. Don't you go with the risk free return? The figures on an old Yorkton report for Aber using
5% discount rate over 15 years go from $26.90 per share to $15.60 per share, a 42% reduction
for current value. Subtract 42% from my $54 figure, and you get...$31.32/sh. If you want to
subtract G&A from that...$15mil divided by 37 mil shares..40 cents per share off, or rounded off,
$31 share. Add on to that something for Carat, Hilltop, and the possibility of a pipe under Snap
Lake.
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