RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Spincos Coming Soon?
Greenday wrote: @ Pamps - You really think that a royalty company would front the cost of building a mine and be satisfied with a 2% to 8% return on their invested capital? Good deal for NXE because the deposit would be depleted before the royalty company recouped it's investment.
Greenday,
This is almost as asinine as your using EPS as a measure of efficiency for an exploration company... a business model in which no revenues, thus no earnings, are generated.
First, you are confusing royalties with streaming deals. How many mines have you seen financed with royalty deals? Royalties are typically created on change of control or done in small transactions to finance grass-roots exploration.
Per the interview with Pierre Lassonde:
About your business model at Franco-Nevada: you spent $2 million in ‘83 on a deal that has generated over $800 million. You’ve acquired many more royalties since then. How were you able to make deals with miners that gave you such impressive upside?
As a matter of fact, over its lifetime, cash flows from that deal will probably be around $1.2 billion total.
IMHO, royalties are better than streaming deals because the acquisition costs are often very low while offering superior optionality. The difference is that some royalties may never pay because they are often acquired in the very early stages of exploration whereas streaming deals are done on development stage assets, though development stage assets are not without risks.
In NexGen's case, royalties are being retained, not acquired, so there are no cash outlays or costs. NexGen is retaining a huge, sliding scale royalty on a tier-1, strategic asset in Arrow. It doesn't get any better. Too, NexGen has the benefit of controlling a leading land package in the Athabasca, the Saudi Arabia of Uranium. I am hoping they keep a royalty on all assets as they move forward with spinning out assets into multiple new companies.
The second point of confusion is your thinking 2%-8% is some kind of rate of return. Royalty percentage is not the same as a rate of return. 2%-8% royalty would be gross revenues, not net of costs. That means zero exposure to mining opex, zero exposure to transportation costs, zero exposure to milling and processing costs.