RE: RE: RE: RE: Donner Metals: President's Message Woops, quite a few spelling mistakes in my previous post - had to rush it out at work!
The TBD stream scared me a little bit before I ran the numbers. Once I ran the numbers I discovered that TBD can survive even with $3.00 - $3.50 gas... they just don't WANT to. They'd rather wait for $4 - $5 / mcf. However, even with modest production at 370 mcf or whatever they forecast (which is significantly below some wells, I think they said a well or two produced at 16 mmcf which is about 4x higher than their model), they can remain cash flow positive at $3.50 - $4.00. I'd be willing to bet TBD getting to 200 wells is almost a sure thing... it's just how long does that take them, which is a function of the natural gas price... and we all know how easy it is to predict the price of NG.
Yes I agree that natural gas streams actually make a lot of sense right now. I say this because today these oil weighted juniors are capital starved, implying we'd probably be able to acquire a NG stream on very favorable terms. It's probably safe to assume that any natural gas deal Nolan does would have at least a 20-25% IRR at $3.00 - $3.50 gas (in other words, on more favorable terms than the TBD deal, which was done with gas around $5 or $6). A lot of analysts say break even for nat gas is $4 - $5, so a deal at $3.00 - $3.50 with a decent IRR could be extraordinarily accretive. However a problem I see is that we already have the TBD deal, and we buy some gas from Terrex as well. As a diversified commodities company, this feels like we are going overweight on a single commodity, as we did with coal at our inception.
Nolan said he wanted to do a zinc stream. I've come across several nice little deposits with zinc in them... but all of the management teams were rather poor. I think this is where we ran into trouble with our current streams. I think Nolan did some of these deals knowing the investee's management teams weren't the greatest, but the assets were pretty good, and we went forward anyway under the assumption that these companies would survive, even if they didn't prosper. Well now we see that if we have the perfect storm... bad capital markets, bad management, and declining commodity markets... the quality of management is what separates an asset from remaining a going concern, and going bust.
Lets keep this discussion rolling. Have you guys come across any other small caps SND could do a deal with? I'll throw another controversial one out there. How about buying a manganese stream from the old boys over at Baja who are in desperate straights to get their hands on some cash?