The essentials of the CS-SST dealCapstone will have 30% ownership of SST, fully diluted, after the deal is done and all the dust clears. I will go with an 8% discount rate since it is less than the 10% annual increase in the money supply in many countries (eg., the true inflation rate) and likely is less than the annual increase in the costs of mining companies. Let's say that the market cap of SST goes to $148M in the future. CS's 30% portion of that market cap is $44.4M; equal to the net present value of the lost income on 10 years of silver production. But, this is nothing. With an acquisition, SST could vault into the $250M range or even higher. CS's 30% portion of that market cap is $75M, much higher than the $44.3M NPV of the lost income. Actually, the NPV of the lost income is less than calculated here because: 1) Capstone's silver sales prices per ounce under the deal are subject to an upward adjustment due to a cost of living increase, and 2) the $20 million paid up front could be invested - as CS rep Mark Patchett points out -and obtain compounding interest over that 10 year period. Now this is a very conservative, theoretical, and unlikely way to account for the benefit of obtaining that $20M up-front, because CS is likely to invest that $20M into mine expansion or acquisitions in such a way that the invested money could return 100M or $200M over that 10 year period. Of course, how can an investor *count* the return on investment when the investment (mine expansion, or acquisition) hasn't been decided on? This is why Mark Patchett used interest income instead as the theoretical minimum return on investment, but I think that most people (including Mark) can agree it is not at all the likely scenario. According to Mark, this interest income jacks up the cash recieved by CS effectively to $10.65 an ounce. If this is so, the lost income to CS on $15 silver is $43.5M over 10 years which has a NPV of $29.2M today. This lost income figure could be wiped out completely if we could count CS's 10 years of investment returns on the $20M instead of interest income on that $20M. Anyway, the point is that as every detail of this deal is accounted for, it can be seen that the market cap of SST doesn't have to go up that much before the value of CS's 30% of that market cap equals or greatly exceeds the $29.2M NPV of 10 years of lost income. It would be about equal to it at a $100M market cap for SST. With a $250M market cap the value of CS's 30% of SST will be $75M, which is much greater than the $29.2M NPV of 10 years of lost income. (If CS does a good job investing that $20M into a Cozamin mine expansion, or an acquisition that brings in income, on a net basis there will not be any lost income to CS.)
All this could be re-calculated at a higher market silver price, or more ounces of silver sold by CS to SST, causing the NPV of lost income to CS to be higher. But this will also raise the market cap of SST and the value of CS's 30% share of the market cap. I vote "with" management on this one because they have an excellent track record of creating shareholder value. They have delivered to me a 291% return on my original Capstone investment at .85 on approximately 11/04 when you add back in for spinoff Silverstone shares and warrants I recieved. Now with both Capstone and Silverstone moving higher (CS) or getting ready to do so (SST), that return on investment will continue to increase.
tooclassy