Bashers and othersDecided to take the glass is half empty approach and analyse this play (still think it is Osisko 2 and the sequel could be better!) but honestly and realistically. I will assume the following few things which I think even the bashers could agree are quite possible. 1) They prove up 2.5 million ounces over both Block model and Eastern Extension
2) They get a 43-101 and feasability study done and permits for a 250,000 ounce a year mine in place 3) cap ex for said mine would be $400 million (Osisko's 700,000 oz mine is three times that but they have to MOVE a town we are on the outskirts of one of Northern Quebecs major mining centers and the gold starts at surface) 4) estimated mining costs per ton are $500 an ounce and life of mine (10 years) gold price averages $1500 so a $1000 per ounce cash flow which generates into $250 million a year 5) Total cash flow generated over 10 years is $2.5 billion
So what is our GBB worth then? The majors would pass as its too small an asset to make much of a difference to their market cap but a mid tier? Thats a WHOLE different ball game. Assuming that they finance 75% of the mine cost at say even 8% and spread over the full life of ten years and the finance costs are $300 principal and $120 in interest for a total of $420 million or $42 million a year. So they put up $100 million and they have a cash cow that generates $200 million or an IRR of 200% But thats BEFORE the acquisition costs all the doom and gloomers wail! Right! So whats the NPV of the 10 year $200 million cash flow ($ 2 billion total) worth today discounted at the same 8%? About $800-900 million minimum but they of course want to make some money too So lets say we split the difference on the lower figure and call it $400 million So now our mid tier ponies up $200 million of there own money and doubles the loan and picks up a mine that now generates about $150 million a year for an IRR of 75% a year over ten years VERY NICE NUMBERS and VERY REALISTIC
So we are at say 200 million fully diluted and we get $400 million for a per share consideration of 2 bucks and we are presently trading at 56 cents. I can see most of the 5 assumptions being fact by next summer so thats a 300% return in less than a year from where we are now PRETTY DECENT RETURN in my books and U CAN SLEEP AT NITE with a very big position!
NOW should any of those variables increase substantially and by that I mean ounces 43 101 compliant and gold price and we get a bidding war from mid tiers such that they are willing to accept IRRs in the 20-30% range and that $2 per share could easily double or triple. And this is I feel a VERY VERY CONSERVATIVE scenario. BUT we all have to do our own DD and then make our moves and see what we get. Good luck to ALL investors in GBB and bring on 2011 and QUANTITATIVE EASING 2.0! Gonna be a VERY INTERESTING NEW YEAR!
Longrider