fundamental valuation of sundance, page-16

Taboon, you're right that you do need to know what you're talking about to value these things. The primary purpose of the above analysis was to gets views on the business. So far we have:
- Galvanise made the point that this is a non-JORC resource.
- Bizzo made the important connection that the US is stuffed and getting worse. (I agreed but through China's industrialisation into the mix)
- Nk said that the valuation was sensitive to a number of key variables – and noted the number of shares issued to raise funds for the development was critical
- You unkindly, but probably fairly, said we don’t know what we’re talking about.

Comments on the BBY report:
- The geology analysis is useful, but at the end of the day Gavin simply takes the 1 billion total resource assumed by Sundance. Intelligent analysis, but non-value-add.
- Gavin made the point that the key risk associated with the project is the quality and size of the resource. That’s fair enough. A close inspection of his numbers gives a bit more insight into what he genuinely thinks are the risks. The valuation rises from 1.20 to 1.34 from 2008 to 2009. That’s basically the unwinding of the discount rate in the year that the resource moves from non-JORC to JORC (and says to me that there is no additional discount for the risk the JORC report will prove unsatisfactory). As you point out from 2008 to 2013 his valuation moves from 1.2 to 3.3. After allowing for the unwinding of the discount rate a valuation discount of 57% is removed during this period. That is, removing the risks associated with building the infrastructure more than doubles the value. So the words say the primary risk is the quality and size of resource, while the numbers say the primary risk is infrastructure build. The fact is they are both major risks, which is why you can buy the stock at a 75%+ discount to unrisked value.
- There is no comment on financing the infrastructure. This is a major oversight. The dilution effect of issuing new shares isn’t discussed, not sure if it is included in the figures.
- The assumptions in the top-left of page two are largely irrelevant. The important assumptions are the size of the resource, prices when the production commences, cost of infrastructure, discount rate, capital mix and over-riding risk adjustment. None of these are commented upon. None are explicitly stated. These are important judgement calls and the reader has no idea how they have been incorporated.