Unfortunately, those numbers are incorrect.
What 'payable' discount has been applied to the sales? Looks like none. We won't receive (pure Ni) spot pricing for our 7-8% concentrate. Try using a payable rate of 72.5% (see below).
That ASIC of US$5.10/lb is not quite right. I won't be hard on you there because the way management presented the original DFS was shocking and it's very easy to be lead astray by it. Yes, US$5.10/lb is an ASIC, but this one is
payable basis. If you're going to use it, then you also need to perform payable adjustments to the production figures to do it properly. To avoid the need for this, try using the spot basis ASIC (US$3.65/lb). Amazingly, this wasn't shown in the
original DFS (18/07/18), but the data table was updated with this number in the
30/07/18 quarterly report (p.3). (Unfortunately that US$3.65/lb introduced an error in that it was shown as being 'payable basis' in that announcement, which was wrong and a subsequent discussion with management confirmed it was an error. More accident-prone MR magic.). The "cleanest" DFS data table first appeared in the
CR roadshow preso (03/09/18 - p.14). Use that one. It's by far the least confusing version, with some apparent notable exceptions.
The notable exceptions for
all DFS tables appear to be that all the AUD metrics states in those tables appear to be actually in USD. If this is true, then the DFS metrics table
understates the projected BS complex performance metrics by the Fx rate. This is why I was so cranky with MR for never following through with his personal undertaking to check and confirm back with me after I sat down with them last August last year.
Long answer, short: I think MR did an
MR and mislabeled the "AUD" DFS table metrics. They were
all USD metrics, imo. That would explain why he never wanted to get back to me. Workings follow shortly, for those holders who are interested in verifying.
Using a couple of different methods, I previously (late-last year) back-solved the DFS numbers the best I could (using the very limited published information) to derive implied payable rates of 71.6% and 73.3%. I split the difference and adopted 72.5% (detailed below).
Reconciling the BS Project DFS on a Whole-of-Project Basis (using the DFS modeled assumptions):Revenue:
23,200t total Ni production * 2,204 (lb-tonnes conversion) * US$7.70/lb (DFS modeled spot Ni price) * 72.5% (my derived payable rate - within norms) = US$285.5m total project Revenue. This is very close* to the published $288.60m, but it's in the wrong currency! The DFS revenue data is labeled as being AUD! Performing the currency conversion gives us AU$375.6m total Revenue (US$285.5m / 0.76 modeled Fx).
(*For a perfect match the abovementioned 73.3% implied payable rate would need to be used.)
AISC Reconciliation using Spot-Basis ASIC of US$3.65/lb:
23,200t total Ni production * 2,204 (lb-tonnes conversion) * US$3.65/lb (spot ASIC) = US$186.6m modeled life-of-project total AISC.
AISC Reconciliation using Payable-Basis ASIC of US$5.10/lb:
23,200t total Ni production * 2,204 (lb-tonnes conversion) * 72.5% (est. payable rate) * US$5.10/lb (payable ASIC) = US$189m modeled life-of-project total AISC.
These two different approaches to calculating the modeled life-of-project total AISC differ by less than 1%.
(For a perfect match the abovementioned 71.6% implied payable rate would need to be used.)
I prefer to use US$3.65/lb ASIC (spot basis) because it doesn't require the additional adjustment in order to be accurate.
Break-even Ni Price Reconciliation:
Reconciling this metric has proven to be the most problematic for me. My best guess is that it's a transcription error that was incorrectly transcribed from the US$5.10 payable ASIC figure that appeared in the original DFS table. If that's true, then this number is plain wrong.
If we work on the basis that everything I have done so far is correct** or very close, then we should be able to derive the B/E. (Where possible, I will use the DFS published numbers. If I think the currency labeling was incorrect, I will simply alter the currency label to reflect what I think was intended.)
(**I don't claim to be perfect. That would be silly. I attempted to obtain clarification with management several times on this issue and they were well-aware of what I was trying to reconcile. MR's failure to engage in any meaningful way meant I was limited to reconcile the numbers using back-solving as best as possible -- using far too little data for my liking.)
B/E Calcs:
US$288.60m (Revenue) - US$60.3m (Net Cash Flow - aka total project cash surplus/profit, after recouping
all outlays) = US$228.3m whole-of-project Break-even point (or AU$300.5m B/E using DFS modeled 0.76 Fx).
Spot Basis B/E:US$228.3m (B/E) / (23,200t total Ni production * 2,204 (lb-tonnes conversion)) = US$4.46/lb B/E (spot basis).
Payable
Basis B/E:US$228.3m (B/E) / (23,200t total Ni production * 2,204 (lb-tonnes conversion) * 72.5% (est. payable rate)) = US$6.16/lb B/E (payable basis).
Net Cash Flow Reconciliation:US$60.3m (published, but relabeled with correct currency) / 0.76 (modeled Fx) = AU$79.3m.
NPV Reconciliation:US$43.3m (published, but relabeled with correct currency) / 0.76 (modeled Fx) = AU$57m.
Summary:There's no guarantee that these numbers are 100% accurate, but most will know that I'm not in the business of throwing rubbish numbers around for the sake of it. I was reticent on posting this analysis for the longest time because I was (still am to a degree) concerned about the possibility that there could be errors which might inadvertently lead some readers astray. That said, the best disinfectant is to show clear transparent workings and explanations, so readers can make up their own minds.
Why go to these lengths to reconcile/rehash the DFS when the NP has moved beyond the modeled revenue hurdle? Because the cost metrics should (hopefully) still be very relevant. Besides, without having a solid understanding of the baseline DFS, any further incremental analysis to update to today's conditions is prone to error.
On today's NP of AU$12.00/lb (US$8.15/lb / 0.679 Fx) I would expect a whole-of-project Net Cash Flow (BS project only) to be somewhere in the vicinity of ~AU$144.5m*** (up from DFS AU$79.3m). That's over 3.1yrs, not an annual average.
(***23,200t total Ni production * 2,204 (lb-tonnes conversion) * AU$12.00/lb * 72.5% (est. payable rate) = AU$445m (Revenue), less AU$300.5m (B/E - from above)).
Z
PS. If anyone spots any glaring errors, please pipe up. I'm not precious about this. Accuracy/integrity of analysis is more important to me.
