Your Questions About Invest In Gold Mining Companies

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Daniel asks…

How do do you decide if this company is worth buying stocks in?

I am asked by my professor to show him in numbers if this company is worth investing in? how do I calculate if it is worth buying stocks in this company for my clients! its a mining company!

Canyon Resources Simulation

Construction Starts in Year2008
Years in Cash Flow12
Capital Costs$250,000,000
Total Output (Oz)4,900,000
Cash Operating Costs (Oz)$200
Gold Price$380
Debt Rate (%)50.00%
Interest Rate7.50%
Term (Yrs.)8
Loan PMT$21,340,878
Inflation Rate2.50%

State/Local Taxes (Oz)$17.00
Royalty Rate (%)5.00%
Federal Tax Rate (%)34.00%
Depletion Allowance50.00%
After Tax Cost of Capital17.50%
Pre-Tax Cost of Capital26.52%

Net Present Value$14,481,692
Internal Rate of Return20.41%
Pre-Tax Return30.93%
Appraised Value$389,481,692
Revenue
2009$155,166,667
2010$155,166,667
2011$155,166,667
2012$155,166,667
2013$155,166,667
2014$155,166,667
2015$155,166,667
2016$155,166,667
2017$155,166,667
2018$155,166,667
2019$155,166,667
2020$155,166,667

Expenses
$81,666,667
$83,708,333
$85,801,042
$87,946,068
$90,144,719
$92,398,337
$94,708,296
$97,076,003
$99,502,903
$101,990,476
$104,540,238
$107,153,744

S&L Taxes
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667
$6,941,667

Royalty
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333
$7,758,333

Interest
$9,375,000
$8,477,559
$7,512,810
$6,475,705
$5,360,817
$4,162,313
$2,873,920
$1,488,898

Prin.
$11,965,878
$12,863,319
$13,828,068
$14,865,173
$15,980,061
$17,178,565
$18,466,958
$19,851,979
Balance
$125,000,000
$113,034,122
$100,170,803
$86,342,736
$71,477,563
$55,497,502
$38,318,937
$19,851,979
($0)

Depreciation
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333
$20,833,333

Taxable Income
$28,591,667
$27,447,441
$26,319,481
$25,211,560
$24,127,797
$23,072,683
$22,051,117
$21,068,432
$20,130,430
$17,642,857
$15,093,096
$12,479,590

Fed. Taxes
$4,860,583
$4,666,065
$4,474,312
$4,285,965
$4,101,725
$3,922,356
$3,748,690
$3,581,633
$3,422,173
$2,999,286
$2,565,826
$2,121,530

Cash Flow
($125,000,000)
$32,598,539
$30,751,390
$28,850,435
$26,893,756
$24,879,344
$22,805,095
$20,668,803
$18,468,152
$37,541,590
$35,476,905
$33,360,603
$31,191,393

financi4 answers:

Cheating stunts your learning. It may be alot easier, but you are handicapping yourself.
Let me ask this, What do you plan on doing when faced this question in your career? Rely on yahoo answers in investing your clients life-savings?

Michael asks…

investment question?

The professor asked us whether we should recommend our clients to buy stocks in the following? how do you calculate if this mining company is worth buying stocks in? how do I calculate it in excel to show how I came up with my decision to my professor? I provide company information below? what numbers is important to look at how do i see if the company is worth investing based on these numbers. can explain how you calculate? what should i do! I have no idea! would you buy stocks in this company based on these numbers?

Canyon Resources Simulation

Construction Starts in Year2008
Years in Cash Flow12
Capital Costs$250,000,000
Total Output (Oz)4,900,000
Cash Operating Costs (Oz)$200
Gold Price$380
Debt Rate (%)50.00%
Interest Rate7.50%
Term (Yrs.)8
Loan PMT$21,340,878
Inflation Rate2.50%
State/Local Taxes (Oz)$17.00
Royalty Rate (%)5.00%
Federal Tax Rate (%)34.00%
Depletion Allowance50.00%
After Tax Cost of Capital17.50%
Pre-Tax Cost of Capital26.52%

Net Present Value$14,481,692
Internal Rate of Return20.41%
Pre-Tax Return30.93%
Appraised Value$389,481,692

Revenue
2009$155,166,667
2010$155,166,667
2011$155,166,667
2012$155,166,667
2013$155,166,667
2014$155,166,667
2015$155,166,667
2016$155,166,667
2017$155,166,667
2018$155,166,667
2019$155,166,667
2020$155,166,667

Expenses S&L Taxes
$81,666,667 $6,941,667
$83,708,333 $6,941,667
$85,801,042 $6,941,667
$87,946,068 $6,941,667
$90,144,719 $6,941,667
$92,398,337 $6,941,667
$94,708,296 $6,941,667
$97,076,003 $6,941,667
$99,502,903 $6,941,667
$101,990,476 $6,941,667
$104,540,238 $6,941,667
$107,153,744 $6,941,667
Balance
Prin. $125,000,000
$11,965,878 $113,034,122
$12,863,319 $100,170,803
$13,828,068 $86,342,736
$14,865,173 $71,477,563
$15,980,061 $55,497,502
$17,178,565 $38,318,937
$18,466,958 $19,851,979
$19,851,979 ($0)

DepreciationTaxable Income
$20,833,333 $28,591,667
$20,833,333 $27,447,441
$20,833,333 $26,319,481
$20,833,333 $25,211,560
$20,833,333 $24,127,797
$20,833,333 $23,072,683
$20,833,333 $22,051,117
$20,833,333 $21,068,432
$20,833,333 $20,130,430
$20,833,333 $17,642,857
$20,833,333 $15,093,096
$20,833,333 $12,479,590

Cash Flow
Fed. Taxes($125,000,000)
$4,860,583 $32,598,539
$4,666,065 $30,751,390
$4,474,312 $28,850,435
$4,285,965 $26,893,756
$4,101,725 $24,879,344
$3,922,356 $22,805,095
$3,748,690 $20,668,803
$3,581,633 $18,468,152
$3,422,173 $37,541,590
$2,999,286 $35,476,905
$2,565,826 $33,360,603
$2,121,530 $31,191,393

financi4 answers:

Looks like it would be great for a long term investment. Day traders & flippers might do ok but the long termers would do well.

Thomas asks…

Are Swiss Frank Denominated Fixed Annuities a Rational Investment Now?

These would be from Swiss annuity companies or banks. They would pay a fixed monthly sum, but in Swiss Franks not dollars. For example, a 55 year old man buys an annuity from Credit Suisse and pays cash for it now $250.000 USD. If he lives, but only if he lives to be 75 years old, he will get 3,500 Swiss Franks per month for the rest of his life. If he dies before reaching 75, his entire investment is completely forfeit. It’s not inheritable, It’s not transferable. It can’t be paid off with a lump sum payment. He can’t back out of the deal. It’s basically a bet. He’s saying he doesn’t want to be old and poor, so he’s betting that he will live to be 75 and then collect lots of monthly payments after that — maybe 20 years worth. The company says, they will take the bet, in exchange for his cash right now today, they will promise to pay out at the fixed rate per month if he lives long enough to start collecting, and they will pay as long as he lives — in Swiss franks.

The Swiss Franks, of course would arrive at the annuitant’s bank account, and then his bank could arrange to have them changed into US dollars. If the dollar goes into hyperinflation he would be protected, by getting a lot more dollars every month for his swiss frank income.

Swiss franks a currently backed by gold. Gold mining is falling worldwide. The global supply of gold (unlike US paper money) is fairly constant.

By rational investment I mean in comparison with: U.S. Treasuries, TIPS, Stock Funds, Bond Funds, Real Estate, Gold/Silver, or strategic metals (chrome, indium, platinum, rhodium, tungsten).

By rational I mean in accordance with reason, prudence, sound judgment, wise policy, and smart investing.

By “now” I mean by the end of 2009 — assuming no radical changes in the business environment or economic prospects for USA, or for the US dollar.

financi4 answers:

The Swiss Frank is a very stable currency and probably will hold its value far better than the dollar over time. The current exchange rate is currently almost par. 1.059 CHF+ $1. I remember a time when there were like 4+ CHF to the dollar. However you are betting that you will live a long time so the investor should be in excellent health and not over weight. Also note that you get nothing for 20 years. It probably is a poor investment unless the person lives to be 95+.

Donald asks…

Are there two U.S. Economies, one for those with capital and one for those without?

Being an American I would like to see as many of my countrymen as possible doing well financially, which obviously is not the case for many Americans, but for those with capital (i.e those invested in the equity/stock market) we have done very well the last couple years. I made over $25K in the market last week alone…I guess it just struck me that we almost have two economies depending if you have capital or not…fyi I have just over $775K in the equity market (aka the stock market)…nothing fancy, just the russel small cap completeness index, an American growth fund and the stock BHP (Billiton…the world’s largest mining company), and a small amount of gold (gld).

I’m a degreed engineer and a conservative.

financi4 answers:

You can think of the American Economy as being three parts. There are those who have enough property, like you, to live off of their investments, highly skilled workers who are permanently or easily employed and a large pool of lesser skilled less permanent or downright temporary workers.

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