I hope you afford time to your investments in the DRC. The latest changes will impact AVZ by way of the 3.5% royalty and the 35% tax rate (up from 30%). All other measures will have no impact if bankable studies are done correctly and secondly the govt already has a stake in AVZ. Certainly will affect existing producers who had low ball bankable studies many many many years ago and in production but not those about to go into mining or still in exploration and already have a government stake, but obviously indicates the element of sovereign risk. Anyway, we have done this issue to death but just for you this is what I responded in a relevant thread a while ago on this issue - see Post #:
30839503 and that thread especially but below in italics is my response when similar issues were raised.
The thing I do like about you is that when you sell you do change your tunes quite radically as I saw with what you say here, AUZ and a few others. Hope you put in place the same critical thinking on stocks you do hold, or does that occur only after you sell. As for me I post as per normal, whether I hold or sell as I see HC a place to share advice, rather than provide the advice you want provided when you hold and then change the tune when you sell, which in short means an agenda. You know we have had this discussion around your posting style before but in italics below is my opinion - as it relates to AVZ, but obviously for established plays (i.e. Glencore mines for example) impacts can differ - ultimately it is about impacts on NPV and to be frank the two changes that impact AVZ will have little impact IMO (been the royalty increase and 5% additional rise in company tax rate:
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Answering these so these are my opinions:
1. The increase in the corporate tax rate will act to reduce Net Present Value calculations but at the size AVZ is assuming 5 mtpa - 10 mtpa ore feed the NPV will still be very very very good IMO - see embedded posts below.
2. The Government's stake in the Manano tenements is already over 10% since AVZ is only a 60% JV partner, with 30% already owned by a Government entity and 10% by someone else. I therefore believe AVZ will not be impacted by that change.
3. Whilst the royalty is copper and cobalt, even if a 3.5% royalty applied for lithium in due course, it would still be less than the 5% royalty levied on Pilbara plays by the way by the WA State Government. Note royalty, and I presume here we are talking advalorem royalties, will IMO be tax deductible for company tax purposes in the DRC (like they are deductible for such purposes in Australia).
4. The super profits tax is based on prices above 25% of those in a bankable study. Bankable studies are generally quite conservative (just look at PLS's study of 2016 where they had a $550 price assumption for 6% spodumene concentrate) but suspect the studies in the DRC will be more realistic. In addition, the super profits tax won't matter if AVZ is taken over by a Chinese vertically integrated entity because they will ensure the export sales from DRC are appropriately priced before been converted to an alternate product in China. IMO, this tax might give more impetus to the TO scenario, and the TO done by a vertically integrated entity.
On Net present Value considerations, all in all the changes are likely to have a minor impact on NPV given where the estimated NPV calculations currently sit - see embedded posts below - but obviously be an adverse impact but still result in high NPV. IMO.
The only issue is that some may see these changes as justifying their view of the sovereign risks encountered in investing in the DRC when compared to western economies - that is the chances you take investing in AVZ but my view is the Chinese will reduce those risks. Obviously the projects most impacted by the change are those already in production (especially those with low ball prices in their bankable studies when they commenced production in the early 2000s albeit there are transitional arrangements I understand for those projects from my general reading of the arrangements on the web) rather than those projects like AVZ who have yet to define a JORC and then move to production and ensure there bankable studies maximise the benefits to SH (and one way to do that is to ensure appropriate assumptions and prices are put into the bankable studies which includes ensuring a good understanding of the out years when making pricing assumptions to ensure a breach of the 25% rule does not occur).
Finally the only green I saw today was on the label of my thirst quenching VB stubby. All IMO IMO
Post #: 30611818
Post #: 30759223
