Kobold – How Do You Get To The Valuation?
Tshepo Magagane: Executive Director – Pangaea Advisory Group / Partner – The Critical Minerals Fund
Mining valuation is a bit tricky but understand that you are always looking at what they call Net Present Value or Net Asset Value = Discounted Cash Flow over Life of Mine.
1. Mingomba – this is a defined deposit – you know the Copper is there.
Yes, pre-production – why we make these “risk-unlock adjustments”. You start with a pre-MRE asset, move it to MRE then PFS then BFS then PF then Commissioning and eventually production.
Traditionally, you found that base metals commanded a 1x NPV/NAV when producing. Over the past 24mths as people started to wake up to what is happening to Copper assets, you have seen this move to a premium of about 1.5x.
NB: my experience tells me that the LT copper prices being inputted by “equity models” for “listed copper” is likely around USD15-20k/t ie share price expectations…if you were to input that into the NPV/NAV models, the P/NPV,NAV will likely collapse to the traditional 1x…
…you can test this by looking at Gold Companies which traditionally traded on 2.5-3.0x P/NPV…now have collapsed through 1x – LT consensus prices are around USD2,000/oz, which takes up NPV (market saying “we are not sure whether CB buying has created a new floor, so all upside is captured) – mining idiosyncrasies, lots of variables but key to understand the key few drivers!
If you take recent press such as the ongoing FQM deal around Zambian assets, they are each expected to fetch a USD12.5bn valuation (total USD25bn) – USD5k/t EBITDA margin and a multiple of 10-12x EBITDA.
We have also seen Sumitomo pay USD400m for a pre-PFS Rio asset for 30% (not a great asset at all).
So all in, a good chunk of the Kobold fundraising valuation will come from here
NB: The biggest NAV risk adjustments are 1. PF (you can heavily discount it as they have investors with deep pockets – debt is easy when you have equity) 2. Hydro-geo – with the right brains and doing it right the first time around, a risk that can be managed…SO….
2. Agreements with majors – a number of agreements around exploration – how do you value them – you can look at the tenements that are covered by those agreements and apply the principles in “1”
3. Earn-in agreements with juniors – they already have agreements in place with a few juniors; so more value there
4. Future work profile – there are Tier 1 assets to be discovered in Zambia and the DRC. There are also numerous Tier 2 assets that will be discovered (or should I say “defined”) to hit that 3Mtpa in Zambia – Tier 2 assets are likely going for USD4-5bn if you extrapolate from Khoemacau – so value to be found there (A LOT)
