southport minerals, inc. case study. background: structured financing
TRANSCRIPT
Southport Minerals, Inc.
Case Study
Background:
Structured Financing
Structured Financing: Obligations Match Cash Flows
Debt capacity fully utilized Loans staggered to match project timetable Lines of credit provide debt support prior to full establishment
of project cash flows Limited partners provide majority of equity General partner provides small portion of equity
During early years, debt service consumes most of the expected cash flow Level of expected cash flow determines capacity for
intermediate-term loans Derivatives used to stabilize cash-flow match
Structured Financing: Cash Flow Distribution
Early years: Most of cash flows go to debt service Little to limited partners Small or none to general partner
Middle years (after debt substantially reduced): Specified percentage to limited partners Remainder to general partner
Late years (after debt paid & L.P.s receive specified return): Small or none to L.P.s Most to G.P.
Who gets paid?
Total Project Cash Flows
Am
ount
Lenders
1st H
urdl
e
Who gets paid?
Total Project Cash Flows
Am
ount
Lenders
Limited Partners
General Partner
1st H
urdl
e
Who gets paid?
Total Project Cash Flows
Am
ount
LendersLimited Partners
General Partner
1st H
urdl
e
2nd
Hur
dle
Who gets paid?
Total Project Cash Flows
Am
ount
Lenders
Limited Partners
General Partner
1st H
urdl
e
2nd
Hur
dle
3rd
Hur
dle
Questions
Is infrastructure provided?Is there a viable community of interests?How thoroughly are risks covered?Is there profit potential for Southport
Minerals?
Which Approach? Approach 1. Discount at Southport Minerals’ cost of
capital, ignoring the financial arrangements (zero NPV) Approach 2. Discount at a premium above Southport
Minerals’ cost of capital, ignoring the financial arrangements (negative NPV)
Approach 3. Discount at Southport Indonesia’s cost of capital, considering the financial arrangements (expected NPV $58 million)
Approach 4. Discount dividends paid versus equity invested at SI’s cost of capital (expected NPV $10MM)
Outcome
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
Debt
$0
$20
$40
$60
$80
$100
$120
$140
$ m
illi
on
s
year
Balance Sheet 1972-1987
Debt Net Worth
Outcome
-$10
$0
$10
$20
$30
$40
$50
$60
$ m
illi
on
s
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
year
Profit & Dividends 1972-1987
Profit Dividend
Through the 1990s
1988: Freeport Copper & Gold (FCX) taken public on the NYSE
1989: new project financing arranged for Erstberg East deposit
1992, 1993, 1996, 2000: significant new deposits of copper and gold discovered
Indonesia Today
The world's largest archipelago, Indonesia achieved independence from the Netherlands in 1949
Current issues include: Alleviating widespread poverty Implementing IMF-mandated reforms of the banking sector Effecting a transition to a popularly-elected government after four decades of
authoritarianism Addressing charges of cronyism and corruption Holding the military and police accountable for human rights violations Resolving growing separatist pressures in Papua New Guinea
On 30 August 1999 a provincial referendum for independence was overwhelmingly approved by the people of Timor
Concurrence followed by Indonesia's national legislature, and the name East Timor was provisionally adopted
On 20 May 2002, East Timor was internationally recognized as an independent state.
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