AZC - Augusta Resource
Someone asked me why I underperformed this one.
This one is has to raise the money to build the mine. You NEVER know what the share/captial structure is going to look like after that. I saw one that in the matter of how much the markets changed this past two weeks had to offer an additional 14 million shares to investors of $1000 bonds to close the funding deal, for a total of 91 million shares in addition to having to pay 11% interest on the bonds. Augusta needs to raise about $800 million and what will the share/debt structure look like by the time they do that?
The world is showing signs of economic slow down everywhere meaning there is a good chance we are going into over supply of commodities and commodity prices WILL come down.
The metal grade is not that great, 0.47% copper, 0.015% moly, and 0.12 oz (3.7 g/ton) silver. At today's prices it is about $43/ton. Bingham by comparison mined 0.63% copper, 0.057 molybdenum, 0.49 g/ton gold and 3.5 g/ton silver in 2006. In 2006 that grade averaged about $90/ton, but today it would be worth about $83/ton. Bingham has in the range of double the metal values.
I don't know how you get better economies of scale than Bingham. I guess close to 2/3rds of the metal values made it to profits for Bingham. By comparison, as long metal prices stay as strong as they are right now only about 25% of the metal values of this one would make it to profits. I don't care what their feasibility study says, as an investor comparing to Bingham is a better idea because it is a working mine in the region that is a highly efficient mine. They are likely doing a lot of fudging if they suggest they can do better.
The risk involved in raising capital for a mine is such that 10-12% interest rates aren't uncommon. Equity financing and they'll probably have to issue 250 million shares an another 125 million warrants to raise enough capital to bring the project to production, which would bring to into the range of 500 million shares fully diluted.
Alternatively, debt financing for mines generally costs 10-12%. I think with the concerns in the economy it would probably be more likely 12%. By the time carrying costs are paid for getting it going you'd be in for an extra $2-300 million in debt servicing, so by the time the mine opened there's be $1 billion of debt and $120 million of the $219 million would go to debt servicing. Paying back the mine would be many more years than they suggest.