RE: NPV Valuations25 Jan 2023 12:11
I've been thinking about the question but it is a hard one to answer because the established model is different for a junior company with no revenue and no mine, than a company with cashflow and a mine. But Vermelho is a special beast because even if Araguaia is producing (and so Horizonte has cashlfow), because of the likely capex requirement, Horizonte wouldn't be able to finance it (most likely) from cashflow+debt until way beyond where it might realistically get built (to hit the EV cycle). So how does the market ascribe value to Vermelho in that context with a DFS - it can't properly as a. it is unclear how much equity Horizonte would have to issue to build Vermelho (i.e. financing risk) OR b. what the sale value is. In my view it then would value it on sale value.
Realistically if Horizonte openly state they won't build the mine the shareprice should factor in a sale value for the asset at the point it has permitting and DFS in place. My guess (and that's all it is) is we might get 10% of NPV for it at that stage - which doesn't sound a great deal but Vermelho has the potential to be something like $3bn-4bn NPV so it could still be say £250m+ GBP value which might look like circa +£1 on shareprice in a total sale. Of course, we all want lots of competitive tension and people jostling for Vermelho maybe we can get 20% NPV which might look like +£2 on sale price.
A JV would result in a very different outcome of course because then it gets financing. I just don't think Horizonte will finance it with debt+cashflow and then build it, which makes it hard to value.
I do believe the majority of the sale price of Horizonte from total sale will come from the permitted, built, producing A1 + the permitted, DFS ready, 'finance ready or pretty much in the bag from FCF' A2. Vermelho is the cherry on the cake but without further development I'll be surprised if we get more than £1-2 for it in the SP at sale.
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