SFX Value Analysis, page-2

Some very valid points Balilow and I agree 2ic appears to have put in a lot of work over the weekend on his post and deserves some recognition.

One thing I really think needs to be pointed out for all on this SFX thread is that the use of Net Present Value calculations in isolation are not the only metric used by potential suitors, investors or JV partners. This is particularly the case for project’s with a very long mine life such as Thunderbird (initially 42 years). 

Investors need to understand that cash flows in the latter years are effectively discounted back to a fraction of their value - for example $100m in net cashflow in year 42 contributes less than $2m to the NPV calculation when a 10% discount rate is applied. 

NPV $100m Cashflow at Year 42 = $100m/(1+10%)^{42 =} $1.826m

So after 10 years of operation and free cashflow Thunderbird will still have an NPV close to $614.9m, $540m, $800m or whatever value your assumptions bring you to. And guess what after 20 years of operation and free cashflow Thunderbird will still have an NPV close to $614.9m, $540m, $800m or whatever value your assumptions bring you to. And guess what after 30 years of operation........  you know how it goes.

It is for this reason that NPV’s are a useful tool when assessing shorter mine life projects (sub 10 years) but become less so when evaluating a long LOM project with such strategic value as Thunderbird.

To assume a potential strategic partner is only taking into consideration the NPV of this project could be a very costly mistake (IMO ).