RE: RE: RE: RE: $0.45 vs. $1.20 norms, Why?
Casinan- Wpx may be able to arrange some kind of a structured royalty deal with a large foreign entity(or sale)but they will not be able to/or are looking to borrow from banks. WPX IR told me that they are not looking for either off takes or bank debt because they know the interests costs would be prohibitive.
lets say they could raise $600 million in equity, 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 3.5 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 the 6 year ramp up to full production which is 9.5yrs in total including build time and I believe it could rack up $1.5 billion in interest before earnings start to make a dent in this bill.