operating leverage comps, page-110

ChrisSydney1984 ..... I have watched, not sure whether it is with bemusement or interest, all the calculations and effort you have put into you economic modelling. It has certainly stimulated discussion. I do not presume to judge whether what you have calculated is correct or not and that - for me - is not the point. I have found it a useful exercise in that someone else, with their own models and with whatever built-in assumptions they have used in that model, has arrived at a starter pit valuation range for MYL - which I suspect is probably "within a bulls roar" of what the DFS is likely to show. I always welcome contrarian views as it forces one to double check your own assumptions and that can only lead to more robust outcomes all round.

However, the thing I do not understand is why you think that the NPV calculations that companies do in their DFS studies are based on erroneous interest rates. I do not dispute that current interest rates are way below what have been historically used and who is to say what the long term future interest rates will be and whether there may be a fundamental shift in what rates are used in the future for calculation of value. Regardless of what the future may hold, CURRENT financial modelling assumes interest rates and DCF rates of around 8% If that is what the banks and financiers are currently using, and are driven by, then it is only both sensible and realistic to apply these rates in our economic modelling. If the project still makes money on those higher costs then that proves that the project still stacks up.

I think it is academic to try and use different interest rates in any modelling as I can bet that the lenders will not. I can also tell you that despite the current low Reserve Bank interest rates, the commercial banks are not lending money at those low rates but at significantly higher rates. Also if you look at some of the recent mine/plant funding agreements, you will see that funds were generally lent at LIBOR plus 3-8% interest rates. So I suspect the reality, at least for the next few years during which this project will be funded, is going to be higher rates than you think should be applied. As such, I think that going with the current and standard NPV/DCF models and assumptions is the safest way to go.