Rainbow Rare Earths Phalaborwa project shaping up to be one of the lowest cost producers globally. Watch the video here.
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Having not read these various business cases, I find myself wondering about the NPVs of a project in the context of long term risk. I’m sure they do some sensitivity analysis around the assumptions so there isn’t logically one NPV so much as an envelope of possibilities. And if you wanted to sell a proven up ore body and had a good grip on the life cycle costs, and the revenue earning potential, then you can estimate an NPV for the project. But I wouldn’t pay all that up front to buy it because of all the risks over decades. And I’d want to keep the profit too else why am I bothering. So whilst the project has an NPV which informs what it’s worth in many respects, I’m not sure you can just divide it by the number of Solgold shares in issue and go order your yacht / Tesla. Would it were so. Anyone know more about these things?
The infrastructure alone (water/electricity/paved roads/deep ports/altitude etc etc) must be worth (potentially) around 3-4 billion.
Taking into consideration all the above.....the majors will be salivating on the thought of J/V'ing with Solgold!
See you all next week.
Morning Scrat you are quite right NPV's are used for measuring projects and NAV's for measuring companies.
However Alpala is a project and I think we forget how big a project.
We also have the build cost which i believe on the reduced mine size on the last PFS of 2.9 billion dollars with a payback of 3.8 years.
Again figures from memory, please correct me if I am wrong.
So to value Alpala in this way I believe is fully justified.
My last post was obviously regarding Cascabel/Alpala.
Ta quady. So in my head, the NPV shows an attractive investment. If the game is to sell this as a project for others to take forward, then somewhere in the calculation is a return on investment criteria for eg BHP, whoever, taking it on. So taking that into account, I wonder what the asset value of the well-defined, but undeveloped Alpala is to a major so they can still make an acceptable return. Price of raw material at the factory gate in a sense.
Just to round this off. The NPV aggregates all expenditure on, and income from the project, adjusting for inflation. Early years capital out, middle years mining the best, later years chasing what’s left with diminishing margins. One on the tools companies use to compare projects is a ‘profitability index’ where you divide the NPV of the project (basically the profit after costs adjusted back to year 0 values) divided by the up front capex to get it up and running. Ratios of 2-3 were expected in the firm I worked for. So we could be looking at a share price from Alpala derived from Alpala NPV / 2 = (project capex + asset purchase price). And having derived a theoretical asset purchase price, divide that by the number of Solgold shares in circulation. Anyone care to have a go at that sum if the logic stacks up. We can bicker over the assumptions and tune it up of course.
Ta Dinner. I’m tying myself up in knots with all the moving parts here but I keep coming back to 40-50p not being at all outrageous, 60p tops and that requires some credit for the factors you draw out, and an appetite for strategic geopolitics which any major PLC might struggle with internally if their head of risk is doing their job. And before anyone brands me as a de-ramper, im bloomin well gutted. But perhaps getting myself a bit more grounded for what may transpire.
And I did mess up. On checking, PI is future revenue / capex so the 2:1 ratio would allow total capex up to 4.5Bn. Knock off 2.9 for the mine build and that allows 1.8 to buy the scenery. 1.8 / 2.2 shares x 0.8 exchange rate comes out at 65p. I’m glad I don’t do this for a living, I’d have even more ulcers.
Scrat - you need to factor in post merger share issuance.
So $1.8bn / 3bn x 0.8 so 48p.
Ta again. At my age I should do the sums on paper then type it up rather than in real time using my multitasking skills. I was scratching my head wondering why I was suddenly contradicting my previous estimated range! I’m happy now, .. mathematically if not financially !!
Most plausible critique of the various moving parts I’ve seen in a while Dinner. And nothing I’d query in your rationale. Thank you.
The emerging thought in my head is the Chinese. Will they or won’t they. A normal company board has responsibilities to its shareholders which sets a few boundaries, .. I’m not entirely sure how the Chinese business model works when we factor in the ‘phone a friend’ with international ambitions.
That all sounds about fair DM. I can’t see a buyer just taking Alpala, I’d see any buyer taking Cascabel,.. and id expect all the site would be included in the valuation of Alpala. (not really much added to be price)
however there are so many variables, you could tie yourself up in knots trying to consider them all… for example, you mentioned cost of funds… Any major that buys Cascabel could fund all of the construction of the mine from their current profits made elsewhere. So cost of raising finance is only an issue, if it was part of the deluded dream, of a badly managed minnow to become the next copper major, starting with a giant block cave, of which they have no experience.
Also any major that buys, if it buys, will not want to pay a fair price… they know CGP and Solg want a sale…. They will drive a very hard bargain… it’s inevitable.
I think Alpala / Cascabel is the easiest of all parts to value as most advanced and derisked thus far. So it would be naive to think that the business would go through a lengthy Strategic review process and arrive at a basic outcome which is ... we are seeking buyers for Alpala. END. Mather and co firmly believe there are a handful of Tier1 (rinse and repeat) assets in the folio. I would expect the bulk of the Strategic Review will be focused on what can be packaged in with Alpala sale to boost overall price and attractiveness (eg derisk further by chucking a few sought after licence blocks in around the area? We know Gina G has been buying have acreage around Alpala. She's no fool. We known there is big interest in the south and more recently with Solaris and Warintza. Any buyer of Alpala (whether chinese or BHP) will likely see buying SOLG lock stock and barrel as the best way forwards to secure best value and opportunities. The Strategic Review needs to look at many slices of the cake and decide on how best to realise value from assets that are currently underdeveloped as well as the obvious Tier 1 asset deal/sale.
Licence blocks with limited red tape remaining and in eco warrior 'friendly' areas are very rare in Ecuador and SOLG has quite a few of them as well as a well respected Brand which is equally important going forwards.
No one wants to sell Alpala for 60p and everything else owned by SOLG and CGP bramaderos goes for free.
As highlighted a while ago, open pit Tandy production is a great way for the Chinese or BHP to get the profits rolling in while they derisk Alpala block cave works. The chinese are looking to expand Mirador after starting out with a modest production level. Even the big players like to minimise risk and get early cash generating projects going while they seek to press on with the main assets. It's good business all round and gives some time to test politics and relationships out.
Hi Scrat, there is a sensitivity analysis built into the PFS
Whilst your logic is sound, in my experience predators often end up paying more than they intended when they get sucked into a war...just look at Wyloo/Noront...
I'm not basing my hopes on NPV, but Nick consisitently has, by saying "asset value, not market value"...
I still think the final price oculd settle at 100/125p...