I'm quite a keen student of independent expert's reports, without professing to be a technical expert in the subject.
The remarkable aspect of this report that jumps off the page is the sensitivity of the analysis to just one assumption - and that is the price at which equity can be raised to fund project development.
In all of the discussion below I'm going to focus on the "Preferred Value" column on page 23 of the BDO report - the one with a "Value of Elemental" of $893.5million - which on the assumptions used in the report translates to a value per share of 44 cents.
Now - the issue that you should be aware of is that the Independent Expert assumes that ELM will need to issue close to US$500 million in equity in order to fund the project. Therefore - while the company has 289 million shares on issue today, the expert assumes that a further 1,721 million shares will need to be issued.
Why such a large number? Because the expert assumes that the shares will be issued at a price of US27 cents.
Why US27 cents? Well - that's based on a 60 day VWAP of ELM trading price in the period leading up to 9 April 2013.
In other words - the primary driver of the Independent Expert's valuation is in fact the pre-offer share price.
To give an example - if the VWAP had in fact been closer to 45 cents in the period leading up to 9 April, supporting an issue price of say US40 cents for the big lick of equity. . . . then you wouldn't have to issue 1,721 million shares anymore, in fact the number would be just 1,162 million. . . . and your "Preferred Value" of ELM would go from 44 cents a share to 62 cents.
Hope this all makes sense. I'm not saying that the independent expert's report is wrong. . . . but I am saying that a higher pre-bid trading price would have translated to a MUCH HIGHER assessment of value by the expert.
To give one more scenario. . . . if the pre-bid price had been consistent with equity being raised at US70 cents. . .. then the assessed value per share would be 94 cents.
Interesting, huh?
Gotta Zip
Geraldine.
K2P Price at posting:
52.5¢ Sentiment: None Disclosure: Not Held
