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I would be careful with IRR comparisons between Talon and various Nickel projects.
IRR does not tell you the absolute dollars a project will earn over its life. Small scale = small scale cash flows and a different buyer/execution.
If you're a major this is critical, why waste management time on small scale high IRR project like Talon when that same management time can be spent on a large long life project where access to capital is not a restriction.
IRR will tend to favour short run projects because of the way the maths works in the calculation. As we know IRR is where the project NPV = zero, so with that in mind any long life project that suffers massive discounting in later years is going to look worse off in terms of IRR vs a short run project.
To provide an example of this we can think about FPX Nickel and their project with a 35 year LOM. Using an 8% discount rate with LOM Net Cash Flow at $8.73b ($7.75/lb Ni assumption) provides on ave $249m pa. But what would this be worth to NPV in year 35? using the NPV formula 1/(1x(1.0.08)^35) = 0.06763, we can say $249m is worth only $16.8m to NPV in year 35. I think that shows just how the discounting affects these long life assets like FPX and why NPV should be regarded as useless for comparing a a short life and long life asset, and therefore by extension given how IRR is calculated IRR falls into the same camp.
For me presented information needs to reflect their stated exit strategy and how the mine is being designed through the various study work. For example the way HZM have gone about their work to develop themselves with a staged production starting at 14ktpa and then doubling to 28ktpa, that hurts IRR. FPX have been very clear their asset will sit in the hands of a major so $1.67b capex for 45ktpa right off the bat, which could be doubled up to 90ktpa with successful drilling at their Van target this summer, that in my mind will interest a major.
Vale are developing Voisey's Bay underground project to extend the life of the asset, at capex c$1.7b, for 45kt Ni pa, until the mine is exhausted 2034. That at least gives some idea what was attractive to Vale back in 2015 when the project was approved.
I reckon Vale will need to think about replacing Voisey's Bay at some point fairly soon, so they have feedstock for their Long Harbour hydromet processing facility, ie no smelting. So FPX ore type does not require smelting either and via hydromet processing can get to NiS04 very favourably, this opens up potential in my mind to process by Vale at Long Habour and obviously a 63% Ni concentrate product brings with it bulk tonnage advantages vs say a 10% Ni concentrate product and opens up cost effective transport options. For these reasons Vale are on my list as a potential take out party at FPX, and that's got nothing to do with relative IRRs and capex as presented by Talon. ATB.RL.
Was it in the early Crux interviews where they said that the better Projects would be purchased first. Money would then feed its way into those second tier projects which is probably where KM sits.
If you then look at what it would cost to buy / develop KM we are probably talking circa $1b. If you were a potential purchaser could that money be put to better use? Are there other Projects out there that offer improved margins / lower risk. ie BHP are developing Nickel West.
Sooner or later those projects will have been purchased / developed. That should leave KM in a good position. Sooner if they can come up with improved figures / metrics.
Would agree with your comment on the resource and no doubt some is being deliberately left for a potential purchaser.
What are we worth? Talon have a market cap of £290m. I can see that they have one Project of which they own 51%. They appear to have sold the other Project. Not sure if you have had a look at them but the market cap appears high.
"The limits of the mineralisation are not yet defined and substantial potential remains to be tested in multiple areas within the production licence boundary."
The problem we have with the web site is they haven't been updating it so we don't know if that statement is pre or post the 2018 drilling campaign. Even if it is pre 2018 you would have to assume that there's still more nickel to find both within the current licence and immediately adjacent. There has to be more of the stuff still out there.
Whoever buys KM will have a fair idea of how much more it's likely to contain. I would expect a reasonable chunk to be left for the buyer to discover, if/when we find a buyer. I don't think there will be many potential buyers but you only need one. It then comes down to what there prepared to pony up.
The figures are taken from the Feb 2019 PFS showing the TS option. From an IRR perspective the project looks good. The graphic is colour coded green, amber and red with KM in the green with an IRR of 29.3%. The FFS option is 34.7%. By comparison the Talon figures are very good but it should be noted that they have used a 7% discount rate. A 10% discount rate (as used by AMC) would knock approx $100m off the NPV.
Looking around at some of the other graphics used by some other companies. FPX Nickel’s Baptiste Project includes a graphic of C1 costs and mine life About 10 Projects are shown. KM does not appear too good with a C1 operating cost of $3.87 and a mine life of 15 years. However again they have used the TS option. Use the FFS option and the C1 costs fall to $2.45. Use the increased by products credit of $1.287b and the C1 cost fall to $2.00. If RY can increase the mine life above 15 years the graphic will become much more favourable. Say C1 cost of $2.00 and mine life of 20 years.
All of the above sounds positive.
What does stand out when you look at other projects is our lack of progress. PFS Feb 2019. Updates since. Nothing.
"Source: Company reports and Talon research. Disclaimer: Talon endeavours to update data when new reports are published, however, figures may not be completely up to date."
I would expect Talon has had to employ a fair degree of guess work with Amur given all the unknowns. Having said that you'd have to assume that our position would have to improve once the unknown become known.
Interesting that one slide has us down as OP whereas the other a combination of UG and OP. We really need to pin down the fundamentals before we can feel confident about anything else.