RE: RE: RE: RE: RE: All Eyes on When the Mine Will "The project was owned at that time70/30. The 90m was put into the project, and additional funding wold be on the 70/30 basis. Let us assume BAJ had no money to put into projest therefore the Koreans put in their share for 21% of the project. Therefore the Koreans paid 63M for 21%. Therefore the value of the project at that time is 63Mx5 = 315M. very good deal for the Koreans considering BAJ shareholders have invested approx. $325m into the project."
That was not detailed in the news releases by that is very likely what happened. Thanks. I will amend my prior post to accommodate that:
Over Budget Funding
$90 million over budget funding likely shared 70% Baja, who put up 21% of Boleo to cover their share, and the Korean Consortium put up $27 million to cover their 30%.
Another $144,000,000.00 in over budget funding did not come from the Korean Consortium but came as loans the Korean Consortium sourced from Kores that will have to be paid back at some interest rate that has not been revealed.
Another $21,000,000.00 in over budget funding the Korean Consortium and Baja put up their 70/30 split on a cash call from MMB. $14.7 million came from Baja and $6.3 million from the Korean Consortium.
Another $35,000,000.00 in over budget funding came from Louis Dreyfus.
News release date Particulars Amount Balance
23 Nov '10 Louis Dreyfus irrevocable letter of credit
for equity cost overrun cashed 35 35
20 Jun '12 21M cash call paid (Baja 14.7M, KC 6.3M) 21 56
28 Aug '12 Baja 70% (21% of Boleo for $63 million),
Korean Consortium 30% ($27 million) 90 146
4 Dec '12 Total of 3 Kores loans since Oct '12 144 290
$290,000,000.00 has been spent over and above the capex budget of $1,143,000,000.00. MMB is now back on to spending senior debt funds to complete the Boleo project. MMB drew down the first $115,000,000.00 on 28 January 2013 on the resorted $419,000,000.00 senior debt facility taken over by Kores Exim from US.Exim.
$290 million has been expended over and above budget, more then the $246 million over expenditure initially estimated by an independent company. I would largely discount the additional managment estimate issued when Mount Kellett had board control for a number of reasons, one major one being that they arbitrarily piled on an additional contingency of $53.5 million and their other additional estimates look inflated and some of their owner cost overrun estimates likely never materialized because of the transfer of control to the Korean Consortium and because the extra $44million spent over the independently estimated $246 million likely covered off any incurred costs in the additional managment expenditures estimate and because I do not believe a mining contractor was engaged as first planned and because Mount Kellett may have had motivations to inflate the estimated cost overruns.
Reevaluation of Net Present Value
Baja owns 49% of Boleo project whose NPV (8% discount) has risen $195,170,000.00 to $1,501,170,000.00 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.