RE:RE:RE:RE:q price adj and moreTaran83 wrote
Good cost overview sclarda!
I would like to add, that at a copper price of 3.4$, the royalty should be 0.72$, 0.86$ for the fresh tailings and Cauquenes, respectively. At 3.3$ copper, those change to 0.68$ and 0.82$.
Additionally, ARG has some sustaining cost (used to be around 6M$ per year) and G&A (ca. 2M$). The last two years, they also invested some additional CAPEX (e.g. to increase water recycling). But these are expenditures that can likely be cut/delayed when money is tight.
I wouldn't go that far, that ARG is fu#cked at 2.8$ - 2.9$ copper, but the dividend cleary wouldn't be sustainable and copper shouldn't go a lot lower than that for ARG. On the other hand, I always liked the strong support, ARG used to get from large investors and Codelco, when it was in trouble. That certainly was an important reason for me to invest here at that time. You just have to look, what ARG went through already and it survived. We all don't know, how the global recession will evolve, but I guess we are all here, since we believe in (longterm) copper. An in contrast to earlier days, ARG today has some cushion for bad days...
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Thanks. When i said ARG would be Fu@cked with copper 50 cents lower what i meant is that they would be spinning their wheels burning up 60 million pounds of copper resources every year and sort of breaking even or more likely losing money and not be able to pay a dividend. As you say ARG has survived a lot tougher times with high debt. Now thanks to the recent high copper prices they have aprox. $27 million US in cash more than debt. If copper prices do drop a lot more there will be a lot of copper companies going broke before this one.
At the same time holding shares in a copper producer that cant pay me a dividend and is not making any money while burning up resources is not very appealing to me and i am sure every other investor who holds shares in this company.
In the second quarter ARG had cash costs of $2.01 per pound. Royaltes at $3.40 per pound according to you guys are aprox. 85 cents per pound. Then if we add Sustaining cost of $6 million per year that adds 10 cents per pound. G&A of $2 million per year adds another 3 cents per pound. Interest on the $27 million debt adds aprox. 2 cents per pound. All totaled at $3.40 copper ARGs total cost should be around $ 3.00 At $3.40 they should be making aprox. 40 cents per pound. On 60 million pounds per year they should be making aprox. $24 million US.
In their presentation at $3.40 copper they state that EBITDA will be $26 million US. If you add the $1.7 million or so in interest they are paying to the $24 million in profit it comes very close to the $26 million they are stating at $3.40 copper. So the numbers seem to add up quite well.
If copper were to go to $3 all other costs should be the same but royalties should be down to 70 cents per pound. So if we add the $2.01 cash cost to the 70 cent royalty and add the 15 cents per pound in sustaining costs, G&A plus interest total costs come out to aprox. $2.86 cents per pound. Profits would then be aprox. 14 cents per pound. On 60 million pounds production that would equal a profit of aprox. $8.4 million US or aprox. $10.5 million CDN. The 12 cent yearly dividend on 166 million shares costs the company aprox. $20 million CDN.
At $3 copper there is no way they can pay the dividend. They might do it for a quarter or two to see of copper prices rise but if they stay at that price the dividend would be gone unless they can get production costs down enough to cover it.
Thats what i mean when i say a 50 cent movement in copper prices from here makes all the differance between us getting a nice 13% plus dividend at current shareprices and the company piling up aprox. $30 million Cdn. per year after paying the dividend for its own use or with 50 cent lower prices no dividend and the company basically breaking even.
ARG currently has aprox. $25 million US in net cash and aprox. $300 million US invested in its assets for a total of aprox. $410 million Cdn. Currently all of this is now worth aprox. $150 million Cdn. according to the market. At the current shareprice ARG can pay the 13% dividend. If an investor is bullish on copper prices going forward and they are proven right in time those buying at the current shareprice stand to make a lot of money in both dividends and shareprice appreciation.
Good luck to all.