Gold and macro environment, page-413

Let's see if we can get an implied valuation based on the royalty purchase by Osisko...

To keep it simple:
Royalty is US$50million for 1.8% of gross revenues; Exchange rate AUD/USD = 68c.

USD$50 million/.68 = AUD$73.5 million approx.

AUD$73.5 million/.018 = AUD$4.08 billion approx. revenue to break even.

But, this is not the complete picture because Osisko will have to pay taxes on the royalties it receives. Therefore, the $4.08B will need to be grossed up to reflect the taxes it wil have to pay. I know the corporate tax rate in Canada is 38% which can be reduced all the way to 15% by applying certain rebates/discounts but I don't think overseas earnings qualify for those reductions in tax. I don't know the laws relating to where the tax will be paid; it could well be the tax is paid in Australia and then reconciled later according to their domestic obligations. Anyway, for ease of calculation, and to keep calculations conservative, let's assume a 30% tax rate:

So, including tax obligations: $4.08/.7 = AUD$5.83B in Spartan gross revenues is required for Osisko to pay its taxes and break even on its investment.

But! This is still not the complete picture due to the time value of money. Let's assume revenue streams received over 10 years at a discount rate of 8%p.a.
$5.83B in today's money, received as an annuity style payment over 10 years is equal to $5.83B divided by a discount factor of .671 = AUD$8.7B in revenues received by Spartan over the 10 years.

In effect, Spartan would need to make $8.7B in revenues over ten years; Osisko takes 1.8% of that, pays its tax obligations, then discounts the cash flows to arrive at $73.5 million break even amount.

Now, as enormous as it sounds, AUD$8 billion+ in revenues over 10 years is not out of the question. If you can produce 200,000 ozs a year for ten years at AUD$4,000oz. you get $8Billion! The price of gold simply has to keep up with inflation to work its way to well over AUD$5,000+oz. by year 10. So, Osisko is banking on a much higher POG, significantly more ounces produced, or more simply, just a much longer mine life. Just my opinion here, but if you're finding gold down to a kilometre deep with step out holes, then a twenty year plus mine life is not out of the question.

Spartan Valuation

Let's assume an average gold price of AUD$4,000oz., and an AISC of $1200oz. (AISC is just guesswork on my part but i'd hope we coud do better given the very high grades and widths of NN and Pepper). This yields a profit margin before tax of $2800/4000 = 70%. Note here, that margins in dollar terms (not percentage) can actually expand considerably over a ten year period if both POG and AISC simply increase in line with inflation.

So, if we multiply the break-even revenue number (above) by 70% and apply a 30% tax on that number, we get:

AUD$8.7B x .7 (profit margin) x .7 (profit after tax) = $4.26B
Take another $150 million to upgrade and restart the plant, leaves $4.11 Billion

Then discounted at 8% over ten years as an annuity stream gives $4.11 x .671 (discount factor) = AUD$2.76 Billion

Current shares on issue, including performance rights = 1.166Billion
Estimated share price based on break-even revenues for Osisko royalty and 70% profit margin before tax is 2.76/1.166 = $2.37

Upside to that valuation is finding more gold, extending mine life beyond ten years, increasing annual production and higher POG.
Make of all that what you will. Happy to be corrected and STILL a happy buyer at these prices!
Good luck to all!