Ausome has been drilling and doing geochemical sampling across its sites in Northern Canada and one...

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Ausome has been drilling and doing geochemical sampling across its sites in Northern Canada and one site has repeatedly tested positive for the presence of gold. Preliminary estimates suggest that the potential extraction from the site in troy ounces over the next 5 years is as follows: Year Troy Ounces 1 150,000 2 165,000 3 180,000 4 230,000 5 220,000 Mining operations will require $20M net working capital to start and additional net working capital investments each year equal to 10% of the projected revenue increase for the following year. A full recovery of NWC is expected at the end of year 5. Total fixed costs are $100M per year, variable production costs are $2,050 per Troy Ounce, and gold prices are currently $2,750 per troy ounce. The gold price is anticipated to rise by 6 percent per year starting in year 2, and variable costs are expected to grow at 5 percent per year starting in year 2. There is an enormous amount of heavy machinery that needs to be transported to the mine site. The heavy equipment will cost $35M and shipping will cost another 5M. The equipment falls into Class 41 for CCA purposes (25%) and the marginal tax rate is still 35%. The equipment is expected to have a value of $9M at the end of the 5-year project. Total expenses for the drilling and geochemical sampling Ausome completed on the site last year cost a total of $500,000. Part 3: a. What is the NPV of the new mine? b. What is the IRR of the new mine? C. If the price of gold, variable costs, and two growth rates are considered to be accurate within 15%, what are the best- and worst-case scenarios? Assume fixed costs will not vary. d. Which of the 4 variables is your NPV most sensitive to, and what are some suggestions you might have for Ausome to protect itself? e. f. Does this project appear to be a good investment to grow Ausome? Would you recommend AuG focus on growth through acquisition of NuGold or through the startup of a new mine site? Why? Ausome has been drilling and doing geochemical sampling across its sites in Northern Canada and one site has repeatedly tested positive for the presence of gold. Preliminary estimates suggest that the potential extraction from the site in troy ounces over the next 5 years is as follows: Year Troy Ounces 1 150,000 2 165,000 3 180,000 4 230,000 5 220,000 Mining operations will require $20M net working capital to start and additional net working capital investments each year equal to 10% of the projected revenue increase for the following year. A full recovery of NWC is expected at the end of year 5. Total fixed costs are $100M per year, variable production costs are $2,050 per Troy Ounce, and gold prices are currently $2,750 per troy ounce. The gold price is anticipated to rise by 6 percent per year starting in year 2, and variable costs are expected to grow at 5 percent per year starting in year 2. There is an enormous amount of heavy machinery that needs to be transported to the mine site. The heavy equipment will cost $35M and shipping will cost another 5M. The equipment falls into Class 41 for CCA purposes (25%) and the marginal tax rate is still 35%. The equipment is expected to have a value of $9M at the end of the 5-year project. Total expenses for the drilling and geochemical sampling Ausome completed on the site last year cost a total of $500,000. Part 3: a. What is the NPV of the new mine? b. What is the IRR of the new mine? C. If the price of gold, variable costs, and two growth rates are considered to be accurate within 15%, what are the best- and worst-case scenarios? Assume fixed costs will not vary. d. Which of the 4 variables is your NPV most sensitive to, and what are some suggestions you might have for Ausome to protect itself? e. f. Does this project appear to be a good investment to grow Ausome? Would you recommend AuG focus on growth through acquisition of NuGold or through the startup of a new mine site? Why?