(as I understand it)
Cost per unit - $4,400 US (or $880 US per oz), $5,301 Cdn (assuming .83 conversion)
Institutional investors that purchase this deal MUST believe in a higher gold price.
Century’s share price will increase dramatically with a successful ramp up of production at Lamaque (100K oz per yr or better).
Each unit comes with 600 outstanding shares, for free.
Each unit comes with 1,000 warrants, at most likely an almost free exercise price.
Scenario 1 - $1,100 US gold price and $3 Century share price (during payback period)
Value of gold ounces per unit during payback period: 5 ounces * $1,100 US /.83 = $6,627 Cdn per unit
Value of shares per unit: 600 * $3 = $1,800 Cdn
Value of exercised warrants per unit: 1,000 * $2.85 ($3 - $.15 assumed warrant exercise price) = $2,850 Cdn
Total value of unit during payback period for institutional investor = $11,277 Cdn
Net profit per unit for institutional investor: $11,277 Cdn - $5,301 Cdn = $5,975 Cdn or 113% investment return
Scenario 2 - $1,100 US gold price and $2 Century share price (during payback period)
Value of gold ounces per unit during payback period: 5 ounces * $1,100 US /.83 = $6,627 Cdn per unit
Value of shares per unit: 600 * $2 = $1,200 Cdn
Value of exercised warrants per unit: 1,000 * $1.85 ($2 - $.15 assumed warrant exercise price) = $1,850 Cdn
Total value of unit during payback period for institutional investor = $9,677 Cdn
Net profit per unit for institutional investor: $9,677 Cdn - $5,301 Cdn = $4,375 Cdn or 83% investment return
Scenario 3 - $1,100 US gold price and $1 Century share price (during payback period)
Value of gold ounces per unit during payback period: 5 ounces * $1,100 US /.83 = $6,627 Cdn per unit
Value of shares per unit: 600 * $1 = $600 Cdn
Value of exercised warrants per unit: 1,000 * $.85 ($1 - $.15 assumed warrant exercise price) = $850 Cdn
Total value of unit during payback period for institutional investor = $8,077 Cdn
Net profit per unit for institutional investor: $8,077 Cdn - $5,301 Cdn = $2,775 Cdn or 52% investment return
1 comment:
I have some additional thoughts here.
As part of work requirements in putting together the Fortis deal, Century had to negotiate hedges with hedging companies beforehand. Here are the results of the preliminary hedging agreement (per the Fortis DD document on their website):
*2010 - 45,000 hedeged ounces @$801 US
*2011 - 45,000 oz @ $821 US
*2012 - 45,000 oz @ $845 US
*2013 - 45,000 oz @ $871 US
*2014 - 45,000 oz @ $900 US
*2015 - 45,000 oz @ $931 US
*2016 - 45,000 oz @ $965 US
With this new gold-based financing deal, Century is only giving up 15,000 ounces per year (for 5 years only), priced at $880 US.
It seems to me that the hedging company (ies) was willing buy 45,000 ounces per year, at probably around the same average price of $880 US - and they weren't not requiring their ounces to be delivered any sooner than what is stated in our current gold-based financing proposal.
Actually, the currently deal is way more attractive, as it provides the free common shares and the cheap warrants.
The other primary difference between gold-based financing and typical hedging initiatives is the fact that the cash is paid up front with gold based financing, as opposed to the gold being sold at the pre-determined price in the future (once produced).
However, that's not to say that the hedging company Century had the 45,000 oz per year agreement with would not be interested in subscribing to the gold-base financing. This deal is even more attractive (than they were getting) due to the shares and warrants.
As such, if Octagon is unable to fill all 15,000 units through institutional investors then (as a contingency plan) I think there is a real possibility of Peggy going back to the hedging companies to see if they are interesting in supplementing this new deal (which is much better, although the cash is needed up from in this case - it would only be a small fraction of what they will willing to sign up for before).
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