o Chelkar:500 million tonnes (Agreement implies 1 billion tonnes. I’ve used 500m for contingency factor); o Zhilyanskoye: 1 billion tonnes; o Satimola: 8.5 billion tonnes. (Some announcements quote 6.0 billion tonnes but as explained below whether it is 6.0 or 8.5 will not be a limiting factor)
Debt: USD$4 billion (this allows for USD$3billion capex above, plus some initial opex and contingency)
Interest Rate on Debt: 7%
Admin Costs (AUD$/year): $10 million
Tax Rate: 30% – Standard Australian Company Tax Rate
Number Shares (Fully Diluted): 570,856,543 – (470,856,543 from Annual Report plus 100million for Goldquest for Satimola Acquisition Completion)
Mine Life: 50 years (I have limited this to 50 years rather than base it on resource availability as the Annual Production rate above would mean Chelkare and Zhilyanskoye together would have a resource life of 250 years. With Satimola as well, that goes up to a stupendous 1,666 years (10 billion tonnes at 6 million tonnes per year)). If Satimola is figured at 6.0 billion tonnes combined resource life is 7.5 billion tonnes / 6 million tonnes per year = 1,250 years. BHP is using a mine life of 70 years for Jansen (which has 8.2 billion tonnes).
USD/AUD Conversion Rate: USD$1 = AUD$0.90
The following is 3 separate valuations for our position with and without Satimola. In-Ground Valuations
For a quick in-ground valuation I have applied an arbitrary 99.9% discount to the Sales Price of the Product. In other words, rather than valuing the in-ground Potash at USD$300/tonne, I’ve used USD 30c/tonne:
Valuations:
Chelkar: 500 million tonnes x 30c/tonne = USD$150 million
Zhilyanskoye: 1 billion tonnes x 30c/tonne = USD$300 million Subtotal: USD$450 million / AUD$500 million (AUD$0.876 per share)
Satimola: 8.5 billion tonnes x 30c/tonne = USD$2.55billion TOTAL:USD$3 billion / AUD$3.33 billion (AUD$5.84 per share)
A truer in-ground valuation method is to find the sales value for the entire resource and deduct all costs required to extract and process to point of sale.
For KPC current sales value would be 10 billion tonnes * USD$300/tonne = USD$3 trillion
I do not have the time to calculate the entirety of all costs that would be involved in bringing every tonne of our resources to point of sale, suffice to say that even if it was USD$2.99 trillion that would still leave USD$10 billion…(~AUD$19.50 per share)
However, I fully acknowledge that in-ground valuations can be very rough at the best of times. I don’t give a lot of weight to in-ground vals.
Earnings Per Share (EPS) Method
Gross Revenue: $300 x 6 million tonnes per year = USD$1.8 billion
Yearly Opex: $100 x 6 million tonnes per year = USD$600 million
Admin (per year): USD$10 million
Net: USD$1,190 million
Tax: USD$1,190 million x 30% = USD$357 million
Net Profit (after Opex andTax, before Interest and Capex): $USD833 million (“NP”)
Capex (as yearly cost against Mine Life): USD$3 billion / 50 years = USD$60 million
Interest (per year): USD$4 billion x 7% = USD$280 million (“Int”)
Net Profit (after Opex, Admin, Tax, Interest and Capex): $USD493 million / AUD$547.8 million (AUD$0.959 per share)
EPS: AUD$0.959 per share
P/E: 10 Price Per Share: AUD$9.59 Note: This valuation does not necessarily require the acquisition of Satimola, simply commencement of mining operations. Satimola would add to ‘Mine Life’, but in the case with KPC the mine will reach its assumed lifespan (50 years in this assumption) long before the resource starts to run out.
Net Present Value (NPV) Method
Using the following formula:
Column 1
Column 2
Column 3
0
NPV = R ×
1 − (1 + i)-n
− Initial Investment
1
i
Where R is the net cashflow expected to be received each period;
i is the required rate of return per period;
n are the number of periods during which the project is expected to operate and generate cash inflows
R = USD$553 million (from NP minus Int above)
i = 7.0%
n = 50
Initial Investment = USD$3 billion
NPV = USD$4.63 billion / $5.15 billion Price Per Share: AUD$9.02 Note: This valuation does not necessarily require the acquisition of Satimola, simply commencement of mining operations. Satimola would add to ‘Mine Life’, but in the case with KPC the mine will reach its assumed lifespan (50 years in this assumption) long before the resource starts to run out.
KPC Price at posting:
30.0¢ Sentiment: Buy Disclosure: Held
