The Investor call is well worth a listen if you haven’t already.
Interesting points I took out of it are;
- Premium for 65% ore is roughly 30% above 62% and likely to stay that way with Chinese steel production having a huge focus on efficiency and pollution reduction.
- Koolan Island ore of 66% may attract a higher premium
- Looks like minable resource at KI may be 20mt as opposed to the 12.8mt used in the feasibility study, this would extend mine life from 3.5 years to 5.5 years.
- All capex and closure costing are factored into the estimated opex of $53t (hence opex would likely reduce as minable resource upgraded to 20mt)
- At current ore prices and exchange rates, it looks like there would be a profit margin of a good $40t. With production at 3.5mt/year… well you do the maths.
- Based on current margins and extended mine life to 5.5 years, my roughly calculated NPV before tax for KI is around $440m before tax at a 8% discount rate.
With current operations profitable to the tune of $20m - $30m/year and cash flows from KI expected from Q1 2019, it is certainly a bad joke that the market is currently valuing the project at effectively more than a negative $100m (market cap more than $100m below cash on hand and stock inventories). During construction phase, many projects move to a market valuation of at least 50% of NPV. MGX is being heavily penalised for having dormant cash on hand, and quite possibly more so due to the risk of how they will deploy it. Why frustrating in a lot of ways that nothing has eventuated thus far, management continue to emphasise that they are not going to jump the gun, and are will only invest in something that is in their mind securely value accreditive.
Assuming no major negative moves in spot prices & exchange rates I see a market cap of $800m plus being a very realistic possibility in 2019, equating to a share price of 70 -80 cents. In my mind, fair value today would be somewhere between 55-65 cents. There is a lot of opportunity here for those that can be patient. At some stage, the market cap will most likely revert to fair value.
Would apricate others thoughts on this.
Yeatesy.
(20min delay)
