A mining client of CONVENDIA has gold and copper assets thought to be capable of generating revenue of over USD 2 billion over 20 years at the current market price of copper and gold, while the cost of being able to mine that asset will be about US$ 400 million over the first five years of production.
But the company’s market cap is at present under US$ 50 million and the shares are already trading at only 30% of net asset value. Conventional IRR analysis simply will not work in this case because debt is not available and equity financing will be very dilutive. Any equity funding let alone equity funding on such a large scale is certain to be well below the present value of the projects and is likely to be below the current share price.
How to make a rational shareholder value based decision on whether to raise equity finance, to partner or whether to sell, and if the latter what combination of price and residual royalty makes sense compared with the alternative of funding the whole project with new equity and debt ?
CONVENDIA’s Mining Modeller software, due for release in the first half of 2018, allows clients to model the forward cashflow from their mining projects based on a likely production profile, various commodity prices, and estimated costs of the project, while applying various discount rates. It also allows an analysis of the likely funding profile of such projects and the effect of the cost of funding on the value of the firm and value per share.
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