vwap calculation - finance facility fee - good luck, page-13

.....continued from previous comment

3) when I referred to an increase in IRR from 8% to 14.6% that wasn't an increase due to franking credits. Rather it an IRR figure which is required to bring the NPV down to 0 when buying in at half the current NPV price.

What I noted separately is that this is a post tax npv number and so 8% or 14.6% IRR comes with significant tax credits which are not represented in the 14.6% number. It is on this basis that i concluded that the project will deliver to a buyer who pays 50% of NPV a pretax IRR of over 20%. I admit that this is very much dependant on how the capex contributions are treated in the IRR calculation.

4) I agree that we shouldn’t use numbers adjusted for inflation. I should have left that sentence out altogether to avoid confusion, apologies. However as you would note I used the un-inflated figure in the adjusted npv figures.

5)You say like it or lump it when i say put forward the notion that I didn’t like your assessment of how the NPV was adjusted. It’s true that we are dealing with an NPV valuation, and I agree that increases in capex do have impact on the value of the project, however if the purpose of the exercise is to assess what effect newly announced capex changes really have, then when looking at such a significant change we should really emphasise that the sensitivity of the “real value” of long term, cash flow positive projects is much lower to capex increases than it is for short to medium term projects. This is why I say looking at NPV is not that useful in this particular case. The capex is supporting revenue over 40 years and not just 5 years, however the NPV figure heavily discounts earning after year 20.


6) The corporate cost for the construction years may be “excessive” and if so it is the excessive portion which should change our view on the value post the announcement. We should have known that this money (at least some of it) was required, what did we expect that the company would run on love? I do agree however that these costs become more of an issue when looking at where the money will come from, however that is less a question of value and more a question of dilution.

Having said this I agree that they are a cost which is required to extract the NPV returns and that’s why I’ve included them in the numbers we are using to give us an idea of what the project could be worth to a third party.

7) my numbers for the discounting of the stage 2 capex increase differ from yours because I had it in mind that stage 2 commenced 4 years after production and not 2, my mistake.

8) I’ll run with the assumption that half of the contingency will be used up.

9) you said I was flipping between project level and company level when I included tax credits onto the NPV adjustments, however you fall fowl of the same thing if you start taking corporate costs into consideration when valuing the project, we can’t have our cake and eat it too. If you don’t want to add the tax credits to the NPV number, which I agree is not technically correct, then let’s take the corporate costs out. We can then subtract the corporate costs and add back tax credits at a different level of the calculation.

This is to get an idea of what the package is worth to someone buying it, that’s what will help us get our mind around whether a fire sale (where the price is just to attractive to walk away from) is viable and therefore eliminate the need for a CR.

10) I deducted $20mil from the capex requirements due to the most recent capital raising because this is what the SPP announcement stated:

The proceeds of the Placement, set out in Table 1 above, plus the proceeds of the Share Purchase Plan, form a component of this equity requirement. (ie, the $463mil)

I had it in mind that the raise was $19mil not $16mil and added in $750 for the spp. My mistake of using 20mil instead of 17mil.

If we are going to include corporate costs for the two years and go by the statement that the proceeds of the placement and spp for part of the capital requirement, then we can assume that working capital and other corporate costs have been covered in the $17mil and $89mil.

11) I offset the 24mil contingency in the DFS against capital requirements because i was following your lead where you reduced $139 down to $115. Happy to be corrected on this, I suspected the $24 mil contingency had to do with the infrastructure component which was scraped after the NAIF funding was received.