Hi all,I'm trying to do a layman's costing of the Boseto...

Hi all,

I'm trying to do a layman's costing of the Boseto project. I haven't really been following all the announcements but as it nears production thought I'd have a look at the numbers it might be generating. I'm hoping some fellow HotCopper members can help out a bit where it's not quite right.


From what I gather from the releases:

Cash costs will be $1.24 p/lb (assuming total cost)
Going with the copper hedge price, profit will be $4.01 p/lb

So total profit for copper is $2.77 p/lb.
x 2204.62
= $6106.80 per tonne
x 36,400 tonnes output
= approx. $223 million
x 0.97 for royalties
= approx. $216.31 million

Going with the silver hedged price, profit will be $36.07 per ounce
x 1.1 million ounces output
= approx. $39.6 million
x 0.95 for royalties
= approx. $37.6 million

Total = $253.9 million per annum.

x 0.73 for tax
= $185.35 million net profit.

I'm sure I've missed a whole bunch of things so hopefully some nice insulting feedback helps out with this :)


So that puts current P/E at:
443 million shares (incl. options) x 1.45 share price / 185.35 million net profit
= 3.47

Based on this the share price has somewhere between double and triple to go before it's 'fair value'. Not sure what other copper producers are kicking around at, but considering a term deposit is around 6-7%, P/E 10 doesn't seem that small. Isn't BHP around 8?

This makes a shareprice between 3 to 4 dollars reasonable. I'm going to say it'll take 24 months to get there as the company needs to chomp through those loan repayments before their profitability shows.

There are many factors which can change this basic model - copper price (which I think is hedged fairly), silver price (which I think is a bad hedge at 65% @ $36.07), output to 50,000 tonnes copper per annum, increased M+I+I, additional exploration costs, plant expansion costs, loan repayments. But for now I'm calculating based on what is there. I've put in the tax for consistency even if it doesn't kick in until 2014.

The reported IRR is 32%. I don't have a big cross-company database of figures, but this doesn't seem especially high.

Overall makes me think DML's a solid medium term performer although having said that I think at this price there are better deals out there.

Any detailed information on the loan repayments would be really helpful so I can roughly factor the outgoings into the profitability. Also confirmation on the first two years being tax free would be awesome as well.

Cheers.