Southport Minerals, Inc.
Case Study
Background:
Structured Financing
Structured Financing:
Obligations Match Cash Flows
) Debt capacity fully utilized
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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
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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:
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Most of cash flows go to debt service
Little to limited partners
Small or none to general partner
) Middle years (after debt substantially reduced):
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Specified percentage to limited partners
Remainder to general partner
) Late years (after debt paid & L.P.s receive specified
return):
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Small or none to L.P.s
Most to G.P.
1st Hurdle
Amount
Who gets paid?
Lenders
Total Project Cash Flows
1st Hurdle
Amount
Who gets paid?
Lenders
Limited Partners
General Partner
Total Project Cash Flows
2nd Hurddle
1st Hurdle
Amount
Who gets paid?
General Partner
Limited Partners
Lenders
Total Project Cash Flows
3rd Hurddle
2nd Hurddle
1st Hurddle
Amount
Who gets paid?
General
P
Partner
Limited
Partners
Lenders
Total Project Cash Flows
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
Balance Sheet 1972-1987
Debt
Net Worth
$140
$ millions
$120
$100
$80
$60
$40
$20
Debt
1987
1985
1986
1982
1983
year
1984
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
$0
Outcome
Profit & Dividends 1972-1987
Profit
Dividend
$60
$40
$30
$20
$10
year
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
$0
-$10
1972
$ millions
$50
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
g
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:
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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
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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.
Visit Website
)http://www fcx com/
)http://www.fcx.com/