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The bottom line...
Today's RNS gives NPVs of $3.681bn for Stage 1 and $7.357bn for Stage 2
At this morning's $/£ of 1.2550 and 645m shares issued we get SPs of:
**£4.55/share for Stage 1 and £9.09/share for Stage 2**
Now, we aren't told what iron ore price was used beyond, 'Note: Iron ore prices based on AME Group's long term real iron ore price forecast for 65% Fe IODEX.'
Checking the longest dated futures contact on SGX for 65%FE Fines, Dec 2026, we see = $109
https://www.sgx.com/derivatives/products/iron-ore?cc=M65F
> This is where it gets interesting. With a falling dollar, rising commodity prices, geopolitics, and reserve diversification I would expect that long term iron ore price to progressively firm.
>> If the Strategics are making the same calculations then they will want to get a shuffle on.
A project creates value for its owners only when its cost is less than NPV, that's the whole point of the exercise, which is undertaken to determine the most efficient allocation of capital.
The increase in NPV is very welcome, but ZIOC shareholders should not expect anything like the implied per share 'value' numbers being calculated.
All things considered, I think my 200p per share entry in the 'charity sweep' is well under-pinned.
GLA and ATB
Extrader - that is massively and demonstrably not the case.
The NPV discounts future earnings into the present (Net Present value) at a cumulative 10% per year. That 10% per annum cumulative accrues back to the new owners as time progresses.
For example, 2030 Zanaga production is currently discounted into the NPV by 6 years of 10%pa , or something like 47%, to just 53% of the actual revenue.
Come 2030 the strategics would receive 100% of the revenue (no discount) an increase of 89% on the NPV value (53% up to 100%).
These compounding effects are even more exaggerated as we progress out along the curve.
Furthermore, and in addition to the unwinding of the discount factor, there is the very likely increase in the Reserve size (perhaps as much as 10x), and any long term rise in iron ore prices.
Thus the NPV represents a discounted bargain for the Strategics who chose to invest for the long term.
NPV is an indicative financial tool and by definition highly punitive in discounting the future value and return. I agree with you fully MM. Strategic investors looking over decades project life time (Saudi, China etc) are highly aware of long term and strategic value.
NPV is indeed an indicative financial tool, but it's used as a starting point for capital allocation decisions .
As a thought experiment, would Zanaga have the same real world value if it were magically re-located to Australia ?
I suggest not, for obvious reasons.
And for a comparison, rather than a counter-factual, just look at Simandou : AIUI, Rio Tinto has already sunk more than $ 1 Bn in Simandou, no doubt on the basis of an attractive NPV, an exercise crucially dependent on timely project execution.
MM's 'magic of compounding' argument cuts both ways if there's any material delay. Again, the Simandou experience is instructive :
https://www.euronews.com/business/2024/01/09/why-rio-tintos-guinea-iron-ore-project-is-starting-after-27-years
Jiving on the other board has done a good job of arguing the theoretical/technical basis for accepting NPV.
I think - for the above 'real world' reasons - that investors shouldn't set too much store by it....though I'll be delighted to be proved wrong and see my expectations exceeded.
Meanwhile, we'll just have to agree to disagree.
GLA and ATB
P/NAV IS THE MOST IMPORTANT MINING VALUATION METRIC, PERIOD. - Corporate Finance Institute
NPV is much more than any old 'indicative tool'.
1. The decision on the mining investment is mostly related to the NPV of the project. A financial model construction needs accurate estimations of income and costs..
https://scielo.org.za/scielo.php?script=sci_arttext&pid=S2225-62532012000500011#:~:text=The%20decision%20on%20the%20mining,and%20costs%20includes%20many%20uncertainties.
2. Why is the concept of net present value important to mine planning?
NPV is the widely accepted tool for measuring the value of a mine project. It calculates the current value of the cash flows at the required rate of return of a project compared to the initial investment.
https://thenugget.prospectorportal.com/what-is-an-npv-mining#:~:text=NPV%20is%20the%20widely%20accepted,compared%20to%20the%20initial%20investment.
3. How important is net present value?
Net present value indicates the potential profit that could be generated by a project or investment. A positive net present value means that a project is earning more than the discount rate and may be financially viable.
https://www.investopedia.com/ask/answers/033115/what-difference-between-present-value-and-net-present-value.asp#:~:text=Net%20present%20value%20indicates%20the,and%20may%20be%20financially%20viable.
and
4. Mining Asset Valuation Techniques - Overview, Formula
Corporate Finance Institute
https://corporatefinanceinstitute.com › Resources
P/NAV IS THE MOST IMPORTANT MINING VALUATION METRIC, PERIOD.
https://corporatefinanceinstitute.com/resources/valuation/mining-asset-valuation-techniques/
.."NPV is much more than any old 'indicative tool'..."
ATG's comment, not mine.
HTH
".."NPV is much more than any old 'indicative tool'..."
ATG's comment, not mine."
For the record, that was not my comment.
Hi atg,
Oops!
On going back, I see that @10:11 you said 'NPV is an indicative financial tool and by definition highly punitive in discounting the future value and return. .." , and it was MM who challenged an assumed dismissive tone that wasn't there.
I agreed that it was a starting point before looking at other things, I said for example (1) country risk premium/discount and (2) that it was by definition vulnerable to the impact of any delay (in our case project implementation).
OTOH, I recognise that I'm looking at ZIOC's project from the narrow financial perspective of a lender and that the Strategic Investor(s) will likely have very different agendas and priorities, which we as outsiders can only guess at.
The number of hats in the ring may give us some clues.
Here's hoping!
ATB
Thanks for that, extrader. The conversations and different points of view have been useful for me today. Helps balance out my own inbuilt biases 🙂.
Did anyone hear about mitsubishi investing in the past in zanaga? #3 in the link
https://www.linkedin.com/pulse/top-5-japanese-companies-investing-africa-fabio-scala-cav-osi-p5gxe/
If the Minister has misremembered Mitsubishi for Mitsui , the latter has an equity stake in Binding Solutions Ltd, the pelletising specialist where Trahar Senior (ex AngloAmerican CEO and then Chair) is a shareholder and was a Director for a while...
I believe that ZIOC did some work with them about 6 years ago
https://www.lse.co.uk/rns/ZIOC/pellet-test-announcement-ivf3a91en5p15hw.html
https://bindingsolutions.uk/2022/03/03/binding-solutions-secures-equity-investment-from-leading-asian-
conglomerate-2/
BSL's 2 most recent news shows they're progressing their cold pelletization technology at pace.
These are the other shareholders
https://bindingsolutions.uk/about-us/#strategic-partners
The largest shareholding is an opaque offshore co, Concord Atlantic, probably represented by Director Julian Treger ex Anglo Pacific (as was, now Ecora)) : AP has a small stake, Tregere has 'significant influence or control'.
The Director Belleau comes from Champion Iron, where GLEN has a stake and Jyothish George (former Head of Glencore Iron Ore Marketing) is a Director.
'Maybe, baby..?'