RE:RE:how much does the 144 release of today increase lsg's value?Bean_and_Dunn wrote:
Only 621,000 ounces in the indicated and inferred category, eh? Why thats nothin worth talkin about. Right. By the way those numbers assumes $1,100 US gold price and an exchange rate of 90 cents canadian to the US dollar.
B&D its not just about that. Lets take full step back and analyze it all. If you dont want to read all of this, plse read the kicker at the bottom!
Well I did some calculations and comparisons. References include the 2015 Q3 MDA for both Co.´s, Tahoe´s fancy new corporate presentation on their website, and Last months Shahuindo 43-101 report on Sedar.
Some other important assumptions
| Au/Ag Ratio 08 Feb 2016 | | 79.7 |
| Gold price 08 Feb 2016 | | 1191 |
| Silver price 08 Feb 2016 | | 14.94 |
| Copper price 08 Feb | $/lb | 2.0815 |
| Zn price 08 Feb | $/lb | 0.7731 |
| Pb Price08 Feb | $/lb | 0.8244 |
| Discount on base metals value to account for TC's/RC´s | % | 25% |
| CAD$ : US$ 08 Feb 2015 | | 1.3938 |
Okay here we go:
In the offer we, the SH´s are told that THO SH´s will have 74% of the new business and LSG SH´s will get 26%. Gee wizz. Sounds fantastic doesnt it? Lets remember this comparison, because I don´t like share ratios.
Let´s compare 2016 F/C production. Straight from THO´s presentation LSG is the little guy (I converted all production to AuEq ozs).
| | | THO | LSG | Combined |
| Silver | koz | 20,400 | - | |
| Gold Equiv | koz | 256 | - | 256 |
| Gold oz | koz | 254 | 175 | 429 |
| Gold & gold equiv | kozEq | 510 | 175 | 685 |
| | | 74% | 26% | 100% |
Okay okay, so they are comparing production estimates. But we are in the business of producing earnings, not ounces. But before we get there, lets talk oz. a bit more.
Now for Mineral Resources & Mineral Reserves. Here THO have been quite cunning.
First we have this, and again it seems like a no-brainer. (I converted all Ag & base metals into AuEq using the price assumptions above).
| M&I Resources | | THO | LSG |
| (inclusive of reserves) | | | | |
| | | | | |
| Escobal Au & AuEq. | koz | 5,885 | | |
| La Arena Au & AuEq. | koz | 6,005 | | |
| Shahuindo Au & Au Eq. | koz | 2,667 | | |
| Timmins West | koz | | 690 | |
| Bell creek | koz | | 690 | |
| 144 Gap | koz | | 300 | |
| Whitney | koz | | 710 | |
| Gold River | koz | | 120 | |
| Juby | koz | | 1,090 | |
| Vogel | koz | | 130 | |
| Marlhill | koz | | 60 | |
| Fenn-Gib | koz | | 130 | Combined |
| | | 14,557 | 3,920 | 18,477 |
| | | 79% | 21% | 100% |
Thats a fair whack of gold equivalent oz in the combined - I must confess! And it seems the LSG SH´s are getting a better deal here, no? Not really.
Because when you factor in the Inferred resource LSG the story looks very different (see below). THO has little exploration upside to give apart from its new Shahuindo project....Remember Inferred resources arent real ounces; they might not be economic, but they do give us a glimpse of potential upside.
So we could see it as a measure of the upside the two companies present. And then, LSG still have all that upside still to be realised in 144 SW, the remodeling that still needs to happen with latest DDH results etc. Here is how it looks (including the 144 gap update on 8 Feb) with a total for all resources MRMR & inferred together:
| Inferred Resources | | THO | LSG | Combined |
| Escobal Au & AuEq. | koz | 177 | | |
| La Arena Au & AuEq. | koz | 72 | | |
| Shahuindo Au & Au Eq. | koz | 2,791 | | |
| LSG inferred | koz | | 6,290 | |
| | | 3,040 | 6,290 | 9,330 |
| | | 33% | 67% | 100% |
| | | | | |
| Total Au & AuEq. MRMR & Inf. | | 18,106 | 10,385 | 28,491 |
| | | 64% | 36% | 100% |
Hmmm. So really we are actually being snookered (to borrow a term I read earlier) by 10% of the value, upside if you prefer when we consider resources all in.
"Ah no, my clever young mining engineer," Kevin and Tony would quickly retort, perhaps with toothy, patronising smiles, "you have it wrong, you see we precisely looked at the production numbers, because with the world where it is these days - who knows whether these oz. will be economic?"
The answer then would be to look at costs. COC and AISC, seeing as we all like to use those to compare mines. (Funny, I did not see any comparison in the THO presentation).
To compare apples with apples everything has to be calculated
only on pure oz. produced, either in silver or gold, and use the COC & AISC that are
net of by product credits. But we have a dilemma: Silver Oz´s are not gold oz, so we will use the Gold/silver ratio to compare Escobal, La Arena with the Timmins mines. We also need to include Shahuindo, which is not yet in production but is going to produce around 150koz Au/yr at a stated COC of $683/oz. Capex for that project is split into initial and sustaining. For the purposes of our comparison we will ignore all startup capex and only consider the sustain for Shahuindo ($141M), which when divided by 10yrs is $14.1M and divided again by 150koz projected production and added to the COC comes to an AISC of $780/oz.
Importantly, the THO operations then need to be weighted by their respective Au equivalent production (excluding by products), and Escobal´s silver production needs to be converted to gold equivalent along with associated costs
including by product credits to cost per AuEq. To get an equivalent weighting, I used the 9M performance from the 2015 Q3 MD&A, and similarly weighted Shahuindo for only 9 months of a typical year.
Lakeshore´s unit costs are easy obtained from the 9 months performance to Q3 2015 from their respective MD&A and only have to be weighted by the CAD$ / US$ exchange rate (see table at top).
So here we go:
| Shahuindo info from Jan 2016 43-101 on Sedar | | |
| Production over LoM | koz | 150 | Initial production lower in 1st 3 yrs |
| oz/9 months | koz | 112.5 | | |
| Shahuindo CAPEX | $M | 320 | | |
| Initial | $M | 179 | | |
| Sustaining | $M | 141 | | |
| LoM (say) | yrs | 10 | full yrs | |
| Capex/yr | $M/yr | 14.1 | | |
| COC | $/t | 9.83 | | |
| | | | | |
| | | | | |
| For weighting purposes | | | | |
| Escobal 9M 2015 production | koz Ag | 14,887 | | |
| Escobal 9M 2015 production | koz AuEq | 187 | | |
| La Arena 9M 2015 production | koz | 118 | | |
| | | | | |
| | | THO | LSG | |
| COC Shahuindo | $/oz | 686 | | |
| AISC Shahuindo | $/oz | 780 | | |
| COC gold La Arena | $/oz | 548 | | |
| AISC gold La Arena | $/oz | 969 | | |
| COC silver (Escobal) | $/oz | 7.61 | | |
| AISC silver (Escobal) | $/oz | 10.69 | | |
| COC AuEq (Escobal) | $/oz | 607 | | |
| AISC AuEq (Escobal) | $/oz | 852 | | |
| COC Lakeshore | $CAD/oz | | 604 | |
| AISC Lakeshore | SCAD/oz | | 845 | Difference: |
| Production Weighted COC | $/OZ | 611.51 | 433 | -29.1% |
| Production Weighted AISC | $/OZ | 865.69 | 606 | -30.0% |
And..."Oooh! Ouchy!" Suddenly we have the real reason for THO´s interest in our company.
Our unit costs are way lower. But we all knew that. Bet you did not realize by how much! No we do.
So what does this really mean? Both sets of AISC are pretty competitive in the space, there is no argument there. I will argue therefore that pretty much all the inferred will come through the plant at one point or another. So over the lives of the resources (including inferred) here is what we have:
| For cost comparison MRMR & Inf | | | |
| (exclusive of by products) | | THO | LSG | Combined |
| Shahuindo Au | koz Au | 4,320 | | |
| La Arena Au | koz Au | 3,408 | | |
| Escobal Ag | koz AuEq | 5,001 | | |
| Lakeshore | | | 10,385 | |
| TOTAL | koz | 12,729 | 10,385 | 23,114 |
| | | 55% | 45% | 100% |
| | | | | |
| MRMR Revenues/value - COC | $M | 7,377 | 7,868 | 15,245 |
| | | 48% | 52% | 100% |
| MRMR Revenues/Value - AISC | $M | 4,141 | 6,073 | 10,214 |
| | | 41% | 59% | 100% |
Holy guacamoli! Or is that holy Guatamali?
I would conclude then that LSG is actuallu more valuable over the lives of
all Tahoe´s projects. And that means that LSG is worth at the very least 52% and more likely 59% of the combined business. That would mean the equivalent offer per share could be 1.71/26% x 52% = $3.52
If you think its too high for the stock then look again at the Metal x price - AISC number above. That would be the future undiscounted cash flow before tax. (No I am not saying that is the value of the stock....but in reality its worth more than the $2.40 I have heard being bandied about.)
Okay, okay: lets do it another way: Guidance 2016 alone.
| 2016 median PRODUCTION guidance | THO | LSG | Combined |
| Escobal silver | Moz | 19.5 | | |
| Escobal silver in gold Eq. | oz AuEq. | 245 | | |
| La Arena Gold | koz | 180 | | |
| Shahuindo | koz | 67.5 | | |
| Lakeshore | koz | | 175 | |
| Total | koz | 492 | 175 | 667 |
| | | | | |
| 2016 median COST guidance | | | | |
| Tahoe COC | $/oz | 725 | | |
| Lakeshore COC (upper only) | $/oz | | 650 | 705 |
| Tahoe AISC | $/oz | 1000 | | |
| Lakeshore AISC (upper only) | $/oz | | 950 | 987 |
| | | | | |
| Earnings before tax et al. | $/oz | 466 | 541 | 486 |
| Earnings before tax et al. | $M | 229.3 | 94.7 | 324.0 |
| | | 71% | 29% | 100% |
| | | | | |
| Earnings per oz after AISC | $/oz | 191 | 241 | 204 |
| Earnings per oz after AISC | $M | 94.0 | 42.2 | 136.2 |
| | | 69% | 31% | 100% |
So even here we are being done in. And and by more than it looks because LSG refused to provide lower COC & AISC guidance - That is their max.
Tony is a clever guy. He knew this deal was coming, so omitted a lower cost guidance for 2016. I guess he has his reasons. Theyre not in the interest of the SH. Notice that guidance was given in USD, not CAD$ which on reflection is silly because their books are in CAD$. Clever, clever little people!
So if we went on LSG 2015 actual performance against this year´s guidance, here is what the numbers look like.
| 2016 median PRODUCTION guidance | THO | LSG | Combined |
| Escobal silver | Moz | 19.5 | | |
| Escobal silver in gold Eq. | oz AuEq. | 245 | | |
| La Arena Gold | koz | 180 | | |
| Shahuindo | koz | 67.5 | | |
| Lakeshore | koz | | 175 | |
| Total | koz | 492 | 175 | 667 |
| | | | | |
| 2016 median COST guidance | | | | |
| Tahoe COC | $/oz | 725 | | |
| Lakeshore COC (2015 YTD Q3) | $/oz | | 433 | 648 |
| Tahoe AISC | $/oz | 1000 | | |
| Lakeshore AISC (2015 YTD Q3) | $/oz | | 606 | 897 |
| | | | | |
| Earnings before tax et al. | $/oz | 466 | 758 | 543 |
| Earnings before tax et al. | $M | 229.3 | 132.7 | 362.0 |
| | | 63% | 37% | 100% |
| | | | | |
| Earnings per oz after AISC | $/oz | 191 | 585 | 294 |
| Earnings per oz after AISC | $M | 94.0 | 102.4 | 196.4 |
| | | 48% | 52% | 100% |
So there you have it. Its not 26% of the combined business, its 52% that LSG Shareholders should be getting.
Tony you clever little man.