dowry requirements for ext/rio marriage, page-5

Kirbie,

I started doing some numbers last night as to "what it is worth" but ran out of time to gather all necessary data. Despite that, I thought I�d post what I have come up with to stimulate some discussion.

EXT have:
367,300,000 lbs of U3O8 in zones 1, 2, 3 & 4 (366.5Mt or ore) being:
247,000,000 JORC Compliant Indicated Resource in zones 1 & 2 (241Mt of ore @ 480ppm) &
110,300,000 inferred in zones 3 & 4 (125.5Mt @ 400ppm)
(source - 2010 annual report page 11)

$75/lb = current spot market price for U3O8(1USD = 1AUD)

Projected revenue value of the above U3O8 is therefore $27,547,500.00.

Mining rate is anticipated to be 15Mlbpa, so life of mine is notionally 24.5 years and revenue will be approx $1,125,000,000 AUD pa

Operating costs per tonne or per lb of U3O8 I do not have � does someone have a figure for this? For the purpose of this calculation, I�ll assume a flat $250,000,000pa

Capital required to develop Rossing South for production has been quoted to be in the order of $1,000,000,000.00 ($1BAUD)

Let�s assume the capex is funded at 15% interest (not sure if this is a reasonable figure, but I expect the cost of funding would be far less if funded by RioTinto Finance); as I recall from my 12 years with RTIO, the internal rates of return they use are 12-15%, but I am sure the cost of their own money is cheap (happy to be proved wrong with this)

So, lets look at the costs and cashflow:
Assumptions:
1. The $1B is returned over 7 years with 15% interest paid on any outstanding principal; assume simple interest for purpose of this calculation
2. 7% of original capital is required as sustaining capex over and above the original capex = $70Mpa (even spend each year although reality will differ)
3. Opex = $250Mpa (simple lump sum figure)
4. Revenue = $1,125Mpa for 24.5 years
5. Long term price of U3O8 = $75/lb
6. Processing recovery rate is 100% for the purpose of this calc
7. No inflation considered in terms of revenue or opex or sustaining capex
8. No royalties considered to Namibian government (any ideas of what this will likely be?)
9. Mine closure costs not considered

Revenue stream will be as follows:




So we have $18,525M of revenue stream over the next 24 years

Let�s assume 30% company tax � so that would be $5,557 M over the 24 years, leaving $12,967 M of revenue,

Current Market Cap:
Shares on issue = 250,851,367 (source: Ann 9Dec Re Placement to KAh & Appendix 3B dated 19 Jan)
SP = $9.75 @ close on 21 Feb
Market Cap. @ close on 21 Feb = $2,445,800,828

Share Value Based on Estimates of Revenue as set out above:
= 2,445,800,828 shares / $12,967,499,985
= $51.69
Now take a breath and don�t get excited.

There would have to be some discounting of the above figure to account for
1. mine closure costs
2. inflation
3. royalties
4. discounting due to lack of DFS
5. not in operation

Additionally, my figures assume:
1. Assumed rate of financing
2. simple interest
3. no royalties
4. no mine closure costs
5. guestimate of opex costs
6. guestimate of sustaining capex costs (which in my view are reasonable based on my experience with RTIO)
7. No allowance for stripping ratios (ie tones of material to move vs tones of ore in the reserve � this can have a huge impact on costs, as would the tonne-kms the material has to be moved and whether or not it has to be returned to the pit on mine closure)

There may also be many other details I may have missed here.

So, we know the market thinks this is worth $9.70 per share at the moment.
From above it is potentially worth $50 less the things I�ve missed.
Having said that, I don�t think I am so far out that it is only worth the $9.70 we see on the ASX this am.

For mine, it must have an upside to the current SP, $15 would have to be reasonable, $20 would be nice for me.

At $20, I think Rio would still do very well from this. Whether it will get there is a completely separate question.

I would genuinely appreciate some feedback and critique on this, so please make a contribution � would love to hear from Harlee, Beer Barron and others as to their thoughts.

DISCLAIMER � I am not a financial advisor, just a poor simple engineer investing his money in what he believes is a good thing. PLEASE DYOR and good luck to all holders.