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Some comments on AAs valuation approach and cash availability. I worked in a major oil company for 20 years the last 10 in M&A. I don’t have any significant knowledge of copper/gold but they have many similarities from a valuation perspective. I am sure will have a set of macro economic assumptions, updated qtrly (GDP forecasts by country/region, interest rates, inflation rates, exchange rates, etc) and a price set for copper, gold etc. During my time in oil, the spot price ranged from $20/barrel to over $120. The price sets we used for investment/divestment evaluation never moved lower than $40 or higher than $60. The odd flashy project manager tried to put in a high case at $80 just to try to titillate the executives but those numbers were never shown in a formal proposal.
For internal valuation purposes I am confident AA will have a similar approach. They will want to asses a potential acquisition using a copper/gold price set they truly believe in for the lifetime of the mine. If they simply use current depressed prices they risk losing out on highly profitable investments, and lose out to their competitors. If they believe in a future copper price that will be sustainably higher than historic prices due to electrification etc, they will use that price set in their valuation. Of course they will look at low and high cases and perform lots of sensitivity analysis on various key valuation drivers (e.g. the different production and start up capital costs). Of course this doesn’t mean they won’t use the current situation to bid a cheeky low ball price. Who wouldn’t? But CB should know the game and his trump card should be the potential competition for the BR asset for other suitors. At the end of the day the likely competition for BR is what will set the price.
Regarding cash availability, I expect the AA Treasurer will have a key sign off for any project over, say $50m. They will have a capital budget for the next few years (which MAY have been revised downwards due to current environment), as they will always be looking to feed their project pipeline. The finance/treasury teams will be very interested in the cash flow profile, especially in the early years given likely lower cash inflows in the near term due to current low commodity prices. If BR really has a significant open pit element then that would likely be a massive tick for the AA Treasurer as lower capex outflows initially and quicker cash inflows. Overall, I don’t see current market sentiment being the big issue. It’s much more about the size of Racecourse, nature of Ascot, etc)
James, just a couple of thoughts
Clearly discounting, particularly in current interest rate environment, will have big impact. Secondly and my main point, I see lots of comments on XTR around the non Bushranger cash flows supporting current share price by themselves. But will shareholders ever realistically see more than a smallish % of that cash. Can only see most of it funding current and future exploration activities. Hence it is by and large Bushranger and those other existing/future exploration activities that the market will assess to determine the share price, not the cash flows from Manica etc.
I think current SP range of 4p-6p is basically market giving 1p-2p ish to all the Non Bushranger income and the rest is a bet on likely success of BR sale process. The 1p-2p element may rise (by 2p or so) when we get actual income from Fairbride, but beyond that it’s just the Bushranger 2MT/Decision to Mine or announcement of AA negotiations that will deliver the upside we are all hoping for.
Shorn, you are right about creating new companies to facilitate the sale of specific assets. Makes the deal much cleaner, but highly unlikely you would list that company on lse. Sorry if I misunderstood your last post but that seems to be what you are suggesting
Halifax Share Dealing was excellent. Did it on 7th April, rather than take the market offered spread of 6.10 sell and 6.50 buy they suggested a ‘manual’ transaction where the traders would seek to minimise the spread. Flat fee of £25 and they achieved the fantastic spread 6.30 and 6.32. So tiny cost