I've got to disagree on a number of points here (I work in project / company finance, building models, valuations etc.) and deal with financiers for a living.
Firstly, I do agree an 8% DR is low, however absolutely not unreasonable - I've valued companies in very similar situations to this (i.e. early stage pre-production) and a ~10% DR was used in multiple instances, noting these companies (like ADN) have existing offtake agreements, permits, good cash balances etc. that all act to de-risk the asset. The 20% DR you mention is exceptionally high and is what we might use when valuing a start-up that has no existing agreements, assets, customers etc. and might sometimes increase this to 25%. Obviously ADN is not such a company.
28 year life is completely reasonable and within a usual range adopted by financiers (generally between 20 - 30 years for such a company), particularly in light of the 35 year mining lease and size of the mine. There would be a VERY marginal difference in NPV if we take out the last eight years, as the DR has accounted for the inherent riskiness (i.e. uncertainty) of these cashflows you will find these annual cashflows to be small.
I'm unsure why we would take the NPV of individual stages? A financier doesn't specifically care what the NPV of, they just want to know the cashflows available for debt servicing (there will likely be a refinancing occurring within a few years anyway as interests rates will be lower and the company will be more mature).
Finally a five year payback on all stages' capex is great, given the projected timeline.
Anyway, just wanted to give my 2 cents.
ADN Price at posting:
3.1¢ Sentiment: None Disclosure: Not Held
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