Acadian Mining Corporation ADAIF

2% Royalty-a good deal?

[maldoror]

Clarification: The royalty interest is a net smelter royalty (archives of the Northern Miner) All we know is that ADA will pay $7.5 million for the zinc property and has paid $50,000 for an option to buy a 2% NSR for $1,450,000. Back of the envelope appraisal: A 2% NSR more or less equates to a 20% net profits interest. Assume $40 million cashflow from the zinc mine over 5 years. Therefore the 2% NSR will generate 20% of that or $8 million over an expected mine life of 5 years. The $1.5 million 2% NSR acquisition cost will be paid back in one year ($8 million divided by 5 is $1.6 mln). Therefore the cashflow generated per share outstanding is $1.6 million divided by 100 million shares and that gets you 1.6 cents per share. Apply a conservative 6 Price to Cash Flow multiple on that and you get an added value in the market place of approx. 10 cents per share. One can fiddle with the expected mine life and the price of zinc but at minimum this should add 8-12 cents to the price of ADA. So far the market does not care because it does not know. It will only know when the full details of the zinc property, including the feasability study, are announced. However management must be in possession of these details now in order to have been able to negotiate a reasoned deal. The shareholders might have to wait until July 6, 2006 Maldoror.