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Gold/Mining/Energy : WillP Speaks on Winspear -- Ignore unavailable to you. Want to Upgrade?

To: Tomato who wrote (102)	3/12/1999 8:24:00 PM
From: Tomato	Respond to of 177

uthor: WillP -- Date:1999-03-11 23:35:33 Subject: Cash Bars...Icecream Bars...Scapa-chino Bars Diamond Willie: Ahh, yes. The NPV calculation. Well...look at it this way. If you anticipated earning $1.20 per share, from an interest related source then you might decide that the share was worth $24.00. However, if the first payment wasn't until 2004...what would the share be worth today? Something...but not $24.00. Now there's probably all kinds of ways to calculate what it's worth, and many have their merits. That's basically the distinction. NPV uses diffeent rates of discount or premium, depending on the circumstance. One could consider the situation of a stripped bond being close to this...except this stripped WSP starts paying after 'x' years. Hopefully. :-) The DB report assumed startup in 2006, as I recall. (I don't have it here.) What discount rate(s) did he use? NPV can be pretty harsh with an 8-10% discount over several years. It has its uses, however. If you take the $1.20...maybe a share price of $20.00 in 2006. Or $5.00 today??? Sure...sounds reasonable for a 7 year wait, I guess. I'd have to do some financial math...and things tend to start smoking when I do that. :-) Regards, WillP Top Reply Author: WillP -- Date:1999-03-12 03:48:05 Subject: Financial Fun It's been a long night. All is now under control, and I thought it was time for some 'fun' as I unwind. So. Some of you may have encountered the... "you need $2000 per tonne ore to mine in the NWT"...madness. Well, given the history of mining in the NWT...that's not worthy of comment. What is, however...is the entire concept of financing a mine. Let's say...umm...Snap Lake. :-) I also want to have a bit of fun with it. No banks. Let's assume there is no debt financing available. What to do? Well...how about offering the current shareholders one warrant per share. Each warrant plus $3 entitles the shareholder to procure a preferred share. This preferred share will pay $0.75 per year for 10 years, starting two years after exercise date. After 10 years of payments, the company redeems the preferred shares at par. That's a 25% dividend. Not too shabby. In addition, any shareholder who can't or won't exercise the warrant...can trade it on the market. Not a bad deal. Costly however. The warrants provide Winspear $150 million. This is used to develop the 1000 TPD 10 year mine envisioned by MRDI. That's more than the cost estimate...but I'm going to run mine at...ohhh...1,400 TPD. The cost of this financing is $150 million, plus 10 years of dividends worth $37.5 million per year. That's $525 million. In addition, I want the common shares to earn $0.50 per year. That's an additional $25 million per year, for a total of $250 million over ten years. That level of earnings should support a share price around $7.50 to $11.00 throughout the early stages of production. Therefore...I want a grand total of $775 million free and clear from Snap Lake. That's what I personally have decided I want as a minimum return. I've decided this as I type. You can deside if it's lucrative enough for your investment. So...how does one come by $775 million out of Snap Lake? Well...you don't. Not unless you have both value and grade. We don't know that yet. Value? Well...lets assume the ore has a value of $360 Canadian. That's about $160 US a carat times 1.5 carats per tonne. I'll also assume the cost of mining the stuff is $110 Canadian per tonne. That's way high...but it includes dilution, etc. Plus a safety margin. So. We get $250 for every tonne hauled out of Snap Lake. But we have to pay royalties and taxes. Mind you...our taxes aren't as high this way. But...let's say we get $150 per tonne after taxes. So...how many tonnes do we need? 775 million divided by 150 is....umm....5 million tonnes. That's pretty much what a 1400 TPD operation is going to mine in a 10 year period. Now...the point of all of this is not to seriously recommend this as an alternate financing route. LIBOR plus 4% is more attractive, I'm sure. :-) That reduces the overall 'cost' to under $500 million. Or...simply issue a warrant for one common share at $3. That doubles the shares outstanding to roughly 100 million, but eliminates the need for financing. One needs $500 million to maintain the $0.50 net income per share. Rather...it's just to demonstrate the profitability of this situation, given one adaptation of the MRDI estimates. One question about debt vs. equity financing is the level of 'feasibility' required. Grade and tonnage will have to be adequately delineated. What grid spacing would be required to 'prove' the resource? Twenty metres? That's 2000 drill holes. Fourty metres? that's 500 drill holes. Fifty metres? That's 320 holes. One hundred metres? That's only 80 drill holes to identify and hopefully 'grade' a 5 million tonne reserve. Whatever the answer is...it's bound to be a smaller spacing with debt financing than with equity. Investors will always be willing to assume a slightly greater risk than bankers. In any case...even the minimum plan seems workable with lower revenue numbers than MRDI suggested, and with higher capital and production costs. Anything above this...should be pure profit. And...if the bulk sample suggests Winspear has $2000 per tonne ore value...then they need far less tonnage mined over 10 years. :-) Anyway...the coffee is gone...I'm off to bed. Regards, WillP