Coniagas Battery Metals Inc. T.COS

Liberty 55 Questions

[namsoc]

A number of posts back L55 asked a few interesting questions.  Below are my best estimates/answers to the questions.
 
1) What do you think the "all-in sustaining costs" (to borrow a term from the gold industry) is for COS assuming annualized production 100,000 bpd net to COS?
 
I have looked up the “All in” costs and could not find a common answer.  Consequently I have posted all of the costs that COS must deal with.  Basically the total costs are $70/bbl using 100 kb/d and an SCO price of $85/bbl.  It goes up slightly with a higher SCO price because of taxes and royalties.  This is close to the Q3 total cost of $66 shown in the Q3 guidance.  Note that the production rate and SCO price shown in the guidance document are different.
 

	$Costs/bbl
Operating Expense (based on Sales)	44.58
Non Production Cost (R&D and Eng)	2.00
Crown Royalties (See Below)	8.45
Admin	0.76
Insurance	0.33
Interest	1.30
Large Corporation Tax	3.22
Reclamation trust	0.33
Maintenance	8.70
Total Operating Cost	69.66
Overall Netback/bbl	15.34

 
2) What about the break even cost per barrel assuming 100,000 bpd production and 10% internal return rate?
 
I have reworded this question in a way that I understand IRR as follows. If someone were to buyout COS at a 20% premium to today’s closing price, what is the required price for SCO to return an IRR of 10%?  I am not sure if this is what you intended.
 
Cost to purchase COS at premium of 20% ($8.52Bx1.2) is $10.2B.  Assuming 25 years to recover their investment, a bit long, the yearly free cash flow required is $1.125B using a discount rate of 10%. This generates the required Net Present Value of zero.  Note that the annual return rate is 11%.
 
At a production rate of 100kb/d, an SCO price of $111.50/bbl is required to generate the free cash flow of $1.125B annually.  Note that only maintenance was assumed.  No capex for train movement, etc. was included. 
 
At a production rate of 115 kb/d, the SCO price required is $101/bbl.
 
This shows the difficulty an investor would have in buying out COS in today’s environment, unless they had a longer term view of oil supply and price.  However Buffet says “buy when it is cheap and nobody else wants it”. 
 
 3) When does COS start to lose money per barrel?
 
At 100 kb/d, break even total cost is somewhere close to $63/bbl.
 
Namsoc