If the KSZ Proof of Concept RNS is positive, will you....?10 Aug 2021 03:55
...sell at 10p?
Depends on your strategy of course, but maybe you might want to read this first. Only my opinion of course, I think my assumptions are reasonable, but you should not rely on them – this is illustrative only!!!
On 25th July I posted “Some simple arithmetic” giving the value of metal in the ground for an orebody 1km x 1km x 100m, containing 1% Ni, 1% Cu and 1g/t Pt. That came to a staggering £75 Bn.
Of course, that is not the whole story. You have to dig the stuff up and sell it. So, let's look at it the way the money folks do, and drop those ASSUMPTIONS of 25th July into an accounting spreadsheet together with the following ASSUMPTIONS, to give us an idea of what a PFS (Preliminary Feasibility Study) might come up with:
* Costs of defining a resource and digging a big hole (actually probably block caving rather than open pit), and building a processing plant, infrastructure, etc. - £500M for each of yrs 1, 2 & 3
* Cost of money borrowed: 10% pa, with recognition that income in the future is worth less than it is now (i.e. discount rate applied to project – NPV10). This is currently standard for Africa-based projects.
* Only 33% of ore is dug up and processed
* Metal prices constant for 10 yrs
* Cost of extraction, processing, transport (AISC, all-in sustaining costs) – 50% margin.
* Equal production over years 4 -10 (7rs)
* 100% ownership, no royalties accounted for.
This gives a 10-year NPV (net present value, or what the project is worth TODAY) of £6.3Bn, and an IRR (internal rate of return) of 64%. (Trust me, 64% IRR is exceptionally good!).
Still with me? OK, most small miners with development projects are valued by the stock market at a fraction of their NPV – let's assume a quarter, which is quite common. This discount is for the chance of things going wrong, which they can and often do. That takes us to a market cap of £1.6 Bn. Is that crazy? – well in my post here of 19th July “What could KAV be worth? - a comparative view” I pointed out that the market cap of Chalice Mining (ASX:CHN), whose Julimar project is very similar to our KSZ A2 target, is £1.3 Bn, and that is only 18 months after discovery – no resource published yet. The discount to NPV generally decreases as the project advances to production.
Using these ASSUMPTIONS, with 404M KAV shares in issue (assuming no share dilution from a future capital raise and not taking account of options still outstanding), nor taking into account the other known & unknown KSZ targets' potential, the KCB, nor Ditau, that gives us a value TODAY of £3.96p. So if the post-RNS share price is 10p, are you still going to sell?
Sign In
Follow the stocks
