RE:RE:RE:RE:BuyYou raise a good point - at
current copper and gold prices, the cash flow over the first four years would be around $200MM/year higher than current estimate. Of course it will could take 5+ years to get the mine into production so the prices will be different than they are today.
Company officials cannot go around pulling numbers out the air, they have to have a basis, and the numbers in the independent 43-101-compliant PEA is all they can talk about.
Fortunately the PEA contains an analysis of the sensitivities of Au and Cu prices on the PEA, and we can read.
| Gold Price (US$/oz)* | $1200 | $1400 | $1600 | $1800 | $2000 | $2200 |
| NPV pre-tax (8%) ($M) | 2,580 | 3,100 | 3,620 | 4,130 | 4,650 | 5,170 |
| NPV after-tax (8%) ($M) | 1,600 | 1,960 | 2,330 | 2,700 | 3,060 | 3,430 |
| IRR pre-tax | 19.3% | 21.3% | 23.3% | 25.2% | 27.1% | 29.0% |
| IRR after-tax | 16.1% | 17.8% | 19.5% | 21.1% | 22.7% | 24.3% |
| Payback (years) | 3.5 | 3.2 | 3.0 | 2.8 | 2.6 | |
| Copper Price (US$/lb)* | $2.50 | $3.00 | $3.35 | $4.00 | $4.50 | $5.00 |
| NPV pre-tax (8%) ($M) | 2,290 | 3,070 | 3,620 | 4,630 | 5,410 | 6,190 |
| NPV after-tax (8%) ($M) | 1,400 | 1,950 | 2,330 | 3,040 | 3,590 | 4,140 |
| IRR pre-tax | 18.5% | 21.4% | 23.3% | 26.6% | 29.0% | 31.3% |
| IRR after-tax | 15.4% | 17.9% | 19.5% | 22.3% | 24.3% | 26.2% |
| Payback (years) | 3.7 | 3.2 | 3.0 | 2.7 | 2.5 | 2.3 |
Based on the above, $1800/oz Au adds about $370MM to the NPV8% and $4.50/lb Cu adds about $1.8BB to the NPV8%. So this basically doubles the NPV8% from the base case.
I think that Rio (or whoever) will base their offer upon two factors:
1) Rio's idea of what the project is worth to Rio, taking into account Rio's own estimates for future commodity prices. They have to make a sufficent return on investment so they don't want to overpay.
2) What Rio thinks it will take to get WRN shareholders to support the deal. Once Rio makes an offer WRN is in play. If Rio lowballs the price, a competitor can come in and take it from them.