You do realise the article is referring to NPV, and is dated 3/05/2019 when market conditions were more far more positive. So, previously the NPV was US$1522 million, meaning WES share is US$761 million. At A$776 million (the TO price) at 70 c discount rate is US$543 million, or roughly 71% of its share of NPV (or 36% of overall project NPV). The project's NPV was based on KDR coming onto market in a shorter timeframe than is now as well, given NPV is also a function of discounting. Another way to put it, the spodumene price has reduced, so if NPV collapses then TO price also falls. It actually supports the posts I posted a while back - go back to the headline from last year as it was based on % of NPV.
I also would say that you don't normally get bids above 50% of own NPV, i.e. prior to construction as TO price is treated as a capex in an IRR analysis, so suspect WES was thinking about price growth. Probably shows how the market deteriorated in the short term btw IMO.
TO price is added to your capex, so production rate and opex derives your profit outcome that is discounted to get back to a NPV value (and that value IMO decides what your willing to bid unless the acquisition is either viewed strategically such as removing a supply source for your competitors, meaning if you operate in downstream markets you can make more money there). If your TO price is too high well it reduces project IRR potentially below your discount rate and that means you will be paying too much (and you reduce your bid). And while some may say LTR resource is strategic, the acquirer would still be looking at a return is my point.
As I said a rising spodumene price is in everyone's interests, including established producers.
Anyway, my posts are here below, and to repeat rising spodumene prices are in everyone's interest because they increase NPV and therefore TO prices. A different perspective. TO price is a function of NPV/IRR - what you can make in mine development, not in ground value. If your resource is 10 times your competitor, but you can only produce at your competitors production ratel ong term, all other things been equal, market value is not that much different is the point.
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43206079 (points 2 and 3 of this post)
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44521535All IMOOf course I know this is a net present value for that date!, but think covid aside whats changed? Nothing! Delayed?
(20min delay)