Today (4/5/2013) gold price is $1,581.80 /oz and copper is $3.35 /#.
Thompson fact sheets stated that:
*Mt. Milligam anticipated annual production cash cost is $280M (including operating costs, refining/smelting
costs amd transpotation)
* For the first 6 years, copper annual production is 89.0M # of copper concentrate, yielding 85.4M # of payable Cu.
* For the first 6 years, gold annual production is 262,000 oz of gold concentrate, yielding 256,760 oz of payable Au.
* Royal Gold paid $781.5M for the right to buy 52.5% of produced gold at $435 /oz.
*Mt. Milligan project is estimeted at $1,530M. Excluding $781.5M from Royal Gold, net cost is $748.5M.
* Sales of 52.5% of 256,760 oz of gold to Royal Gold @ $435/oz bring in $56.64M.
* Sales of 47.5% of 256,760 oz of gold @ $1,581.80/oz bring in $192.92M.
* Net copper cash cost = $280.0M-$56.64M-$192.92M = $28.44M.
* Copper cash cost = $28.44M / 85.4M # = $0.33/#.
* Sales of 85.4M # of Cu @ $3.35/# bring in $286.09M.
* Mt. Milligan EBITDA = $286.09M - $28.44M = $257.65M.
* Payback = Net cost / EBITDA = $748.5M / $257.65M = 2.91 years.
I think the numbers sounds very good, why peoples are not realizing the facts?
Good analysis of slide 15, however some points you did not address that are relevant:
1) The cost of the property. TC acquired it from Terrane in 2010, and allocated $850.1mm of the purchase price toward Milligan's mineralization. This is added to the capex, which should come in at $1.632mm when 2014 permanent camp and 2014 operations/spares are included. So the total project is more like $2.4 billion, of which RGLD "contributed" $781.5mm in the form of an advance. The advance, however, must be 'paid' back by the excess of spot over the $435, on their 52.25% share for LOM, so it's really not an equity stake equivalent. Presuming the project unfolds with production numbers for gold as expected, their advance is 'repaid', and any issues of leins associated with the advance are mute. But I understand your point in deducting it from capex. But your capex number is just short by 50%, in reality. Thus, payback is really more like 5+ yrs, when you consider the effective "land" (mineralization - - which will be depleted over life of mine) UNDERNEATH the $1.6 billion dollar mine.
2) The $280mm includes some stripping costs for future successive phases of the mine. Thus, they won't be expensed immediately, but when the related benches are taken.
So if you really think your good, try the following: a) figure the GAAP EPS contribution from Milligan for each of the first three periods of operation, and b) reconcile that $280mm cash cost to a GAAP equivalent production cost.
EBITDA from Milligan (at current metal prices will be good - - we agree) but EBITDA isn't what the market uses to value common stock.
I'd like to see what you come up with.
Sentiment: Strong Buy
Thank you for your reply. I always enjoy your writings, please keep share your insights with all of us. I am relatively new as a TC Longs, and I don't have financial background, so I don't have ability to do financial analysis as you suggested. I just did some simple mathmatic calculations from the available datas to get some information to lighten up our fellow Longs' depressed mood.
Yes I should have included the Mt. Milligan property values for estimating the payback. You are correct the packback is probably about 5 years as of now.
But I have question about Mt. Milligan property allocation of $850.1M? May be you can explain to us where it come from?
When TC closed the acquisition of Terrane in October 2010, the deal was worth C$700M, including C$420M in cash and 24.3M TC shares worth C$280M at that time. Of course, that deal is worth 30% less now.
Terrane had 2 major assets, Mt. Milligan and Berg. Both of them are about same size, so the property value allocation in each of them should be close to same, if not equal. Why Mt. Milligan allocation values is more than entire acquisition price?
Historic peak gold price is $1,895.00/oz on 9/5/2011 and historic peak copper price is $4.58/# on 2/6/2011. I remember gold was about $400/oz and copper is less than $1/# is early 1980s, now both of them are almost quadruple.
It has been for a while that, US Fed, Euro Central bank, Japanes Central Bank and others are keeping printing the paper currencies. Chinese & Indian peoples are getting wealther and they are insatifiable in owning golds and better housing. My beliefs is inflation will be here sooner than expected, and $2,000/oz gold & $5/# copper will be here soon. With that, the payback will be much sooner than 5 years.
Based on the numbers and copper price floating to a upward target I would say tc is a buy . Copper should trade at $8500.00 per ton. SInce copper has been under $8000.00 per ton this increase alone is enough to push tc over $4.00. I base all of my targets on facts. I would have likes to wait even longer before upgrading tc but the numbers dictate the price targets. Tc is on sale but not for long. When do you buy a stock ? When it is on sale and everyone runs for cover. Why pay full price when you can buy on sale. The tmeds TC-T are the best deal under $16.00 per share is a steal. and for the stock under $3.00. By the end of May tc will be over $4.00
Sentiment: Strong Buy