Wpx merits Wpx is a great resource, and if they received a BFS 6 years ago the company would for sure be bought out.
Lets look at some facts. Krn needs less than 600 million to build its phase 1 mine which will have 625,000 tons of production and the analyts have said that they should be able to ramp up to full production of 2.2 million tons through internally generated cash flow.
wpx needs $3.3 BILLION just to build phase one of their mine. this is taken from wpx's feasibility study
Construction Period
3.5 years commencing 2013 subject to financing and permitting approval
Mining Start-up
2016
Production ramp up period
2016-2022
Plant Recovery
93.5%
Product Specification
K62 (98.1% KCl)
Closure Cost Allowance
10% of CAPEX included at end of mine
Product Split
So ramp up to full production takes 6 years with a minimum of 3.5 years of initial construction.
now take into account the post from AMHB that I have copied below.
KRN - 18 months production of KCL
All others, 5 years of pumping NaCl first to get the caverns to have the ability to get the KCl ( it's a chemistry thing!) After they start the 1st pipe down to the salt. Then they can START to produce KCl in 5 years.
K+S is being built now. Even they say they will start production in 2017, AFTER KRN is in productions!
Oh, that 5 years of NaCl production goes on the huge salt piles contamination huge areas of land for 1,000 years. KRN - No salt piles, return the land to farming after!
Hidden dirty secret of the potash industry!
How much would their interest costs be. If it take 3.5 years for the mine build and another 6 yrs to ramp up to full production and you consider the facts above about pumping salt it is my belief that the owners will acumalate about $1.3 to $1.5 billion in interest payments before the mine starts producing in a meaningful way which would bring total build costs to close to $5 billion, which in the current climate is just not going to happen.
please see my calculations below.
IMHO this could be the reason that china blue walked away from negotiations and why rashti-fertilizers that was touted as being an investor in wpx is now hiring an advisor to investigate encanto potash.
imho only companies like krn and aaa that offer a staged(cheaper) path to full production will get built.
IN SAYING ALL THIS BECAUSE IT IS MY OPINION THAT WE WILL SEE WPX's SHARE PRICE AT .25 CENT BY THE END OF 2013(I genuinely hope I'm wrong for shareholders sake).
after paying for the feasibility study I do not believe wpx will have more than a few million left over, and after seeing other juniors such as krn and aaa move forward with investment, off take agreements and commencing construction it is my opinion that the market will fully recognize the math below and reflect it in wpx's share price.
lets say they could raise $600 million in equity( coincidentally that is more than krn will need to complete their 625k facility) which is about 8 times wpx's current value and would be so dilutive that it would almost wipe out current shareholder value they would need to RAISE $2.7BILLION IN DEBT. Now assuming they see able to do this, how much would thier annual interest bill be. A company starting up like this would expect to pay 10% interest, but let us be generous and call it 8%. How much would that add per ton to their costs. It would work out at about $230 million in interest PER YEAR. That would add about $100 per ton in costs .
plus add the fact that on a 3 year build and the banks(similar to construction financing) releasing funds in a staged fashion. What do u think the interest would have added up to before production starts. Maybe around $500 Million IN INTEREST and that's before they sell a gram of potash.
so in their first year of production wpx would face a bill of $720 Million(500 million of backdated interest and 1 year of interest of about $220 million).
Now add in several years of low production pumping salt and I believe it could rack up $1.5 billion in interest before earnings start to make a dent in this bill.
How many strategic investors would want to get involved in such a high cost venture? Why did that Chinese multi national walk away after doing a year of due diligence on wpx?
Why do you think the feasibility study WAS BASED ON A 100% EQUITY CASE? The figures would be outrageous if they included interest payments, that why!
please please stockhouse members, do your own research and work out the math.