Yes HB... a lot of what you say makes perfect sense!! That is great!
So many unknowns.. and I wonder what Glencore think..?? History must be full of people who reckon if they could hold the gun of that necessary 10% to the head of the Takeover Company they can extort more money. It is all by the rules... but what standard reaction or defense to that is usual? It's likely they will have a plan that fires back nastily.... I have no experience to say.
On valuations of AVB mentioned here....
Valuations are based on the standard discounted cash flow (DCF) Model.
That is a theoretical approach relying on various assumptions.
Adding up the sum of expected future profits or free net cash, they determine a value.
They require a stab at the price of copper over the LOM... perhaps ten years. Plus they also rely critically on a discount rate over the same period, that allows for the diminishing purchasing power of money. Inflation.
Annual mine output is modelled, or guessed. A slight change in any of these variables means a major change in your result. 5% to 10% discount rate has a huge effect. So it is all critically modelled on vital figures that nobody has a clue about. The only thing they have going for them is the Law of Cumulative Errors. If you guess lots of figures, then the overs and unders will cancel.. and hey presto, the right answer. Maybe.
Not something one may be inclined to put faith in when spending tens or hundreds of millions in takeover cash. Some assessments deflect this by publishing scenarios or sensitivity analysis for those critical variables. Fair enough. But that is merely to say... we don't know for sure.. you pick a figure you like. Optimist or pessimist? So the answer is "there is no answer" no true valuation figure that is gospel.
It is very misleading to suggest otherwise.
OK so experts, brokers, or an "independent valution" value AVB at 23c say... based on guessed figures. But be that as it may... Why would someone want to pay that and front their shareholders and say we paid 23c for something worth 23c?? We may pay a bit for intangibles and blue-sky, but we also want a discount to allow for things going wrong (a safety margin), and for a profit too. We are not paying 23cps for a future profit stream expected to be 23c. We are not stupid.
Remembering that 23c might be a mean. The Truth, as yet unknown as future production is not known, may in fact be on the lower end of the Confidence Range.
So valuations, at least in my opinion are a kind of nice nonsense, or at best/worst a notional starting point if you need to seriously negotiate. Perhaps. You put it out and the other Buyer side pick it up and tear it up (metaphorically) saying "That document is garbage.. now let's get real" !
If a valuation, demanded by some, comes in at even 22c say, OZL could go back to their shareholders and say we got it for 17c. That is 5c for both notional profit and a things-going-wrong margin. Not great, but acceptable.
So a new suitor may say to an analyst, "don't give me 50 pages of figures to justify yourself and protect your backside. Use your extensive experience, weigh up all the many factors that are non-quantifiable.. and tell me what is a very attractive price where I can smile and sleep at night. I have lots of deals presented to me and I only do great deals that are a great fit.. Then I will apply my own gut-feel."
In my view, if one is expecting a 22c result from a valuation.. then do not ask for one. Sit tight and let other suitors determine by their own abbreviated methods hopefully producing something much higher...
AVB is worth what someone is prepared to pay.
Not by a guessed "valuation" or intimidatory and starry-eyed shareholders... but by someone using their own methods, and idea of what is a bargain or great deal.
AVB Price at posting:
16.0¢ Sentiment: Hold Disclosure: Held
