Looking at the Helmsec valuation report for AFR (Nov 2011), IMO there is a high probability that NMR could end up with a similar strategy developed by AFR, meaning for short-mid term strategy, they could develop a production of coal for domestic and regional markets, while for the long term, they will keep a close eye on export infrastucture plans for the sales of coal to India (very likely).
Based on the above consideration and while waiting for NMR scoping study, I decided to come up with some SP projections for NMR but by using assumptions developed in Helmsec valuation report and AFR concept study.
The aim of the projections may help estimate the Net Present Value of NMR, and to compare my figures with the one presented in DJ Carmichael report for NMR using Enterprise valuation (EV).
The projections use the DCF valuation and are carried out using the assumptions that NMR will develop 2 projects, the first one will be for the sales of washed coal for domeestic and regional markets, and the second one for the export of coal thermal to India market.
Following are the outcomes of my projections for NMR:
Project1 : Sales of washed coal to domestic and regional markets. Expansion to produce coal sales to power stations - It is assumed the project1 will encompass 2 phases, with a total capex of US$115M:. - Phase 1 will see NMR delivering 1.7 Mtpa of washed coal to industrial customers, and phase 2 to supply 3.1 Mtpa to third party IPP (power stations). - Overall, the project will mine 5Mtpa over 30 years LOM (circa 5% of current JORC resources).
DCF valuation for project1 (phase 1 & 2): Key assumptions: - Real discount rate of 10% - Total Capex for phase 1 & 2 = US$115m - Total shares = 423m - NMR stake = 65% - Tax = 25% - Royalty = 3% - Parity US$/AUD$ = 1
phase 1 : sale of washed coal direct to industrial customers * 2.5 Mtpa over 30 years LOM : Assumption that 70% yield of product coal will deliver 1.7 Mtpa regional coal * Capex1 = US$50m * sale price = US$45/t * cash cost = US$25/t
phase 2 : supply of coal to third party IPP (power stations) * 2.5 Mtpa over 30 years LOM Assumption that 85% yield from 2.5 Mtpa full seam run of mine coal to deliver 2.1 Mtpa * Capex2 = US$65m * sale price = US$25/t (assume price of US$1.20 per MJ/kg) * cash cost = US$13/t
Results Estimates NPV @ 10% = $88m Estimates share price (EPS) = $0.21 IRR = 51% Current SP = $0.037 Current P/E (P/NPV) = 0.17 P/E of 5 = $1.05
Points to note: 1. Currently NMR is traded with a heavy discount, with P/NPV = 0.17x 2. Cash costs of phase 1 is nearly double when comparing to phase 2, this is mainly due to a lower yield of product coal (AFR assumptions). In reality this yield could be higher for NMR as test result show that % recovery is higher against AFR. 3. The project1 could look very profitable with an IRR = 51%
Project2 : export of quality thermal coal to India Following are my DCF valuations for NMR project2, assuming that they export the quality coal to Indian thermal coal market. It is assumed that new rail and port link have been built (going through Namibia and/or Zimbabwe and Mozambique).
Taken a similar assumption from Helmsec valuation report, NMR project2 could export 18Mtpa over 20 years LOM, assuming 60% yield of full seam (30Mtpa ROM). The project require a Capex of US$1 billion. Overall cash cost is US$55/t, that include on-site costs, freight, handling and ship loading. FOB price is US$80/t.
Assumptions: * 30 Mtpa over 20 years LOM : Assumption that 60% yield of full seam to export coal * Capex1 = US$1b * sale price = US$80/t * cash cost = US$55/t
Results Estimates NPV @ 10% = $322m Estimates share price (EPS) = $0.76 IRR = 19% Current SP = $0.037 Current P/E (P/NPV) = 0.04 P/E of 5 = $3.80
Estimates of NMR SP for project1 and project2 = $0.21 + $0.76 = $0.93
Please DYOR,
Merry Xmas and happy new year to everyone, Cheers,
NMR Price at posting:
3.7¢ Sentiment: Hold Disclosure: Held
(20min delay)