Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
Let us remember that most majors used to have an exploration arm and it went out of fashion as a model. probably because it was less expensive / risky to let minnows forage for the resources and let others pay for the failures. But in Ecuador, is that unproven pipeline less risky already due to the techniques used to identify tenaments. And my hunch is the risk threshold will be lower for PLCs than for a state backed miner. Woo-hoo
Most plausible critique of the various moving parts I’ve seen in a while Dinner. And nothing I’d query in your rationale. Thank you.
The emerging thought in my head is the Chinese. Will they or won’t they. A normal company board has responsibilities to its shareholders which sets a few boundaries, .. I’m not entirely sure how the Chinese business model works when we factor in the ‘phone a friend’ with international ambitions.
Ta again. At my age I should do the sums on paper then type it up rather than in real time using my multitasking skills. I was scratching my head wondering why I was suddenly contradicting my previous estimated range! I’m happy now, .. mathematically if not financially !!
And I did mess up. On checking, PI is future revenue / capex so the 2:1 ratio would allow total capex up to 4.5Bn. Knock off 2.9 for the mine build and that allows 1.8 to buy the scenery. 1.8 / 2.2 shares x 0.8 exchange rate comes out at 65p. I’m glad I don’t do this for a living, I’d have even more ulcers.
Ta Dinner. I’m tying myself up in knots with all the moving parts here but I keep coming back to 40-50p not being at all outrageous, 60p tops and that requires some credit for the factors you draw out, and an appetite for strategic geopolitics which any major PLC might struggle with internally if their head of risk is doing their job. And before anyone brands me as a de-ramper, im bloomin well gutted. But perhaps getting myself a bit more grounded for what may transpire.
Just to round this off. The NPV aggregates all expenditure on, and income from the project, adjusting for inflation. Early years capital out, middle years mining the best, later years chasing what’s left with diminishing margins. One on the tools companies use to compare projects is a ‘profitability index’ where you divide the NPV of the project (basically the profit after costs adjusted back to year 0 values) divided by the up front capex to get it up and running. Ratios of 2-3 were expected in the firm I worked for. So we could be looking at a share price from Alpala derived from Alpala NPV / 2 = (project capex + asset purchase price). And having derived a theoretical asset purchase price, divide that by the number of Solgold shares in circulation. Anyone care to have a go at that sum if the logic stacks up. We can bicker over the assumptions and tune it up of course.
Ta quady. So in my head, the NPV shows an attractive investment. If the game is to sell this as a project for others to take forward, then somewhere in the calculation is a return on investment criteria for eg BHP, whoever, taking it on. So taking that into account, I wonder what the asset value of the well-defined, but undeveloped Alpala is to a major so they can still make an acceptable return. Price of raw material at the factory gate in a sense.
Having not read these various business cases, I find myself wondering about the NPVs of a project in the context of long term risk. I’m sure they do some sensitivity analysis around the assumptions so there isn’t logically one NPV so much as an envelope of possibilities. And if you wanted to sell a proven up ore body and had a good grip on the life cycle costs, and the revenue earning potential, then you can estimate an NPV for the project. But I wouldn’t pay all that up front to buy it because of all the risks over decades. And I’d want to keep the profit too else why am I bothering. So whilst the project has an NPV which informs what it’s worth in many respects, I’m not sure you can just divide it by the number of Solgold shares in issue and go order your yacht / Tesla. Would it were so. Anyone know more about these things?
.. inviting the Chinese in is no different (at one level) to inviting Newcrest in. Diverse book and all that. And remember BHP only got in by buying the shares certain characters held who had switched to Cornerstone. However, I really don’t see the JV narrative favoured over the full on takeover takeover battle I sense brewing with these deep pocketed characters. And when it comes to a gamble, that final bid before the hammer comes down, then the Chinese likely have more room for bidding on Solgold speculatively with its pipeline of unfulfilled, indeterminate potential than BHP ever have. Bring it on I say. Until then, I’m adding as I can.
Indeed.
There is a tide in the affairs of men
Which, taken at the flood, leads on to fortune;
Omitted, all the voyage of their life
Is bound in shallows and in miseries.
On such a full sea are we now afloat;
And we must take the current when it serves,
Or lose our ventures.
.. And not take a screen shot as we pass 46p.
Been there. Done that.
Quady, I’d decided some time back to drop Lloyd’s as a direct holding. Slightest misery in the uk economy and it seems to slump and the next year or two doesn’t look too perky, or the five after that. I’m holding more in investment trusts these days, allied, bankers, Bruner, Caledonia, city, RIT, witan at the mo. Trying for a less exciting life! Obvs they all have Lloyd’s in the mix, I’m just trimming out big individual company shareholdings .. except just the one now!