RE: What if the PFS doesn't light the fuse?4 Oct 2021 16:18
Charles Gibson and team at Edison made the interesting observation a few years ago that valuations are actually lower for companies with projects at PFS stage than they are for companies with projects at PEA stage. Here's what they said:
"EV/NPV analysis confirms PFS valuation discount
For the second time in two years, Edison has performed a mass EV to project NPV analysis. In this case however, rather than being conducted over a limited sample of 63 companies and five metals and minerals, the study has been conducted over a sample of 102 companies, 13 metals and minerals and three distinct stages of development, namely preliminary economic assessments (PEAs), pre-feasibility studies (PFSs) and bankable feasibility studies (BFSs). The intention of the analysis was to investigate the relationship between seven project variables (NPV, grade, IRR, size, jurisdiction, discount rate and product) and the valuations of their host operating companies.
In conducting our analysis, we concluded that the ‘average’ project has a published NPV of US$649m (cf US$433m previously) and an average IRR of 40.1% (cf 43.2% previously). Compared with last year however, valuations have contracted – in particular for companies with projects at PEA and PFS stage, although they have largely held up for companies at BFS stage. As before, the distribution of valuations relative to project economics is extremely skewed to the right (see pages 78–83), which renders mean values of very limited use in analysing individual companies. Strikingly however, the apparent ‘anomaly’, whereby valuations are lower for companies with projects at PFS stage than they are for companies with projects at PEA stage, has persisted since last year, leading Edison to conclude that it is not, in fact, an ‘anomaly’, but an enduring feature of the market (at least for now).
Part of the contraction of valuations at PFS stage may be explained by an apparent simultaneous contraction of IRRs at PFS stage. Why the EV/NPV multiple should contract at the same time is, again, a matter for conjecture at the current time. In Edison’s opinion however, it could reflect the market reaction to the lower IRRs from the project then being superimposed upon a necessarily lower NPV (all other things being equal). Whatever the reason though, companies should be aware of this particular market characteristic."
What does this mean for GGP? The simplest summary would be that the publication of the PFS may not in itself be a catalyst for share price appreciation. If however the PFS were to be accompanied by additional/new information - as is frequently suggested here - then the impact might be different. It is possible that GGP are aware of this "PFS stage discount" in which case using PFS publication as an opportunity to share some new info might be a smart strategy.
Sign In
Follow the stocks
