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Gold/Mining/Energy : Gold and Silver Juniors, Mid-tiers and Producers -- Ignore unavailable to you. Want to Upgrade?

To: AuBug who wrote (59708)	5/26/2008 2:39:02 PM
From: philv	Read Replies (1) \| Respond to of 78424

You have to admit its a pretty good risk free arrangement for NEM. The shareholders of VIT spend the money, take the risk, and if it proves OK, NEM will ante up to drill it out and take back 51%. Yes, it was their property originally, but they don't have to spend money on risky drilling. VIT takes all the risk, and if they hit big, get half the reward. And will still have to pay their share of mine development. It seems to me they have hit on some pretty impressive results already. Unfortunately the stock price hasn't reflected that, fortunately VIT has other targets. These JVs do seem to be tough on the little guy.

To: AuBug who wrote (59708)	5/26/2008 4:28:17 PM
From: E. Charters	Read Replies (1) \| Respond to of 78424

Remember this. No one else will partner with VIT because they won't process their ore elsewhere even if NEM backs out, they still get the gold in their mill, which is worth 10 to 15% of the overall to them. Gold finds its way into their pocket that way without it being on paper. Some of VIT's losses are their gains. Also it is subject to NEM's accounting that they get paid at all. If the deal was with Norandda VIT would NEVER get paid. Pay back is fictional on many company's books. How they do that is tricky and has to do with ongoing costs. On the other side of the coin Noranda would NEVER allow a 'foreign' financial statement to define another party's costs. They had to see (to) third party cheques, i.e. real costs, in their deals or it was not an expenditure. Plenty of people will value their old equipment or used stuff, or piece of junk as an expenditure at new value, or employees at 3 times what they actually pay out. You have to get things forensically defined and checked in a partnership of this kind. VIT it would appear will have to finance 49% of the operation. NEM is not giving up 49% for just spending a few bucks on explo. If the thing gets big, VIT has to raise real bucks to retain their end. 5% NSR is a given as gold will definitely stay over 500. With inflation hitting the mining sector rather hard, it appears that will be harder to pay. It smells like at least 25% of profits. I have seen where it may be 35% of profits. What does NEM really, really get if they process the stuff and VIT just mines it? Well I would imagine it works like this. VIT has to pay 8% for their money, and give up 10% of the gold as lost in the cracks of NEM's mill. At 200 million half raised by debt that is 8 million per year interest. Let's say a million ounce mine at 1,000,000 tons per year at 4 grams. 130,000 ounces per year. $115,744,461 - Take 90% of that = 104 million. Minus 8 million; minus 20 million for payback of principle, minus 5.2 million royalty, minus 38 million dollars mining cost.. do they have to pay the milling? Of course.. - 20 million = 12.8 million. Great little mine. VIT makes $12.8 million before taxes on the mining for the five year payback period. (Probably a little more each year up to 21 million at the end of year five when you consider paydown of principle.) NEM's royalty is 28.8% of profits first year (here assumed to be 18 million BT otherwise). If the new US royalty is carried it will be a lot less profit than that. Combined royalties would bring that down to 4.48 million net. When royalties are 3 times net profits after royalties (75% of the otherwise profit) it is time to consider being in another business. Even after payback, the combined royalties would be 40% of profits. On the average the mine would last another 2 years after payback. Does it ever get to pay a dividend? I think that would be no. That is a lot to spend on solely an underground mine. Really you have to find 2 million ounces and try to mine it at a rate of 4 to 5,000 tons per day. If you were just paying the underground you could probably do it for less than 100 million I would think. It changes things but not that drastically. Nice business being in government. All your relatives get to stop work and you earn disproportionate amounts of money off real people's labour and genius, to spend on your pet projects, such as environmentally destructive power dams and defense plants in your home county. Every single elected representative retires a millionaire upon having ceased useful work once elected. ahh but it's motherhood. Jobs for the poor, national defense, eyesight for the blind, hospitals, schools, how can we say no? EC<:-}