Things I will ignore that just make this deal even worse:
- Warrants that were given
- Interest on the new revolving credit line that they apparently need now since they gave away 1.9 billion dollars.
- The price of gold could plummet
Ignoring all of those things, the article says they will be getting about 110,000 ounces of gold for the next 20 years. They paid 1.9 billion dollars and will pay $400 an ounce on top of that. That means their profit at current gold prices is $1172.70 per ounce. $1172.70 * 110,000 = $128,997,000 a year profit. This means that it will take them 15 years JUST TO BREAK EVEN. After 20 years they would only have made $679,940,000. That equates to 1.54% a year for 20 years. They could have just taken the money and stuck it in US Treasury Bonds and had more money after 20 years and have MUCH LESS RISK. I really do not understand #$%$ they are doing. Obviously part of the contract continues past the 20 year mark, so there is some benefit there but that is a long way out and doesn't seem to make up for all the bad that this contract is.
Am I completely missing something?? Can someone please explain to me what is going on???
The credit facility just replaces one they already had. And, as of Sept 20 last year they had $555 million in cash, and an average cash flow from operations of about $150 million per quarter. Thus they probably paid about half of the Vale deal from cash on hand and borrowed the rest.
When I first looked at SLW several years ago I was put off by the huge investments and, at the time, very little income. However, now those older investments are coming on line and the cash flow is quite impressive and set to grow very rapidly over the next few years - even if the price of silver & gold stay right where they are.
Although the stock price moves daily with the price of silver, over a longer period it should reflect the increasing earnings. Buying SLW a few years ago was one of my luckier investment decisions.
you are missing one item, you are overlooking the ramp up in production at the vale mine, they are currently in the process of doubling daily tonnage, so what your missing is that the stated 110,000 ounces a year could easily double, (double tonnage double production) now while a double is a lot to ask for i have to believe that if you are investing in a double of production (vale) it will equate to a much higher gold production number....
Well, it does say:"It will also pay UP TO $400 for each ounce of gold delivered, subject to inflation adjustments and the current market price."
Presumably the $400 would be a max under some rosey scenario when gold was priced at something like $3000 (we are talking 20 years) and inflation had brought a loaf of bread to $25.
Probably need to get a fuller accounting of the terms and logic of the deal. It may require a bit of optimistic future pricing expectations, but I have to assume management did develop a sound investment thesis before signing on to the deal.
it seems all the analysts out there made very positive comments about the deal just to lure in buyers and then let the stock crash anbd burn.
SLW remains the no1 recommended miners in the world with a consensus of 1.7 that sounds as a strong buy. I am long but I think I should have waited more b4 steppin' in,
The outperformance of the stock in the last 1 year is being used as another reason to sell...after the hate for all defensive assets.
More, valuation is not on our side. ABX is priced at 4.5X ebitda. The do not grow but SLW is a bit pricey. Silver and gold must start to rise soon in order to see a rebound.
Techinically there is a fibonacci support at around $30. Let's see.
In the long term the company remains a winner and it is still cheaper than RGLD and FNV that has always remained very expensive. So I hope SLW will copy that.