My approach is different from SCE, in that I don't take into account the valuation with dilution , but used a fairly conservative approach so that my price projection remains at a reasonable level.
At that time, I was fortunate to speak to Don and expressed my concerns about the assumptions I used in my valuation, which I sent him a copy for review.
After few discussions and feedback with Don, I felt more comfortable to use those assumptions in my modeling so that I could hope my projections are not too far off from what could provide any brokers in future.
If you looked back at my SDL valuation in June 2010 (re. link below), I valued SDL at $A0.67 for the Base case model, with a multiple P/NPV (hypothetical PE) at 2.5 once SDL in in production, and which gave SDL a price of A$1.675.
When it comes to PE, I remain very cautious in my projection. As I mentioned before, I tend not to look at PE based at spot prices in future, which is fairly a risky method. It's a question of choice, but I would rather provide a PE based on SDL potential growth, which is translated into an increase in p.a production tonnage.
Re. to my SDL valuation for Potential growth (Sept 2010, see link below), I came to a conclusion that my previous hypothetical but conservative P/E ratio around 2.5 marks could be achieved if SDL plans to increase its production tonnage after few years of operations, and it's quite possible considering Mbalam project could be managing 100Mtpa of exports from region. Last SDL AGM presentation (p.2) confirmed the vision of the company to "grow annual iron ore production beyond 35Mtpa; regional potential over 100Mtpa". I also highlighted that at early stage, SDL would be better off increasing its DSO rather than Itabirite, as operation margin looks higher therefore this could reduce project risks.
My DCF for SDL Base case showed that SP could reach the range of $1.30-$1.74, for projections using models 30Mtpa to 50Mtpa, and 30Mtpa to 70Mtpa, a P/E of 1.94 and 2.59 respectively.
