RE: Acesover Baja owns 49% of Boleo project whose NPV (8% discount) has risen $195,170,000.00 to $1,506,000,000.00 from $1,306,000,000.00 economic assessment of Boleo in the March 2010 technical update that said:
Financial modelling, using the Case 1 prices and 23 years for the project life, shows that the project could generate a net after- tax Internal Rate of Return (IRR) of 25.6% and an after tax NPV (using 8% discount rate) of $1,306 million. (page 11)
Case 1 financial modelling of the project was done using the weighted average three-year trailing metal price (in accordance with SEC guidelines) at December 31, 2009 of $2.91/lb for copper; $26.85/lb for cobalt; and $1,175/tonne for zinc sulphate monohydrate flat over the life of the project. (page 179)
Since March 2010 metal price have changed that will be reflected in the SRK report.
As of 1 Feburary 2013 Copper is $3.75/lb, Cobalt $12.25/lb.
Average prices over the last 4 years is approximately $3.50 for copper, aproximately $17.50 for cobalt. Copper prices have been up and down but trending higher since September 2011 and projected to continue appreciating. Cobalt has been tending lower since the begining of 2010 but trending higher in the last number of months.
Boleo financials are sensitive to copper and cobalt pricing. The after tax NPV @ 8% to a 10% price increase is 3.26 more sensitive to copper over cobalt. (table 19.7 of the technical update, page 196. 10% increase in copper price will result in a 15.24% increase in after tax NPV and a 10% increase cobalt will result in a 4.67% increase in after tax NPV: 15.23/4.67 = 3.26).
In sum over the last 4 years, using an average copper price of $3.50 and cobalt price of $17.50 there has been an average copper price increase of 20.3% an average cobalt price decrease of 34.8% over the case 1 prices used in the technical update.
Effectively copper's relative price impact on Boleo's after tax NPV is 20.3% x 3.26 = 66.18% vs 34.8% for cobalt. Effectively the average copper price increase over the last 4 years has had a 1.9 (66.18/34.8) greater positive impact on the after tax NPV despite the decline in cobalt prices over the last 4 years.
In short, if a 10% copper price increase adds $199,000.000.00 to the NPV then a 20.3 % increase in copper prices would add $403,970,000.00 and if a 10% cobalt decrease removes $60,000,000.00 from the NPV then a 34.8% decrease in cobalt prices would remove $208,800,000.00. The net effect is the NPV would increase $195,170,000.00. (table 19.7 of the technical update, page 196.)
The NPV is also sensitive to capital costs that have increased with overruns. This increase in NPV for the Boleo project has more then offset the $144,000,000.00 in short term loan cost overrun funding Kores Corp has provided.
Accounting for both the average increase/decresase in copper and cobalt and cost overrun expenditures to date the NPV has increased $51,170,000.00 to $1,357,170,000.00.
Given Boleo economics adequately supported cost overruns even before copper price increases and certainly now with a higher average copper price over the last 4 years compared to case one and given the copper supply/demand fundementals point to higher prices, and given cost controls have been in place for about 8 months, and given newer hindsight data will likely result in a positive fine tuned SRK report and possibly recommend manganese production, and given the cost overrun estimate was inflated by Mount Kellett I would venture little if any additional funding will be required and if so then it will be by way of a further loans and Baja's and the Consortiums project share will remain as they currently are.
Basically, the Korean Consortium has paid for and gained an additional 21% interest in the Boleo project that is worth more than its assessed economic value in March 2010.
The $90,000,000.00 the Korean Consortium paid for the additional 21% stake in Boleo would value Baja's 49% stake at $210,000,000.00 at the time.