Each deposit has it's own critical features Cashme, comps get tougher in odd, systemically risky situations. Lots of discussion on valuation going on and rightly so. The topic can be a complicated or simple as we chose to make it. Unfortunately reality is that Namdini just officially dropped in value by 25%. I say officially because it's patently clear many others, including the subs, were well aware that the DFS was taking a big opex hit before retail. Smoking may wish Archie has his next bag of performance shares voted down but I suggest the subs are grateful for the heads up and keeping an eye on being part of any ultra cheap CR if it transpires. You scratch my back I'll' scratch yours. Gold Fields wont be rocking the boat either that's for sure. Still, his credibility is shot and he shouldn't be rewarded for it.
Value is firstly and foremost fundamental; profitability! Bigger LOM profits means more value, and bigger margins are valued beyond just the bottom line because in a cyclical business lower costs mean lower risk of going broke, thus riding out the cycle. CDV was looking lower quartile on the PFS but is now looking more middle of the range. NPV is the consensus method for comparing the value between projects of different size, mine life. capex, production levels etc on the financials. The discount rate used can neatly account for higher or lower subjective risks such as location, sovereign, social, technical. Not perfect for long mine life because it punishes long distant cashflows too much, but it does a pretty good job of simplifying value in today's money of a potential investment for quantity and comparison.
Namdini's NPV value just dropped 25% with the 25% increase in operating costs, as did the LOM free cash flow, the IRR, the share price EV. A $100 lift in the gold price might have balanced out the rise in costs, but the fact is if the DFS matched the PFS CDV would be worth 25-30% more for whatever gold price you plugged in. Further, any corporate players will value Namdini on their own gold price view, which will not vary by the week or day. There is broad agreement gold has lifted structurally above previous $1350 resistance but that doesn't mean if gold spikes to $1600 this month a takeover will be valued on $1600 or even $1500. Acquiring companies are looking to their own shareholder value first, and the valuation future gold price-deck in negotiations will be conservative for good reason. Target doesn't have to accept the suggested price or valuation of course.
I just read Hartley's latest CDV valuation and they predict gold at US$1450 Jun 2021 falling steadily to US$1363 June 2024 in their models. Obviously gold miners are bullish by nature and are buying for gold price upside but some in the market are cautious and any BOD would have one eye on value and one on safety. That is why lower quartile cost mines command a premium, they will make good profits right through the cycle while others might close. I would think Namdini would be valued at $1450 in any corporate negotiations today, a price that recognises the break out from 7 year resistance but also doesn't ask for too much of that price break out in the hand so ealry. Of course, if it was a bidding war because two players had to have Namdini then all justifications will be used to lift the bid. Namdini's 4 year sub $600/Oz and LOM $900/Oz AISC is still pretty attractive these days as Norsdemic said, low enough to both remove solvency risk or closure in any gold price correction I can imagine.
There are all sorts of other variables that go into valuation consideration.
Margin and Value: As above, higher margin and more valuable mines are obviously worth more. Obviously a high and rising gold price creates a bull market in stocks and corporate action and valuation increases beyond numbers of the day. How many times have we seen corporate action at the top of the 'stronger for longer' market just to see the TO premiums go up in smoke when the commodity price cycles back down. This gold stock market has not hit the bullish premium paying level by a long way yet however. In Nth America gold stocks are just getting off the floor and climbing the wall of worry.
Location: Brazil native forest on indigenous lands, or war torn terrorist Mali not so good. Dry savanna in Ghana, the equal lowest sovereign risk country in Africa with a very long history of looking after western mining companies is good.
Large Reserve: More gold means more leverage to gold price upside and gold miners are bulls by nature which is good. Long life and meaningful annual production makes managing the mine worthwhile for major companies. They don't want to gin around with 100K Oz operations.
Low Technical Risk: New COO Dave said at the IMARC conference interview, "there is not many moving parts". Recovery might be lower than we like but 4.2M Oz from a single low strip pit with very large ore blocks and very simple and robust processing means nothing serious will likely go wrong. It's only a matter of +/- a couple percent recoveries.
Exploration Upside: CDV has little imo. Lots of aircore drilling over 5 years and Ndongo East is the only tight little squib to show for it. Before you shout me down go look at the exploration upside that existed around Gruyere when GOR did their JV and it's chalk and cheese. Namdini very low grade, not abovious UG expansion prospect. Not saying there is no chance but firstly nobody will pay a premium for probable mine life extensions like so many high grade Western Australian lodes have delivered for kilometres deep.
Capital Cost and Payback: Namdini has a very good capital cost per Oz of Reserves and a ridiculously quick capex payback. The ability to hedge 3 years production which will both pay back the capital and also the acquisition cost is very attractive and very low risk proposition. For this reason I think CDV will get an offer mor so than just the fact CDV has 4M Oz Reserve.
Share Holders and BOD Attitude: Do the shareholders want to dilute and go it alone to build value over time or take a bird in the hand now and ride away? Does one shareholder have a blocking stake that will scare away genuine bidders, do the shareholders want to help fund, are they stale or jack of the BOD, does the BOD want to mine or move on themselves? Gold Fields will scare off some bidders by the blocking stake, meaning CDV keeps being run as an independent ASX listed company. Then again it doesn't look like any of the other sub holders love the idea of hanging around through heavy dilution and more of Archies broken promises. I'm sure some will be asking Gold Fields if they are potential sellers of determined to stay involved at the very least.
Ability to Go It Alone: Very relevant to CDV now is the market's desire/ability to fund and at what level of dilution. So many shares let go from oppie holders and sub holders recently, most buyers under water or break even, downgrade disappointment etc, and I can't see how Archie can get the price moving north while cum-raise. CDV need at least A$125M (including Sprott debt rollover) and short of a large gold rally there won't be any CR buyers above 30c. The DFS was priced in at 39c before release imo and there just are not enough buyers that believe in CDV, believe in the Archie, or are not already full to move the price judging by recent trading. A CR at 30c (unless gold goes for a big run) will mean selling half the company to new shareholders for ~A$125M which is almost absurd, equivalent to US$45/Oz
All the above and more goes into what 'value per Oz' of Reserve someone might pay for a project. Namdini doesn't have much expansion or exploration upside compared to many gold projects so what you see is pretty much what you get and pay for I reckon. The market will value the same mine higher inside a major than inside a single mine junior for a number of good reasons. Share liquidity premium, lower cost of capital, lower chance of insolvency or diluting CR in the future, diversified gold exposure limits sovereign risk or force majeure crisis, economies of scale with corporate costs, in house expertise etc. At $1450/Oz Namdini, being in Africa no Oz, might be valued at NPV8% inside a large diversified but NPV12% inside CDV. On the DFS that is US$600M vs US$400M before taking off Ghana's 10% free carry, a big difference.
To make a long post shorter, almost doubling the share on issue around 30c for a large CR would reduce long term Namdini valuation to somewhere in the mid 70's using $1450 NPV12%. Even then it will take two years to build, de-risk the mine and produce gold at nameplate before the market will actually pay full valuation. In the mean time it might start off post CR only half that share price and slowly rise as profit takers and stale holders weigh on the stock week in, week out on the way up. My impression is the market is suspicious of Archie's numbers and prdictions now, is priced cum-raise with too much loose script and stale holders by the looks to move it north without corporate action.
This is how I would look at Namdini if I was managing a mid tier producer in Africa looking at growth. DFS Value at $1450 NPV 8% of US$600M or US$540M for the 90% that CDV own, if I believed Archie's DFS numbers are more real than the PFS was. I'm being asked to take on the DFS number risk, the build risk and make sure my shareholders are getting better value than other opportunities out there while also adding immediate value beyond acquisition. I have to subtract the cost of taking out CDV from my $600M NPV8% and still have a good profit for the cost and capital risk beyond simply the 8% discount rate. I need to demonstrably add value today or explain why LT extension/expansion will because it's not the right market yet to just be buying for future gold price upside. I would like to pay 50c in the dollar after taking out CDV for an immediate 100% paper profit thank you very much.
So I am prepared to pay US$270M (half of US$540M value), which at 69c USD is A$391M, which is 78c a CDV share, showing my own shareholders an instant theoretical 100% profit on the investment, albeit with risk. Therefore I phone around some major CDV shareholders then the BOD to see if they are sellers at 60c which is about double the alternative CR placement price and a bloody long walk back up afterwards. "A bird in the hand" and all that to long suffering shareholders who have been happy to sell heavily in the 40's and need a liquidity event to get out, or be stuck long time with the Archie Show. All confidential, non-binding and conditional stuff on the quiet of course. See who salutes and whether Gold Fields want to fight for it, get stuck on sub 20% and green mail us later for a bit more, or simply take the profit and move on. Maybe I have to sweeten the deal and go to 78c eventually, but I doubt it without a biding war. Not many holders will turn away 70's when the alternative is diluting down to a similar maximum valuation but sometime in the never never.
If a confidential takeover approach is made I expect the price to rise quickly by 15c regardless, we now know this boat leaks like a sieve. There is no way Gold Fields or anyone else will pay the full US540M for essentially zero NPV profit on the deal. That would be relying on expansion upside that isn't likely, or a future gold price rise which is just gambling. US270M for CDV's 3.78M Oz share of Namdini Reserve equates to US$72/Oz purchase price which is pretty good, half the NPV8% value obviously, and similar to say PRU Ev per Reserve Oz of US$65/Oz after stripping out net assets from the balance sheet.. A bidding war with Gold Fields would be great and might shake out another 20%, or if the gold price goes higher.
The same logic stands for offering CDV a 50% JV for US$135M instead of going the whole TO. That path cuts out Gold Fields or forces them to play, reduces the balance sheet stress of a full TO and capex spend, while still adding a handy almost 2M Oz Reserve and 150K Oz pa production to a plucky mid-tier gold miner at half price. Better CDV sell 50% for A$195M to a JV partner (39c equivalent) than 50% to new shareholders for A$125M into a broker placement at 30c.
Please don't confuse my observations with unfunded spot valuations of the day (ie NPV divided by 500M shares) or valuations based on low discount NPVs without an "African and junior discount". Such are true enough on paper but are rarely ever reached except when truly exceptional future exploration and expansion upside compels an acquirer to pay full and fair value today. Between the sub holder selling, oppie selling, the DFS downgrade and Archies building expectations of stronger economics in the DFS with substantial opex and capex savings from the Aachen process then missing badly, the current share price and large funding gap is the biggest variable in any CDV valuation. No need to offer $1 when a 100% premium offer on today's price would get you knocked over in the rush of acceptances.
Good Luck
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