CPI for USA from Year 1990 to 2010
Year
|
Jan
|
Feb
|
Mar
|
Apr
|
May
|
Jun
|
Jul
|
Aug
|
Sep
|
Oct
|
Nov
|
Dec
|
Annual
|
2010
|
216.687
|
216.741
|
217.631
|
218.009
|
218.178
|
217.965
|
218.011
|
218.312
|
218.439
|
218.711
|
218.803
|
219.179
|
218.055
|
2009
|
211.143
|
212.193
|
212.709
|
213.24
|
213.856
|
215.693
|
215.351
|
215.834
|
215.969
|
216.177
|
216.33
|
215.949
|
214.537
|
2008
|
211.08
|
211.693
|
213.528
|
214.823
|
216.632
|
218.815
|
219.964
|
219.086
|
218.783
|
216.573
|
212.425
|
210.228
|
215.303
|
2007
|
202.416
|
203.499
|
205.352
|
206.686
|
207.949
|
208.352
|
208.299
|
207.917
|
208.49
|
208.936
|
210.177
|
210.036
|
207.342
|
2006
|
198.3
|
198.7
|
199.8
|
201.5
|
202.5
|
202.9
|
203.5
|
203.9
|
202.9
|
201.8
|
201.5
|
201.8
|
201.6
|
2005
|
190.7
|
191.8
|
193.3
|
194.6
|
194.4
|
194.5
|
195.4
|
196.4
|
198.8
|
199.2
|
197.6
|
196.8
|
195.3
|
2004
|
185.2
|
186.2
|
187.4
|
188
|
189.1
|
189.7
|
189.4
|
189.5
|
189.9
|
190.9
|
191
|
190.3
|
188.9
|
2003
|
181.7
|
183.1
|
184.2
|
183.8
|
183.5
|
183.7
|
183.9
|
184.6
|
185.2
|
185
|
184.5
|
184.3
|
184
|
2002
|
177.1
|
177.8
|
178.8
|
179.8
|
179.8
|
179.9
|
180.1
|
180.7
|
181
|
181.3
|
181.3
|
180.9
|
179.9
|
2001
|
175.1
|
175.8
|
176.2
|
176.9
|
177.7
|
178
|
177.5
|
177.5
|
178.3
|
177.7
|
177.4
|
176.7
|
177.1
|
2000
|
168.8
|
169.8
|
171.2
|
171.3
|
171.5
|
172.4
|
172.8
|
172.8
|
173.7
|
174
|
174.1
|
174
|
172.2
|
1999
|
164.3
|
164.5
|
165
|
166.2
|
166.2
|
166.2
|
166.7
|
167.1
|
167.9
|
168.2
|
168.3
|
168.3
|
166.6
|
1998
|
161.6
|
161.9
|
162.2
|
162.5
|
162.8
|
163
|
163.2
|
163.4
|
163.6
|
164
|
164
|
163.9
|
163
|
1997
|
159.1
|
159.6
|
160
|
160.2
|
160.1
|
160.3
|
160.5
|
160.8
|
161.2
|
161.6
|
161.5
|
161.3
|
160.5
|
1996
|
154.4
|
154.9
|
155.7
|
156.3
|
156.6
|
156.7
|
157
|
157.3
|
157.8
|
158.3
|
158.6
|
158.6
|
156.9
|
1995
|
150.3
|
150.9
|
151.4
|
151.9
|
152.2
|
152.5
|
152.5
|
152.9
|
153.2
|
153.7
|
153.6
|
153.5
|
152.4
|
1994
|
146.2
|
146.7
|
147.2
|
147.4
|
147.5
|
148
|
148.4
|
149
|
149.4
|
149.5
|
149.7
|
149.7
|
148.2
|
1993
|
142.6
|
143.1
|
143.6
|
144
|
144.2
|
144.4
|
144.4
|
144.8
|
145.1
|
145.7
|
145.8
|
145.8
|
144.5
|
1992
|
138.1
|
138.6
|
139.3
|
139.5
|
139.7
|
140.2
|
140.5
|
140.9
|
141.3
|
141.8
|
142
|
141.9
|
140.3
|
1991
|
134.6
|
134.8
|
135
|
135.2
|
135.6
|
136
|
136.2
|
136.6
|
137.2
|
137.4
|
137.8
|
137.9
|
136.2
|
1990
|
127.4
|
128
|
128.7
|
128.9
|
129.2
|
129.9
|
130.4
|
131.6
|
132.7
|
133
|
133.8
|
133.8
|
130.5
|
1. PRODUCTION
Data-
30 000 000 tonnes Cu
ore/day for 350 days for 20 years
Mill recovery 87% for
every 1 tonnage mined
Cu grade is 0.8% tone
Cu per mill tonnage produce.
The price of Cu is
projected to be US$1.25/lb
Production = 30 000 x
350 x 20 = 210 000 000 metric tones
of Cu ore for 20 years.
Mill trough put
Recovery = 87% x 210 000 000 = 182 700 000 Mill tonnage
100
0.8% x 182 700 000 = 1 461 600 tonnes Cu produced
100
Price of Cu is
projected to be US$ 1.25/lb
1 lb = 0.4535924 kg = 0.000453924 tonnes (Using Calculator Conversion)
US$ 1.25 = 0.000453924
tonnes
xUS$ = 1 tonne
1 tonne = US$
2755.778095
Therefore price of Cu projected is US$ 2755.778095/tonne
Gross Revenue = US$ 2755.778095 x 1 461
600 tonnes of Cu = US$ 4 027 845 264
2.
Capital Cost
Data-
Capital cost projected to be US$600 million (1990)
Working Capital is US$ 70 million (1990)
NB: expected to be incurred in year 2
Salvage value
is 20% of the capital cost.
Capital Cost – 60% debt with 12% interest
- 40% equity raising
Real escalation is 4%
Calculation
·
Inflation in 2010
= CPI Dec 2010 - 1
= US$ 219.179 - 1 = 63.81 %
CPI
Dec 1990 US$ 133.80
= 63.81%
nominal inflation in 2010
·
Nominal escalation = (1+
inf 1990 -2010)* (1 + real esc.)n -1
= (1+ 0.6381)* (1+0.04)20
– 1
= 258.9 % over the 20 years period
Therefore,
·
Capital Cost (Dec 1990)
US$ 600 M x (1+2.589) = US$ 2 153 400
000 (Dec 2010)
·
Working Capital ( Dec
1990) US$ 70M x (1 + 2.589) = US$ 251
230 000 (Dec 2010)
·
Capital
Cost financed through debt 60% with 12%
interest
60%/100 x US$ 2 153 400 000 = US$ 1
292 040 000 with 12% interest
·
Capital
cost financed through equity of 40 %
40% / 100 x US$ 2 153 400 000 = US$ 861
360 000
·
Salvage
20%/100 x US$ 2 153 400 000 = US$ 430 680 000
Annual
Interest plus principle payment
A = P x i x (1 + i) n = US$ 1 292
040 000 x 0.12(1 +0.12)10 = US$ 228
670 619.5
(1 + i)n – 1 (1 + 0.12 )10 -1
= US$ 228 670 619.5
Principle = US$
1 292 040 000 = US$ 129 204 000
10
Interest = Annual payment – principle
=
US$ 228 670 619.5 – US$ 129 204 000 = US$ 67 201 632.5
3.
Operating
Cost
i)
Mining
Operation Cost
Data
Total ore &
waste tonnage is 90 000 tonnes mined per day for 350 days for 20 years
It cost US$1.0/tonne to remove both waste and
ore.
Total cost = US$
1.0/tonnes x 90 000 x 350
=US$ 31 500 000 (1990 value)
Therefore;
·
Mining operating Cost
(Dec 1990) US$ 31 500 000 x (1+2.589) = US$ 113 053 500 (Dec 2010)
ii)
Milling, Severance and administration
operating cost
Milling
Cost = US$1.60/tonne x 30 000 x 350 = US$ 16 800 000 (1990 value)
(Dec 1990) US$ 16 800 000 x (1 + 2.589)
= US$ 60 295 200 (Dec 2010)
b)
Severance
Severance Cost =
US$0.10/tonne x 30 000 x 350 = US$ 1 050 000 (Dec 1990)
(Dec 1990) US$1 050 000 x (1 +
2.589) = US$ 3 768 450 (Dec 2010)
c)
Administration
Administration Cost = US$
0.20/tonne x 30 000 x 350 = US$ 2 100 000 (Dec 1990)
(Dec
1990) US$ 2 100 000 x (1+2.589) = US$ 7
536 900 (Dec 2010)
d)
1 tonne Cu
smelter-charged is imposed on every 0.87 tonne mill production =
1tonne/ 0.87tonne x US$1.60 x 30 000 x 350 =US$
19 310 344.83 (Dec 1990)
(Dec
1990) US$ 19 310 344.83 x (1+2.589) = US$
69 304 827.59 (Dec 2010)
Total Operating Cost = US$
253 958 877.6
4.
Development Cost (Capital Cost)
(Dec 1990)US$ 300M x (1+2.589) = US$ 1 076 700 000 (2010 value)
Year
1 to Year 2 amount used is US$300 million (1990 value)
(Dec
1990)US$ 300M x (1+2.589) = US$ 1 076
700 000 (2010 value)
5.
Royalty
2.25%
- 0.25% = 2.0 % from Year 13 to Year
22
PNG Income Tax rate is 30% of the corporate income.
7.
Depreciation
Year
2 – 14 Apply Double Declining Balance Method (1/2 convention)
Year
15 – 22 Switch to Straight line depreciation.
Year
|
Method
|
Rate x Adjusted Basis
|
Depreciated Amount (US$)
|
1
|
|||
2
|
1.5 DB
|
1.5/13 x 2,153,400,000 x 1/2
|
124,234,615.4
|
3
|
1.5 DB
|
1.5/13 x 2,029,165,385
|
234,134,467.5
|
4
|
1.5 DB
|
1.5/13 x1,795,030,918
|
207,118,952
|
5
|
1.5 DB
|
1.5/13 x1,587,911,966
|
183,220,611.5
|
6
|
1.5 DB
|
1.5/13 x1,404,691,355
|
162,079,771.7
|
7
|
1.5 DB
|
1.5/13 x 1,242,611,583
|
143,378,259.6
|
8
|
1.5 DB
|
1.5/13 x 1,099,233,323
|
126,834,614.2
|
9
|
1.5 DB
|
1.5/13 x 972,398,708.8
|
112,199,851
|
10
|
1.5 DB
|
1.5/13 x 860,198,857.8
|
99,253,714.36
|
11
|
1.5 DB
|
1.5/13 x 760,945,143.4
|
29,267,120.9
|
12
|
1.5 DB
|
1.5/13 x 731,678,022.5
|
84,424,387.21
|
13
|
1.5 DB
|
1.5/13 x 647,253,635.3
|
74,683,111.76
|
14
|
1.5 DB
|
1.5/13 x 572,570,523.5
|
66,0665,829.64
|
ii)
Straight Line Depreciation
Annual Depreciation = US$ 41 064 561.09
= US$ 5 133 070.137/year
8 years
8.
Discount
Rate
Step
1
E(Ri) = Rf + ßi
[E (Rm – Rf )]
=
5% + 1% * [ 6% – 5% ]
=
6% is expected rate of return on the stock investment
Step 2
WACC = E(Ri) * D + D * (1
– t )* i
(D + E) (D + E)
WACC = 6%
* 60
+ 60
* (1 – 0.3)* 12
(40 + 60) (40 + 60)
=
8.64%
Therefore the discount rate is 8.64%
Summary
of the Calculation
·
Gross Revenue US$ 4
027 845 264
·
Royalty - 2% +
0.25% = 2.25% from Year 2 to Year 12
-
2.25% - 0.25% = 2.0 % from Year 13 to Year 22
·
Capital CostUS$ 2 153 400 000
i) US$ 1 076 700 000 (Year 0-1)
ii) US$ 1 076 700 000 (Year 1-2)
·
Operating Cost US$ US$
253 958 877.6
·
Working Capital - US$ 251 230 000
·
Salvage Value - US$ 430 680 000
·
Depreciation
·
Interest Expense
·
Tax
30%
·
Discount Rate 8.64%
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