FQM Abandoning Sale Process Of Zambia Assets!
By Tshepo Magagane
My read – yes, balance sheet is stronger BUT I dont think you can price a Tier 1 asset right now.
Will be like trying to sell a stake in an Iron Ore asset in 2003. Price was 30/t – in 05 went up to 65/t – think about that – it eventually went all the way to around 200/t even post China Peak Steel – and right now with all the issues around steel at c100/t.
Now what happens to Copper prices to get to a 35Mtpa market in a few years?
What LT price do you use for NAV – do you plug an additional USD5k/t on top, or USD10k/t or USD15k/t…
…now see that all of that will drop down to FCF…and it is still below the brownfield expansion capex intensity!
As I said already – a Tier 4 asset goes for USD500m, Tier 2 with permitting for USD2bn and Tier 2 in production for USD4-5bn…that makes it challenging to come up with a reasonable value for a Tier 1 whereby you wont regret that you left money on the table!
If I take the precs above and plug them into a Tier 1 project – they would imply that the valuation that was under discussion is only half of what the Zambia assets are worth.
On the other side, listed equity is only willing to value mining assets at c15% of their discounted cashflows!
Why a fundamental shift in thinking around these is required – why you need so much private capital.
And it means that entry points into Tier 1 assets are almost non-existent, unless you launch a hostile at group level – then why would shareholders sell.
So, I would have made the same decision as FQM – 1. You easily clear a margin of USD5k/t 2. Ramping up Zambia assets 3. Sorting out Panama…doing a deal means that you are going to leave far too much on the table.
