Member Info for SGD27

Sorry, an error in my table, should be

60 : 455

I wonder how soon that will be relevant?!

BTW My formula was just based on their calculator on Slide 6 here :

https://www.yellowcakeplc.com/wp-content/uploads/2021/08/Yellow_Cake_Investor_Presentation_August_2021_Final.pdf

but with latest buy taken into account, so tonnage increased by 2m to 15.86, and corresponding cash reduction by $64.5m.

I'm currently using this:

NAV/Share = 7.44*U + 9 , where U = price in $/lb

$/lb NAV/Share
30 232
32 247
35 269
38 292
39 299
40 307
41 314
42 321
43 329
44 336
45 344
50 381
60 446
100 753

More good test results for Progressive Planet's "PozGlass" product today:

https://www.theglobeandmail.com/investing/markets/stocks/PLAN-X/pressreleases/2363263/

"With the confirmation of the results, management remains optimistic that the market potential for the proprietary formulation and process in the blending of natural pozzolans and recovered post-consumer glass could be larger than originally expected."

Hi sheldrake,
I did wonder if 24 might be a misprint. The usual time for testing seems to be 28 days, and it does mention 28 days further down the RNS.

If so then that would be today. But it was a USA holiday yesterday, so they might still be doing the analysis, writing it up or whatever...

Not sure if this is good or bad :

https://www.proactiveinvestors.com/companies/news/959206/progressive-planet-receives-funding-from-canadian-government-to-optimize-pozglass-scm-959206.html

Increased demand for natural pozzolan = good?
Possible competitor getting government subsidy = bad?

https://www.yellowcakeplc.com/wp-content/uploads/2021/08/Yellow_Cake_Investor_Presentation_August_2021_Final.pdf

NAV/share on 13 Aug was 239p, based on U at $30.68/lb. SP was 261p = 9% premium.

Using their calculator on Slide 6 and recalculating for today I get:
NAV/share today is 259p based on U at $33.4/lb. SP is 255p = 2% discount.

(I'd appreciate it if someone would double-check my numbers.)

Thanks Dubliner, interesting clarification.

Hi fulmar29, thanks, interesting article, and interesting idea re K.I.S.S.

We did have this statement in the Final Results 11/12/2020 :

"A by-product of the raw perlite production test will be approximately 60 tons of fine-grained perlite some of which will be ground for use as natural pozzolan and for a test concrete pour."

But as far as I'm aware this hasn't been mentioned since. I may easily have missed it though, so someone please correct me if I'm wrong.

Great to see the early concrete strength exceeding expectations. If this also applies to long term strength then perhaps it will be possible to increase the ratio of pozzolan in the mix. Better for the planet, and more sales for us!

Hi Justone, there's very little institutional investment in SRES, so "the market" in this case is US. The Ask price is 0.25p because you and I don't want to buy shares for more than that. Of course we think they're worth much more, but we need a multi-bag valuation to justify the risk. When the CRMC shareholders look at how their money is being invested in new assets, they may have a similar attitude!

Let me put it differently. Your total income is £772m + £378m = 1150m. But to get to earnings you now have to divide by 42 years then multiply by 10 and you're back to 7p/share.

Anyway, moving on, your calculation is based on annual sales of 500kt pozzolan + 100kt perlite, as is mine. These are indeed the stated targets, but that's all they are, targets. I don't think you've allowed for the risk they may not be met. In the Beaufort research note you referred to earlier* they assumed 225kt of pozzolan and 25kt of perlite.

In my calculation I don't have to include that risk, because it's reasonable to assume it's similar for Kirkland, so it cancels out.

* For anyone else interested, I don't think this linked from the SRES website any more, but it can still be accessed here:
https://www.sunriseresourcesplc.com/filemanager/Research/Sunrise%20Resources%20plc%20-%20Beaufort%20Research%20Note%20-%2010%20July%202017.pdf

Hi 1investor, it's really great that you've laid your cards on the table so that others can see if they agree. It will be no surprise that I have several issues with it!

One thing that stands out immediately is that you've gone from 7p to 11p when adding the NE zone, which adds 15 years to a 27 year lifetime. The reality is that adding income 27 years in the future adds almost nothing to the value. Using your PE of 10, the added income is discounted by 90% x 90% x ... 27 times which leaves you with about 6%. So the NE zone adds about 3%, not 50%, to the value.

You'd get 50% if you could run them concurrently, but that would exceed the stated annual targets.

I'll stop there for now, to get your reaction...

(BTW I don't think NE zone permitting is an issue, there's obviously ample time for that, even if it's brought on stream before the main zone runs out, as you suggested earlier.)

Many thanks for the responses; just what I was hoping for, especially the detailed ones which I'll need some time to think through.

Meanwhile though, a quick thought for the 3-5p believers. You're expecting a CS sale price of up to £185m = $257m. What would that look like as a pure royalty deal? If we assume 500+100ktpa, and a PE multiplier of 10x, then it would equate to a royalty of $43/t. Would a CRMC really take that on?

Maybe 10x is too high - what if we use 5x? Oh dear, that would double the royalty to $86/t!

Can you see why I'm having trouble taking this seriously? I do hope you're right though, as I'd be a millionaire and then some.

GLA and let's hope for news soon.

PART 5 - POSSIBLE UPSIDES

(NB These have to be over and above any upsides that Boral might have ascribed to Kirkland two years ago, because those are already factored in with this methodology.)

1. Sunrise as a public company may be able to drive a much harder bargain than family-owned Kirkland.
2. Projected future pozzolan price acceleration (beyond what Boral were expecting 2 years ago). In particular, the Biden infrastructure bill (if it passes) may lead to even higher prices.
3. Projected future reduction in transport costs due to Tonopah rail link or autonomous electric trucks. A large CRMC may have better insight (and even influence) on future railroad plans.
4. Borland were vague about the royalty (quote: "so $3, $4 a ton"). Perhaps it was better. It was presumably specified as a percentage (4%?) and so will probably rise over time anyway.
5. Ramp-up may be faster for a CRMC than Boral. I'm told part of ramp-up is "market acceptance", less likely to be an issue when the CRMC has a "captive customer", as our HY Report puts it.
6. Given the extended due diligence, including commercial concrete pours, the CRMC may apply a higher PE to reflect reduced risk.
7. The CRMC may be more interested in the perlite than I expect, and value it appropriately.

Even with all these, I think I'd be struggling to get much beyond 1p/share. But maybe I've missed something. So please DO criticise this, with reasons why it's going to be worth a lot more (or less). Please DON'T come back with stuff like:

"...because after all this time and effort..."
"...because I paid XXp for my shares..."
"...you ought to want more..."

which is all irrelevant to a valuation.

Also, I don't subscribe to the idea that we should be talking bigger numbers in case the CRMC people are looking in. The idea of them taking any notice of my amateur efforts is laughable!

Looking forward (I think) to your reactions...

PART 4 - THE CS PRICE TAG

Even for my base case I'll assume we can get a slightly better deal, say 25%.

Pricetag = 25% x $133m = $33m = £24m, roughly 0.6p/share.

This could also be rejigged as a possible part-royalty deal like Kirkland, e.g.

$8m upfront + $7/t royalty

which is then less sensitive to my choice of PE.

Either way, it's a massive premium to what the market (which is us BTW) currently values SRES at. But many here won't be happy with it, so finally on to Part 5...

PART 3 - VALUING CS

Now we try to calculate the "value" of CS in 2021 in the same way as Part 1. There are differences, some negative but mostly positive.

Start from the Kirkland cost = $62.4/t (from Part 1)

Add a couple of years of cost inflation: I'm guessing $2.6/t, giving $65/t, just to get a round number.

Add extra transport cost. This has always been a known issue for CS and so shouldn't be ignored. CS is around 100 miles further from a major city than Kirkland. We might be able to use rail for the extra, but that's not a certainty, so I'm splitting the difference and using 8 cents/ton-mile as base case, giving $8/t extra.

$65 + $8 = $73

The selling price is critical of course. In the March presentation we were told "$90-120 ... depending on market location". Averaging, but allowing for 6 months with the pozzolan price rising fast, I'll say $110 as base case. It's in rough agreement with Eagle's recently stated $116 cement price - we know that the prices are similar. (In fact the pozzolan price is higher than cement in California, but that would be offset by the greater transport distance.)

Margin = $110 - $73 = $37

Predicted annual tonnage of pozzolan is the same, 500ktpa, but we also have 100ktpa perlite. For my base case I'm just going to be simplistic and use the same margin. It might be more, possibly a lot more depending what we do with it, but on the downside the CRMC might not be very interested in it.

Earnings = $37 x (500ktpa + 100ktpa) = $22.2mpa

Apply the same PE of 6 giving

Value = 6 x $22.2m = $133m

This is roughly twice Kirkland. I think this is partly because we get better value by selling to a CMRC which cuts out the "middle man". But that leaves me slightly puzzled - why didn't Kirkland do the same? Some possible reasons:

1. Boral may have been a better fit geographically.
2. Listening to CRMC conference calls and presentations, they come across as paying even more attention to green issues now than they were a couple of years ago.
3. It may be that negotiations with a CRMC were just too slow for them, and they lost patience ;-)

PART 2 - WHAT DID BORAL PAY?

Based on statements already quoted

Pricetag = $4m upfront plus royalty at $3.5/t

I think for consistency the royalty should also be valued with PE = 6, so

Pricetag = $4m + ($3.5/t x 500ktpa x 6) = $14.5m

Pricetag/Value = $14.5m / $68m = 21.3%

This might sound cheap, but then they've also got the capex and mine build before they start getting their money back, then ramp-up time to 500ktpa if it ever gets there...

Basically, Borland have invested in Kirkland because they hope it will multibag. For us to complain that they and their shareholders are being greedy might be a tad hypocritical ;-)

PART 1 - VALUING KIRKLAND

OK so we're back in late 2019, and Boral is trying to value Kirkland. As input, here's some things they've said about it (see my posts on 3 March 2020 for longer quotes) :

"In December 2019, we acquired long-term, exclusive marketing rights for ~24 million tons of high quality natural pozzolan in Arizona"

"production expected to ramp up to ~500k tons over a two-year period."

"We have acquired the mining rights for USD 4 million, which we will pay over 4 years. We will invest some capital into the construction of the facility, and we've negotiated an attractive per-ton royalty once we start mining in late financial year 2021. We expect EBITDA margins to be in the range of 20% to 25% on this project."

"For a Montour style or a Kirkland style, we pay a fixed cost per ton. And that fixed cost per ton is single digits, so $3, $4 a ton, and then we add value through whatever the processing and the manufacturing."

"we're selling in the western markets where the pricing is $80, $90"

For my "base case" I'll take these numbers at face value and average them. (I realise that the royalty comment could be read as $4 for Kirkland.)

Pozzolan selling price = $85/t
Total margin = 22.5% (Boral) + $3.5/t (Royalty) = $22.6/t = 26.6%
Cost/ton = $85/t - $22.6/t = $62.4/t (I'll need this later as input for the CS calculation)
Earnings = $22.6/t x 500ktpa = $11.3mpa

What PE ratio should we use? Boral's pet accountants recently used a PE of 12 when valuing their fly ash business, but that's a fully ramped up business (and they may be bigging themselves up as they're fighting off a takeover bid). At the other end of the scale, these people use a PE of 5 (See Section E):

http://www.northsouth-h.com/wp-content/uploads/North-South-Holdings-Pozzolan-Project.pdf

Once up and running at 500ktpa I'd be happy to settle on 10. But you have to factor in maybe a year for the mine build (the Kirkland mine still isn't complete BTW) and a couple of years ramp-up. And there's a risk 500ktpa won't be reached. So I will go for PE = 6.

Value = 6 x $11.3m = $68m

and just to be clear, this is the value after the necessary capex has been spent. (I don't know how much the capex is, but am assuming it will be roughly proportional for CS, and so cancel out.)

PART 0 - METHODOLOGY

This is my attempt to calculate what a large Cement and Ready Mix Company (CRMC) might be prepared to pay for the CS project. I'll say from the start I'm no expert at this, I'm just trying to apply common sense ideas. DYOR, etc.

My methodology in a nutshell is this:

Part 1 : Work out what Boral might think Kirkland was "worth" in 2019 = A
Part 2 : Work out what Boral actually paid for Kirkland = B
Part 3 : Extrapolate from Part 1 to work out what CS is "worth" in 2021 = C
Part 4 : Conclude price tag for CS = C x (B/A)
Part 5 : Having so far done a "base case" calculation, look at possible upsides.

Why am I taking this approach?

1. It has some basis in reality - a deal that actually happened.
2. The unknowns will tend to cancel out.
3. My answer comes out as a multiple of the current share price, but a lot less than some people on a BB would like it to be. So it's probably about right...

@Twiggysparks : I've found that when posts go missing, you can sometimes bring them back by fiddling with the "Posts per page" selection.