Will there be a Project cost blowout?, page-15

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Mercury_Rising

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27/10/19

09:32

Post #: 41084683
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Originally posted by Names little ↑

Hi Mercury, its fortunate then that I wasn't trying to do a comparison to other projects, though it seems others were wanting to. I was simply trying to determine why they needed such a high level of funding for a $30m project.

Though on your point of ignoring interest cost because every project has interest or dilution. Isn't this a very over simplification and could lead to people underestimating the true cost of a project. As we have seen in my calculations in my post above the interest cost quickly adds up and the higher the interest cost the quicker it will add up. And then if there are project delays in a high interest project then these can start to raise project/company viability issues

So it would seem strange to me to exclude such a large cost from your calculations and then for those that may be wanting to compare projects as you suggest surely the likely interest rate of each project would be a potentially critical factor. Like if one project is funded at say 14% and another project was funded at 6% then it would seem strange to want to ignore this difference in any calculation? The 6% and 14% figures I use are just for example purposes, one would need to plug in the expected interest rates of each project you were wanting to compare to as well as the interest rate for your project.

So,that then may bring us to another question if people decide that interest costs may be too substantial just to ignore from calculations as you suggest. Question being what are people expecting as the interest rate for the project. I used the PLS rate of 12% for simplicity and ease of substantiation, though note AJM rate for a similiar Australia based project was 14%. Are people thinking something similiar, something substantially higher due to Tanzanian sovereign risk (PLS project is also in Australia for those that may be unaware), perhaps people are thinking a lower rate due to project metrics or some other factor.

And then of course the issue of what additional "establishment fees" get taken out of the original loan amount.

Anyway, thanks for your time and thoughts, it's always interesting to hear others thoughts which often differ from my own. Like I would never even have considered that people may just ignore interest costs in large projects or when comparing projects, so that was an interesting relevation on how others may do it.

Thankyou

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Nope. Nobody has talked about calculations although I'm sure they will still look good given the interest will be peanuts compared to revenue over the useful life.
You made an assertion that the true capex was a lot higher and likened this to project blowout costs.
Anyway, the conservative independent valuation report with a risk adjusted 64c valuation assumed 70% debt financing that would have incorporated a reasonable interest rate assumption. I don't know the rate offhand but if you find that then you can calculate any potential interest over and above what has been factored in already. It's not going to make a material difference to the npv.

WKT Price at posting: 32.0¢ Sentiment: Buy Disclosure: Held
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Will there be a Project cost blowout?, page-15

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Will there be a Project cost blowout?, page-15

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