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If the deal goes through - which way did you vote and why?, page-9

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15/05/24

17:27

Post #: 73841537
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Originally posted by mergernotaTO: ↑

Let's do a simple profit exercise shall we let's just use fake numbers for these two fake companies:

Two companies produce 200k Oz they generate around 600 million in revenue a year, both companies make around 10% profit to revenue. This is based on the POG being at $3000 with an aisc of $2700 based on profit margins of 10%.

200k Oz x 3000 = 600 mil
200k Oz x 2700 = 540 mil
profit = 60 mil or 10% of revenue

Now let's say company a decides to make a hedge at let's say 2600 for 250k Oz.

Company b decides to hedge make a hedge at 3000 for 100k Oz and make the same 10% revenue.

Now over the course of two years company both companies have aisc of 1080mil anything after this is profit. Let's say the POG is now at $3500 and stayed at that throughout the course of two years.

Company a has generated 1175mil
250k Oz x 2600 = 650 mil
150k Oz x 3500 = 525 mil

Company b has generated 1305mil
100k Oz x 3000 = 300 mil
300k Oz x 3500 = 1050 mil

Both companies have an aisc of 1080 company a has generated 95 million over the course of two years on around 1 billion revenue while company b has generated 225 million over the course of two years.

If the POG was at $3000 and didn't move and the aisc was at $2700 then let's use neutral company c as a control.

Neutral company c has made 120 mil over the course of 2 years at 10% profit margins on a revenue of 200k Oz at $3000 with an aisc of $2700.

This means over the course of two years that company a has basically lost 25 million, while company b has generated an additional 105 million. Why does this matter? Basically profit margins to revenue, on company a their profit margins have dropped from 10% to something like 9% while profit margins on company b have gone to something like 19%.

Now it might seem like a small number it's just 10% difference in profit who cares... Well it doesn't quite work like that. When you have something like 9% profit margins Vs 19% you're actually looking at a year of profits. That's the difference between a whole year of profits being made each year.

Over the course of 2 years that's 4 years of profit being made by company b while only 2 years of profit have been made by company a.

If revenue was tied to 10% a year company b has accomplished what would normally take 4 years of profits in 2 which I would say is a huge achievement. Company a on the other hand has only made 2 years profit in 2 years. Effectively company b has extended their "mine life" by 2 years in terms of profitability.

Anyway just an exercise in profits and why that 10% matters.

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MergermotaTO you’ve got get out more.

SLR Price at posting: $1.53 Sentiment: Hold Disclosure: Held
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If the deal goes through - which way did you vote and why?, page-9

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