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My previous post estimated the EBITDA would likely be increased from US$136 million per annum to approximately $300m if today's spot prices were used instead of the conservative ones the BoD used in the RNS. As a result of this my Sun 14:21 post which used an EBITDA of $516m is superseded (for now!) by the following updated NPV estimates.
Here is an approximate repayment schedule which results in NPV0 = $225m and NPV10 = $105.73. The $225m is R$900m / 4 (approximate exchange rate) and the $105.73 comes from: "The JRP schedule contemplates the majority of the historic liabilities will be paid from free cash flow in years 5 to year 17 of operations, which represents a discounted NPV10 debt value of approximately US$106 million.". I'm uncertain how much of the NPV10 $106m represents the original R$1.5B of debt - the calculation below assumes all but presumably there will be more debt to repay which is under negotiation.
https://www.calculatorsoup.com/calculators/financial/net-present-value-calculator.php
===[
Interest rate 10%
Compounding 1
Cash Flows at End
Number of lines 6
0 1 @0
1 4 @0
2 2 @$40m
3 2 @$30m
4 2 @$20m
5 2 @$10m
6 5 @$5m
]===
Plugging in this repayment schedule along with the various other numbers we can estimate:
https://www.calculatorsoup.com/calculators/financial/net-present-value-calculator.php
===[
Interest rate 8%
Compounding 1
Cash Flows at End
Number of lines 9
0 1 @ -55 (Our $6m + Indo's $49m)
1 1 @ 40 (Estimate of selling half the iron ore stock piles at today's spot)
2 1 @ -128.30 (CapEx of 168.30 minus the other half of the iron ore stock pile)
3 1 @ 100 (Estimate of first production in 2022/3)
4 1 @ 200 (Estimate of ramping up production in 2023/4 - total of this year and last year estimated to be equivalent to a full year)
5 2 @ 260 (2 years of full production in 2024/5 and 2025/6 of EBITDA $300m - $40m debt repayment)
6 2 @ 270
7 2 @ 280
8 2 @ 290
9 5 @ 295 (Final 5 years of full production in 2032/3 to 2036/7 of EBITDA $300m - $5m debt repayment)
Gives a pretax NPV8 = $1.72B
Varying the discount rate:
NPV0 = $3.83B
NPV5 = $2.28B
NPV8 = $1.72B
NPV10 = $1.44B
NPV12 = $1.21B
NPV77 ~ 0 (Pretax IRR of 77%)
Exciting! Bring on that 20%, hopefully getting to 27% will be easier! :-)
Using conservative values ($136m EBITDA and $60m from the stock piles) results in an NPV10 of $508m.
The above calculations are my own and may contain logical, computational and typographical errors. Please do your own research, and if you spot any mistakes - please let me know!
Ob.
I thought I'd better revisit that EBITDA estimate based on today's spot in the light of my, ahem, new knowledge.
Assuming that Anglo haven't misreported (!) and that this is correct:
"Approval of Judicial Restructuring Plan Paves the way for the Restart of the Amapá Iron Ore Project." (30 August 2019)
http://irservices.netbuilder.com/ir/cadence/newsArticle.php?ST=REM&id=2887382
===[
It is estimated that at steady-state production of 5.3 Mt of iron ore and utilising a 62% Fe price of US$61 / tonne (27/08/2019 price Fe 62% - US$90 / tonne) Amapá will have an average :
o US$266 million per annum of net revenue after shipping,
o US$90 million per annum in mine, processing and transport costs
o US$48 million per annum in environmental, sales and G&A expenses
o EBITDA of US$136 million per annum.
]===
Since 5.3Mt * 61 * 62% = $200.4m is less than the $266m it must be based on estimates of what we are actually shipping.
Recent spot from custeel:
http://www.custeel.com/en/csi.jsp
===[
Date Seaborne index 62% Fe fines Seaborne index 65% Fe concentrates premium Seaborne index 65% Fe fines Seaborne index 65% Fe pellets premium
2020-01-19 95.95 2.95 109.17 30.49
]===
The revenue for recent spot can be calculated as follows, where the 65% concentrates premium has been added to the 62% fines price as a good approximation:
65% * (4.4Mt * (109.17 + 30.49)) + 62% * (0.9Mt * (95.95 + 2.95)) = 399.4m + 55.2m = $454.6m
In order to calculate the hypothetical revenue from $61/t Fe 62% rather than $95.95 a good approximation is to assume all prices and premiums are adjusted relatively (they likely won't be, in particular the 65% pellet premium is particularly good at the moment!):
$454.6m * $61 / $95.95 = $289m
which, incidentally, implies shipping costs of $289m - $266m = $23m which feels more realistic than my previous deduction over double this.
The EBITDA of today's spot is then simply estimated as:
$136m + ($454.6m - $289m) = $301.6m
That's better! :-)
I'll put it through the NPV calculation later unless I spot any errors or anyone points any out to me before I start...
Ob.
@Ivybush From the point of view of minimising dilution to existing holders, I think the best strategy is to ensure that when the 20% news arrives we are able to attract sufficient new blood (and from LTH's prepared to back the company) to invest here in order that the subsequent dilution to our holdings are minimised. This isn't something underhand, it's how markets are supposed to work: on good news the share price should rise to a level where sells match buys at which point it is then fair to existing holders that the company issues new shares around this price. So from my and your point of view we should ensure that the BoD do a good job of publicising the news wide and far, and we can help by being as informative and helpful as possible on open forums. It's in the BoD's interest to attract new investors as they hold shares, however I do wonder whether they intend to take part in the placing, in which case it's likely in their interest to keep their mouths shut. I understand why they appear to be using very conservative values in the official RNS's so as not to raise expectations too high, and in fact would likely make the project seem even more too good to be true than it already seems, but a part of me wonders whether it's because they want more of the pie (pi!) to themselves?
Ob
You and me (and the rest of the market!) both.
@observer Agreed but I feel schedule is tight and there have already been delays.
If we had some cash behind us, even if only part of the requirement I would be happier
and more relaxed.
Fair analysis @Ivybush, but it makes more send to raise after we get to 20% if we can hold on until then. If we don't get 20% then we get our $2.5m back and we don't even need to raise $3.5m necessary to take us to 27%. I'll be piling in here (even more!) when we get news of our 20% holding in what promises to be a multi-billion pound project, and I'd be very surprised if others don't follow suit given the enormity of what this signifies.
@observer842 The NPV for Amapa is indeed impressive.
The market, however, imv is a little "twitchy" in respect of our current cashflow.
The CLN is $3.9m approx . 50% of this is now being repaid monthly and the balance due to
be repaid in full on 1st September. But we have no income!
Add to this $3.5m to increase Amapa stake to 27% and we get a total of $7.5 approx needed.
Hence I reiterate that our sp is falling due to market perception of cap raise.
So I say to BOD, sort out capital requirement asap please.
I thought I'd run the NPV based on estimates if the iron ore were sold at today's spot prices rather than the very conservative prices I used previously from the RNS.
Here is an approximate repayment schedule which results in NPV0 = $225m and NPV10 = $105.73. The $225m is R$900m / 4 (approximate exchange rate) and the $105.73 comes from: "The JRP schedule contemplates the majority of the historic liabilities will be paid from free cash flow in years 5 to year 17 of operations, which represents a discounted NPV10 debt value of approximately US$106 million.". I'm uncertain how much of the NPV10 $106m represents the original R$1.5B of debt - the calculation below assumes all but presumably there will be more debt to repay which is under negotiation.
https://www.calculatorsoup.com/calculators/financial/net-present-value-calculator.php
===[
Interest rate 10%
Compounding 1
Cash Flows at End
Number of lines 6
0 1 @0
1 4 @0
2 2 @$40m
3 2 @$30m
4 2 @$20m
5 2 @$10m
6 5 @$5m
]===
The spot prices according to Custeel:
http://www.custeel.com/en/csi.jsp
===[
Date Seaborne index 62% Fe fines Seaborne index 65% Fe concentrates premium Seaborne index 65% Fe fines Seaborne index 65% Fe pellets premium
2020-01-19 95.95 2.95 109.17 30.49
]===
Applying the 65% concentrates premium to the 62% fines price the conservative $323.3m revenue (5.3Mt * $61/t) increases to:
4.4 * (109.17 + 30.49) + 0.9 * (95.95 + 2.95) = 614.5m + 89.0m = $703.5m
Meaning the EBITDA increases to:
$136m + (703.5m - 323.3m) = $516m
Impressive! Feeding that into the NPV calculator, using the more optimistic 8% discount:
"Net Present Value (NPV)"
https://www.calculatorsoup.com/calculators/financial/net-present-value-calculator.php
===[
Interest rate 8%
Compounding 1
Cash Flows at End
Number of lines 9
0 1 @ -55 (Our $6m + Indo's $49m)
1 1 @ 40 (Estimate of selling half the iron ore stock piles at today's spot)
2 1 @ -128.30 (CapEx of 168.30 minus the other half of the iron ore stock pile)
3 1 @ 190 (Estimate of first production in 2022/3)
4 1 @ 326 (Estimate of ramping up production in 2023/4 - total of this year and last year estimated to be equivalent to a full year)
5 2 @ 476 (2 years of full production in 2024/5 and 2025/6 of EBITDA $516m - $40m debt repayment)
6 2 @ 486
7 2 @ 496
8 2 @ 506
9 5 @ 511 (Final 5 years of full production in 2032/3 to 2036/7 of EBITDA $516m - $5m debt repayment)
Gives a pretax NPV8 = $3.14B
Varying the discount rate:
NPV0 = $6.86B
NPV5 = $4.14B
NPV8 = $3.14B
NPV10 = $2.65B
NPV12 = $2.23B
NPV105 ~ 0 (Pretax IRR of 105%)
Exciting! Bring on that 20%, hopefully getting to 27% will be easier! :-)
Using conservative values ($136m EBITDA and $60m from the stock piles) results in an NPV10 of $508m.
The above calculations are my own and may contain logical, computational and typographical errors. Please do your own research, and if you spot any mistakes - please let me know!
Ob.