Here's how I see things with a quick example.
If Teck streams 1M ounces of gold at $1000 US, that would provide them 1B US or 1.3B CAD upfront to finance capex. The balance could be financed by debt. On the other hand, some future cash flows (e.g years 1 to 4) would be reduced, also impacting the NPV (8%).
Let's compare the NPV (8%) impact with and without a gold stream.
Assuming:
- production of 250K ounces of gold per year
- gold price of $1800 US per ounce
- exchange rate at 1.3
- 4 year construction with capex at 2.6B CAD (equally distributed)
- Schaft Creek generating 1B CAD of NCF per year without streaming gold
- Schaft Creek generating 415M CAD of NCF (years 1 to 4) with streaming gold*
* 250K x 1800 US x 1.3 = around 585M less revenues/profits for years 1 to 4.
Calculating the NPV (8%) difference between these two scenarios.
- 4 years construction with capex at 2.6B CAD (4 years at 650M), followed by 4 years with 1B CAD of NCF
- 4 years construction with capex at 2.6B CAD (2 years at 0 due to gold stream, 2 years at 650M), followed by 4 years with 415M CAD of NCF
If my calculations are correct, streaming 4 years of gold to keep 100% of the project would reduce the NPV (8%) value by only 250M.
Therefore, the project value NPV (8%) would only decrease by 250M and Teck could keep 100% of all the future profits!
MoneyK
