Possible changes to DRC minng code, page-308

No worries and understand where you are coming from.

A while ago I duplicated AVZ's SS outcomes - refer - Post #: 36063871. That is I got to their over US$1.6 billion pre tax NPV, albeit I suspect they are using quite a simple based NPV formula because of the way you treat year 0 is important in a NPV context - and the 90% pretax IRR and US$1.6 billion NPV at their 10% discount rate. That is presented in the table below - note 20 year operation life assumption, but doesn't matter from an NPV perspective because everything after year 20 is heavily discounted but numbers from year 8 to year 20 same as year 7).


Now if you, do the calcs on 13%, pre tax NPV actually falls by some US$400 million, so that is quite a large drop hence why discount rates are generally the way investors look at these issues, despite its shortfalls as you point out. So choice of discount rates can have a large impact on NPV, but I do understand where you are coming from.



In terms of tax holidays etc, the interesting thing to me is the SS didn't have tax holiday assumptions inbuilt in their modelling by the looks of it etc. The data above is based on 100% of the project and AVZ's share is 60%. My gut feel is the tax holiday/lower corporate tax or even lower royalty rates will apply to the project as the quid pro quo - been because AVZ will be required to stump 90% of the capital my gut feel is they will get those concessions so as to ensure NPV is not impacted for AVZ specifically thorugh that requirement. Why I have said this is my understanding from a post here a while ago from poster @davvyboy is that the DRC govt - the 30% SH in the project - will actually need to be free carried to production, not just to the DFS stage. Just an opinion.

And because in a NPV sense you get the majority of your actual NPV benefits in the earlier years (through the way discounting works) if AVZ does secure tax holidays etc that might actually be a basis for investors to reduce the discount rate from 13% because of the 'known factor' in a NPV discount rate sense, even maybe back to 10%. It is about certainty of cash flows and risks of cash flows changing through what may happen to price and what the govt may do for example, so if certainty increases on somefactors the discount rate is adjusted accordingly etc etc.

All IMO