RE: Dynasty MM & Royalty IssueTo Webminer, Safe and Buck, my thanks for your comments.
My 40% cut was based on Oil and Gas royalties in some of the third world countries and nothing else. For example, Talisman has been negotiating with Trinidad & Tobago for years over such a number. Note: other than Orvana, which I only owned for a short period, I have not invested in a South America gold play before.
So back to the task at hand. That Ecuador would only take 3-5% seems low to me. It may be practice that the incumbent country pays for a good portion of the cost to develop the mine. If this is the case, then their taking only 3-5% seems possible. Certainly their economy will benefit from the build/operation of the mine.
So here are my numbers again, with the cut to Ecuador reduced to 15%. This is a third world country, and I don't see any need to go lower. While I can see a steady rise over time in the price of gold, I am going to stick with my $US 675/oz number. I am pretending to be the buyer here, not the seller.
Two days ago, I had netted Ecuador's cut from net extracted dollars ($US 500/oz.). In today's calculation, I am taking their cut directly from the gold in the ground.
To keep this simple, I am not: present valuing the future cash flows, looking at the impact of any options/warrants/rights, nor am I looking at the increased cost of extraction over time. If someone wishes to do this, I would like to hear what they come up with.
My new estimated share price is $US 84.7, or $95.7 Cdn based on an exchange of $1.13. This is fair value from a buyer's perspective, IMHO, and is what I base my ARU purchases on now. Finally, this is based on just the one ore body discussed, and does not provide anything for El Tigre.
Larsen6
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- 12M ounces in the ground. Ecuador takes a 15% cut directly from this.
- $0.4Bn to build the mine. All paid for by ARU, or its buyer.
- $675/oz price realized per ounce
- $175/oz for extraction
- Buyer will pay 60% for this potential, pocketing 40% for themselves, and leaving any upside in the price of gold for themselves
12M oz. x 0.85 = 10.2M oz. net after Ecuador's cut
$10.2M oz. x $500/oz. ($675 - $175) = $5.1Bn. Net of extraction costs.
$5.1Bn - 0.4Bn = $4.7Bn. Net of building the mine.
$4.7Bn x 0.6 = $2.82Bn for the ARU shareholders. Net of buyer.
Based on the 33.3M shares outstanding and a 12M ounce ore body, the present price per share would be about $US 84.7.