That is a useful first pass on figuring a possible share price.
You may want to include in your estimates:
1. an estimate for interest payments - eg if they borrow $200m at 10% then they will pay about $20m in interest, which adds about $133 per ounce to outlays. and reduces free cash flow ; - this payment falls as they repay the loan over time.
2. an estimate for for administrative costs - ongoing admin costs of say $10m pa means an added cost of $67 per ounce
3. a very modest exploration program of $5-10m pa which adds an extra $33 to $67 per ounce to annual outlays - they may still need to do some exploration to fine tune the areas they want to mine even if they are not looking for more ore bodies - a full blown exploration program would be another $20-30m pa, but they will cut this out or suffer the same fate as Igr which kept diluting shareholders to find more ore.
4. add payments for any taxes or dividends due to the govt - I am not sure about this happening in the first few years - there may be a tax free period.
5. the need to repay the loan (which would come from any remaining free cash flow).
6. The hedge costs.
So I think one could add another $233/ounce to outlays. On an AUD POG of $1600 this would leave ($1050 + $233) only $17/ounce. hence free cash flow on 150k ounces pa would be about $48m, from which the company would need to make repayment of capital and any taxes.
It is worthwhile doing a range of estimates. No doubt the big boys do this all the time.
Bottomline is that there would be nothing for shareholders for some years until the loan had been repaid and they had funded an upgrade of the plant for the sulphides. I wonder how the market would price this sort of scenario?
I tend to think that they will plan to mine the high grade stuff to reduce the high upfront cost of the plant, ie still produce about 150k ounces pa but with a smaller plant using the 2.6 grams/tonne ore body - after which they will have to upscale the milling facilities and fund the upgrade for sulphides.
I also think dilution could result in total shares on issue exceeding 550m due the nature of this market and perceived issues with the ore body.
Gunga will have other ideas, and I am all ears.
loki (just speculating)
AMX Price at posting:
36.5¢ Sentiment: Hold Disclosure: Not Held
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