In 2022, Teck announced the JV for San Nicolas
https://www.teck.com/news/news-releases/2022/teck-and-agnico-eagle-announce-agreement-on-the-san-nicol%C3%A1s-copper-zinc-project-located-in-zacatecas,-mexico
Terms of the transactions:
- $580M US for 50% interest (no upfront payment, but used for the first $580M US of spendings)
- 50% of the remaining expenses afterward ($235M US per my estimation based on $1.05B US capex)
- After-tax NPV (8%) of $1.5B US (with copper at $3.50 US, capex $814M US)
- EBITDA (first 5 years) : $489M US (with copper at $3.50 US)
- Capex of $814M US (not adjusted)
- 15 year mine life
- 34% IRR after-tax
- First production in 2026
At the time of the transaction, both companies already agreed that the capex might now be anywhere between $1B US and 1.1B US. Therefore, I adjusted the capex and NPV accordingly based on the mid-point.
Revised capex: $814M US + $250M US = $1.05B US
Revised NPV (8%) $1.5B US - $250M US = $1.25B US
Assuming the below payments in time for Agnico Eagle
- $25M US in 2023
- $25M US in 2024
- $530M US in 2025
- $235M US in 2026
Discounting these values 8% per year to bring them back in 2022 dollars:
- $23M US
- $21.5M US
- $421M US
- 173M US
- Total of $638.5M US (2022 dollars) for 50% a interest
That's $638.5M US total for a 50% interest (valued at $625M US) or 102% of the NAV when using copper at $3.50 US.
When looking at the EBITDA ratio (first 5 years):
- $489M US x 50% = $244.5M US per year
- $638.5M US / $244.5M US per year = 2.6x the projected EBITDA when using copper at $3.50 US
When looking at the capex ratio:
$638.5M US / ($1.05B US x 50%) = 122% for a project that should offer around a 34% IRR after-tax.
Conclusion:
This transaction seems to be in the range of %102 NAV for a project close to production. The EBITDA ratio is lower, but this is to be expected from a project that only has a 15 years mine life (more risk) and less expansion possible to maintain the initial cash flows. Again, Agnico Eagle received a partial carried-interest to production. Both companies still share the risk related to capex.
IMO.
MoneyK
