my plv model

A number of posters recently claimed that PLV's mine was not economical because of the $700million capes and the cost of production. Nothing could be further from the truth! Here are some rough, but I believe conservative figures I did in bed this morning. I think these show just how undervalued our company is and that it most certainly IS economical to mine, even with the POSSIBILITY of a decline in the iron ore (IO) price in future years, which may or may not happen.

My Model Assumptions:
1. PLV borrows $700 million from JV partner at 7%p.a. interest. For simplicity I've compounded the interest yearly rather than daily. This is conservative as Tony expects us to be able to get the Capex lower than $700 million.
2. For simplicity assume that the Aussie dollar and US dollar are at parity. I think this is fairly conservative as the dollar is expected to weaken in the long term which would be beneficial to PLV as an exporter.
3. The iron ore price declines over the coming years to reach a stable value of $100 per tonne (see my actual figures used below). I think the numbers I have used are pretty conservative given that PLV will get a premium for it's high grade concentrate.
4. PLV produces at a cost of $74/t including royalties.

The very simple modelling is shown below. I've assumed that in the first years of operation, all earnings are used to pay down debt. This shows that PLV start to return a profit in it's 3rd year (of a 20+ year mine life) in 2016. Remember I am using very conservative numbers here, there is potential to pay debt off quicker if the IO price is better than I have assumed (as is the case in the PFS, which is also considered conservative).

Year Debt ($m) Interest ($m) Earnings ($m) IO Price ($/t) Profit ($m)
2014 700 49 334.4 150 0

2015 414.6 29.0 290.4 140 0

2016 153.2 10.7 202.4 120 38.5

2017 0 0 151.0 110 151.0

2018 0 0 114.4 100 114.4

2019 0 0 114.4 100 114.4

etc. etc. etc.

For those of us that have bought in for the long term, the economics look VERY good. Even with very conservative numbers and at a P:E ratio of 10, we would expect that the market would value the company at roughly $1 billion. Assuming that the partner takes a 20% stake, shareholders are left with roughly $800 million of equity. Current Market capitalisation is roughly $50 million, so we should be looking at roughly 16 times the current share price or $0.28x16 = $4.48 per share in 2018. How does this stack up as an investment?

Well, if you buy PLV in 2011 at 0.28 and sell in 2018 at say $4.48 gives an annual return on investment of roughly 48.5%p.a. compounded annually. That is a phenomenal return! It's a screaming BUY! Even if you bought PLV shares at $0.7 in 2011 and sold at $4.48 in 2018, you are looking at a return of 30%p.a. compounded annually. So why were people selling? Did they even do the calculations? or are they all sheep, following what everybody else does and worrying about the charts too much. I have not intention of selling my shares any time soon.