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When valuing a development mining project, the Net Present Value (NPV) is a crucial metric. However, a potential buyer will usually seek to purchase the project at a discount to the calculated NPV. This discount accounts for various risks and uncertainties associated with the project, such as commodity price volatility, operational risks, permitting and regulatory hurdles, and financing challenges.
The typical discount to the calculated NPV for a mining project can vary significantly depending on several factors including the stage of the project, the perceived risks, and the market conditions. However, general industry practice often sees discounts ranging from 20% to 50%. Here are some more detailed considerations:
Early-Stage Exploration Projects: These projects are highly speculative and carry significant risk. Discounts here can be on the higher end, sometimes exceeding 50% of the NPV.
Advanced Exploration and Development Projects: Projects that have more detailed feasibility studies and some level of permitting and financing in place might see discounts in the range of 30% to 40%.
Near-Production Projects: Projects that are closer to production, with most permits in place and financing secured, typically attract lower discounts. These could range from 20% to 30%.
Producing Mines: Operating mines with proven production capabilities generally attract minimal discounts, reflecting the lower risk. The discount here might be as low as 10% to 20%.
These discounts are influenced by market sentiment, the quality of the resource, geopolitical risk, infrastructure availability, and the strategic fit of the project within the buyer's portfolio.
Thats good stuff JackShaft, is it from the Internet & if so do you have a link?
We would be around stages 2-3, all permits & permissions are in place. The type of FS they are undertaking with the Chinese is intended to lead to an EPC contract which would suggest that project finance is likely essentially in place subject to the crucial $600-800m of equity finance being provided. So discount to NAV around 30%. But a couple of but's & if's.
i. Which NPV is likely to be the basis for negotiations Stage 1 @ $3.7b or Stage 2 at $7.4b - quite a difference! Also should any allowance be made for the unexplored 40% of the Zanaga mountain range which might make a Stage 3 production level up to 60m pa plausible?
I could see an argument that a buy-in partner would expect to buy a stake based on Stage 1 NPV - then all parties benefit from the future development equally at Stage 2. But a full buyout that leaves no interest behind for existing Zanaga shareholders, there I could see a rationale for basing negotiations on Stage 2 NPV.
ii. Are we in a competitive situation, with potentially two or more entities engaged in a de-facto bidding contest (a scenario that obviously requires time & patience to see through to the end), which could drive an eventual deal towards a minimal discount to NPV, so maybe a lot less than 30%?
Like it or not Sushi's post has started a good debate and reflects probably quite a few market participants' view that ZIOC is for dreamers. Obviously for those who have followed the news closely we have seen a new CEO, hydroelectric deal and are being led to belive port news and a strategic partner are close. Zanaga is very high grade but say China don't want it, would that be Zanaga canned or do the Japanese and Middle East step in? It's very hard to call. Communication from the company is minimal and the share price is awful. Lots of us are fed up. From a personal perspective, I have a block of flats on my radar that I want to buy and use for income. Beardozer wants his mansion. Others no doubt have big plans too. I have reached the stage where I just want to be put out of my misery - good or bad news. I didn't like the Shard snippet on the last RNS as joint broker normally means placing coming but ZIOC have always tried not to dilute. I was expecting partner news and maybe a small raise for the partner to be happy ZIOC are contributing to the next stage or for Shard to drum up more interest in the stock. The latter hasn't happened going by the share price. I am wondering if there is more to the Japanese leak someone posted a few weeks ago. They don't like to rely on China for their iron ore and we know Little Den met with Japanese officials late last year. Something made ZIOC hire Knauth and tell us partner news was imminent....
"Something made ZIOC hire Knauth and tell us partner news was imminent...." is the only reason I haven't sold half my holding. I'm happy with China not being interested - there must be plenty of other suitors. We all have big plans - including Elphick! And we all want to be put out of our misery - what a sad indictment of what it means to be a ZIOC shareholder!
If it’s for dreamers…….. I will dream on.
So presumably you're not a shareholder? Please go to the back of the class and join Eddsy and DANNYBAREY. I HATE that kind of thinking! But it's so easy to slide into. At the same time, seeing Starmer in his shirt sleeves made me want to vomit!
They'll all be having holidays in the same villa their Tory predecessors frequented. Owned by the same man who used to think the Tories were wonderful. Anyone who wants CHANGE should vote REFORM.
Surely to god, this share price should be inching up not down.
That's IF any substantive news was imminent 🤷🏻♂️
Can the market really get it THIS wrong 🤔
“The market can remain illogical, longer than you can remain solvent”. Comes to mind..or have I been in here so long, it has merely made me illogical!
Come on board, time to deliver our strategic partner…
Gla.
One of my favourite sayings, possibly erroneously attributed to John Maynard Keynes. What he definitely said was: "There is nothing so disastrous as a rational investment policy in an irrational world." My absolute favourite is: "Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone."
Hi Jiving
I worked in the city as a mining analyst for several years - have been in the mining industry for 40.... this is the rule of thumb we used. Hope it helps with your thinking... best
Hi Jackshaft, what do you make of the current 99.31% discount here?
Lassonde curve-https://images.app.goo.gl/5aGPvnMV2Dims3rn8
* The most likely time for a major to purchase a junior mining company is after Feasibility Studies are complete but before construction is underway. This is the optimum time for a major company to acquire the project for the best value/risk ratio.
No prizes for guessing where we currently are!, sit back and enjoy the popcorn…
Gla.
That We are at a mind boggling 99.31% discount to NPV..
Now don’t get me wrong I’m fully aware we will not get anything close to the full NPV, but don’t let this insane valuation anomaly pass you by, it maybe the greatest opportunity we ever get!!
The canary in the coal mine theory should be put to rest by the recent board statements..
Marty Knauth, CEO commented:
"A large volume of work has been completed during the recent six months by ZIOC, MPD Congo and our consulting Partners, which I am very satisfied with. This detailed re-costing study further demonstrates that the Zanaga Project provides extremely robust returns for investors and significant infrastructure assets and positive legacies for the Government and people of the RoC. During recent engagements with RoC Ministries, communities and potential strategic investors, the burden of being the first mover in the region of high grade, low impurity iron concentrates for green steel production, is strongly supported and makes for an exciting future for Zanaga.
From this foundation, the upcoming FEED phase will not only seek to validate and enhance our technical confidence but critically, develop Zanaga's management plans around environment, community, training, health, water, mine wastes and ultimate closure. We believe these are equally as important as safe and reliable engineering, and financial viability."
Clifford Elphick, Chairman of ZIOC commented:
"I am delighted with the results of our 2024 Feasibility Study update, demonstrating the attractive economics of the Zanaga Iron Ore Project in today's market environment. It is exciting to have secured updated pricing for the development costs of the project from experienced Chinese partners with extensive experience in iron ore process plant and slurry pipeline design and engineering.
We look forward to presenting these results to the various strategic partners we have been engaging with and advancing our discussions further with them as we look to progress towards front end engineering and design of the project"
Thanks JackShaft, that a highly relevant background. Any thoughts on whether any discount to NPV would be based around the 12m or 30m figures for ZIOC?
i was also a City analyst for a while in equity capital markets. My very limited mining finance experience came when I worked for an Asian venture capital fund. We were attempting to finance a potash mine in N Thailand being promoted by 2 experienced mining engineers, it was to be a start-up with no mining co behind it. The project was too big for us on our own so we approached two (US & European) venture capital firms we regularly co-operated with, to jointly finance it. Both of them categorically rules out participation on the basis that major mining projects needed to be undertaken by large experienced mining co with depth of management & relevant greenfield experience. They were happy to contemplate a buyout of the project & then JV with an existing mining company (accepting lower returns btw). Their reaction is something I have always considered looking at the viability of the Marty start-up proposal - & Zanaga 1 + 2 is around 10x the size of that potash project.
Driving, an arithmetic twist. If the project is trading at around 0.7% of it's NPV. Then 100x that would be 70% of NPV, which tallies neatly with JackShaft's analysis, which suggests a project at our stage should expect to fetch around a 30% discount to NPV. However you examine it, the share price does not reflect the reality of either the theoretical NPV or the sequence of events that have taken place over the last 18+ months.
Think most long suffering shareholders here would be over the moon with 25% of NPV equating to a shareprice in excess of £2 -market thinks there nothing of substance happening judging by the shareprice -
I would take 50p. Hard not to feel a bit annoyed with the management team for the total 5hitshow so far in 2024. Don't publish deadlines if you cannot meet them.
50p pffft, £5 all day long!! ✊🏻
Looks like someone has bought 1m shares today anyway.
Nguesso has been meeting the Algerian Minister for Mining in the last couple of days. Maybe he has dipped his toes in haha
Hi Vet10,
Today's depeches reports the Algerian meeting. Little Den is in the pic, front and centre.
The text includes :
.."The Congolese Minister of Hydrocarbons, Bruno Jean Richard Itoua, and his Algerian counterpart in charge of Energy
and Mines, Mohamed Arkab, signed a memorandum in Brazzaville yesterday, designed to promote bilateral relations between the two countries in the field of hydrocarbons . The document initialled exchange of expertise between SNPC Congo and the Algerian oil and gas company, Sonatrach.."
So ref is unfortunately to Algerian mining and is probably linked to Congo's ambitions re LNG (ENI) and Total's visit to Big Den to share news of a planned $ 600m explo investment in offshore oilfields (reported in yesterday's depeches).
Also reported yesterday was an IMF visit to confirm a $ 100m 3 year commitment to a health programme agst AIDS, malaria and TB.
The IMF had to remind C-B that it still had to come up with its $ 5m co-pay.....
Let's hope that there's something more directly relevant to us ere long.
ATB
Morning ET,
This was the article I read yesterday. A bit more reference to mining in that one though hydrocarbons was probably the focus. Given the Chinese recently announced the construction of a railway in Algeria for iron ore, I wonder if that was mentioned at some point too though. Today's news says Sergei Lavrov will meet Nguesso on 3rd June... Russia are trying to gain influence all over Africa it would seem.
https://al24news.com/fr/m-arkab-recu-par-le-president-de-la-republique-du-congo/
Hi Vet10,
Your ref to the Chinese constructing a railway in Algeria may have some relevance, if not to ZIOC directly : turns out that Obambi would like the Algerians to finance HIS railway ex Sapro Mayoko, per today's depeches :
Headlined : MAYOKO IRON ORE MINES
..." The Sapro Group in search of Algerian investors
Congo's only iron ore mining company, Groupe Sapro Mayoko SA, faces a number of challenges, including the lack of transport routes to the port of Pointe-Noire. It intends to forge partnerships with Algerian investors to build a railroad, train local technicians, etc. ...
.. Now that the Sapro Group has reached the production stage, Sapro wants partners to improve its logistical capacity.
Per Paul Obambi, the company's only handicap is the difficulty of access to the railroad. The Sapro's CEO is determined
to convince Algerian partners to contribute to the construction of a "new railway to facilitate the routing of products to the port of Pointe-Noire......
.....The mining company attempts to relaunch itself five years after exporting to China, in April 2019 , iron cargo of around 23,000 tonnes. At the end of December 2023, the Group signed an agreement with the Port of Douala for a logistics zone and a loading area, with the aim of facilitating the flow of iron ore.
The operating program included, on the one hand the improvement of the existing facility through the renovation and
and optimization of the existing port site and, secondly, the future extension of the port towards a new deep-water port site at Manoka. ..."
(1) Sapro's is the lower-quality ore at Mayoko and (2) Obambi seems to be pitching for finance..any finance.. for a port...any port..
Maybe he's heard rumours and is concerned at Sapro losing its claim to being "Congo's only iron ore mining company"...?
;-)
ATB
Another week
No news
Disappointing as due by 31 March
Don’t give deadlines if you can’t meet them
Approaching 2 months LATE
Cheer up MerMillions, get down the boozer later and have a few drinks with your mates. 🍻
The time is nigh.
Good posts on the other board yesterday and today if you haven't seen them.