silex projects making good progress, page-17

Hi Bernhard,

Can you explain the function used to attain a figure of between $30 and $200 as I disagree with this. I use both DCF and NPV to value company's such as SLX and with each I come up with figures of ~$7 to ~$10 for the U side of the business. This is assuming a $0 value for the other techs being worked on, which is clearly unreasonable. I can't image how it's possible to get a figure anywhere near $200, let alone $30 based on what we know about the company and the industry, and its expected royalty of 7-12% (12 is likely according the company). I'd like to see you calcs. I assume you didn't just make them up.

FWIW I have used the following (as well as other) assumptions:
1. Royalties start in 2012.
2. 5% market share initially by GE.
3. World Market worth $10,000 million (US) in 2012.
4. Exchange rate ($A/$US) 0.75
5. Royalty is 12%
6. Marker grows uniformly at $1,000 million per year (US)
7. SLX royalty revenue grows (as does GE market share clearly) to 20% of world market share by 2015 and 40% by 2018.
8. Perpetual royalty from 2020 (though on NPV or DCF the value to the current price is negligible out that far anyway).
9. IRR = 12%.

Many many many assumptions here. But most should be in some reasonable ball park. Assumptions are that the U market really takes off for these sort of figures to be achieved. Worst case scenario (assuming U market does not grow at the expected rate) which I haven't included in my ~$7 end gives a current price value under $5. Again without adding value of other techs.

Also, note that I haven't updated these figures since GE stated the likely SWU output of its initial plant. I suspect that the output quantum will give it a global market share initially well under 5% which reduces my valuation somewhat.

So again, Silex if it gets deployed (and there is no reason why it shouldn't) will bring great long term returns to shareholders. But I still don't think we have seen the bottom because of irrational market forces which are at play.

J.