Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
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I think I would be a little disappointed. With how much is in the ground, selling price, cost to get it etc.
I can't see how the mcap would be £26m.
My beer mat calculations estimate that annual profit from year 4 onwards would be $20m+. That's based on the pozzolan at $100 per tonne and expanded perlite at $350 per tonne. The latest presentation suggests that these figures could be as high as $120 and $850.
MCAP of £26m would be a good start but I'm sure that once the operation is up and running it will increase significantly from there. If PC then "unlocks" the value in the precious metals which he has alluded to doing....................very exciting times ahead.
So how is Mcap arrived at? I mean. I know its the total value of all the shares in issue but how does the market decide that? Is it just the market that sets it based on perceived value or is there some good calculation?
I would suggest that a company with an operation that pretty much guarantees annual profits of £20m+ for the next 27 years, as well as having other interests, should have quite a high cap. Certainly it should be way in excess of one years annual profit?
Hi Twiggy, market cap is not always aligned to the true 'value' of a company (market sentiment, hype for instance with unsubstantiated rumours of a new contract/takeover etc throws this off kilter frequently. ), I prefer to think of a share price as a value that indicates the perceived future potential of a company by investors, akin to the the global stock indices which reflect the optimism or pessimism for the future of a nations economy- they don't always correlate to the actual state of the economy at the present time. Look at how the current pandemic has tanked the price of some companies that in reality still have excellent fundamentals.
Just picking up on this thread from last week about the 8m valuation
That valuation is out of date and was a "risk adjusted" valuation which conflates DCF valuation with a probability of it happening or not, the 70% bit, SGD picked this up
IMO this is really pretty meaningless for a single stock more useful for estimating the potential value of a portfolio of investments
Looks like they used a 20% discount for the time value of money and then applied the probability
Plugging their stated assumptions into a simple financial model structured as above I came to a value of £10m vs their £8m, so reasonably close
Using their number of 8 and removing the probability NPV is £8m/.30 = 27m and 27/2736m* shares = 1.0p
If I change just 2 assumptions, life of mine from 15 years to 27 and no of shares to 3314 my model shows 1.6p
obvs all assumptions should be updated, Capex and its funding would be a big factor for instance
please regard this as no more than an attempt to sense check an external valuation and all usual caveats apply
Hi Dfens, thanks for your thoughts on this. I do think it's a good way of doing things to start by understanding what SVS have done, then recalculate with updated/modified assumptions.
Might the difference between your 10m & their 8m just be due to knocking off a few million for capex before applying the 70% risk discount?
The 20% DCF rate does seem quite conservative, and combines with the 5 year ramp-up to hit the value quite hard. By the time we reach full production we're discounting by (1/1.2)^5 = 0.4, i.e. knocking 60% off!
Then again, my attitude is to be conservative and leave plenty of room to be surprised to the upside!
Should we be hoping that our new broker produces an updated report? I would imagine that if anything would get the market paying attention it would be a report from an independent broker stating that the company is significantly undervalued?
The DCF rate is something I don't understand very well. Is it something that would reduce once the site was actually in production and demonstrating a profit ?
Every year that everything progresses according to plan and on time, you can remove the discount for that year. So in our case the value would rise by a factor 1.2 i.e. go up by 20%.
You might also then decide that as things are going so well, a reduced factor would now be appropriate, which would lift the value even further.
@sheldrake : There are loads of videos online explaining DCF. This one's quite a good 10 minute intro :
https://www.youtube.com/watch?v=jfcRUzKZZE8
Thank you SGD27, this is exactly the kind of thing I hoped to learn by coming here.
Thanks for the link SGD, really useful.
The SVS research states "It must be noted that this valuation contains both a 70% funding and a 20% cash flow discount rate given Sunrise’s early, pre- commercialisation, stage of development"
Do you think that the 20% cash flow discount rate stays the same or does it reduce now that we have permitting. Does it them reduce again once sales contracts are know and the spades are on site?
The rate makes a big difference to the calculations. Drop to 15% and then the share price jumps to 2.1p.
It seems to be equivalent to an interest rate reflecting credit risk. Whether it changes or not would depend on what is normal for mining operations. Maybe the permit etc.. risk is all in the 70% and 20% is standard for mines even when they're up and running? I think I need to read analyst reports for other small mining companies to develop understanding here.
Dfens' analysis looks fair minded to me.
Hi SGD
the diff between their 8 & my 10 could arise from a combination of unknown assumption/calculation differences so it's not possible to say however the numbers are close enough for me to be satisfied am in the same ballpark
You are right to pick up the 20% as extremely conservative
Banks have depts working to figure out correct discount factors for NPV calculations however the basic principle is the bigger the risk the higher the discount rate and theory of DCF is to apply an equity risk premium to the risk-free rate which traditionally has been the rate on a 10 year govt bond (although the financial crisis and the invention of negative interest rates has made this even more subjective)
IMO this enterprise is essentially de-risked and something like 10% would be appropriate and probably still conservative
Your attitude is correct, you rarely get complaints about over delivery!
Just to say I have been in this for 2 years and I liked it because it is essentially low risk as low tech and low capex
The only real risk was permission and placings while in development
now the quality of the market will determine valuation