DYOR. Not qualified for advice.
Note - in the estimates below, I have assumed full dilution from the 3 tranches of finance immediately, I have also factored in dilution from other entries shown in the 3B. This is indicative but to represent share price estimates that take into account dilution and hence provide for conservative estimates.
The following conservative P/E assumptions are used:
- 2017 - P/E of 8.0 at 50% of Gemfields PLC P/E in July 2017
- 2018 - P/E growth of 40% on 2017 figures
- 2019 - P/E growth derived from earnings per share growth
On USD $200/ct and based on current share price and Mustang forward plans, we have a 10-bagger during 2017 and a 20-bagger in 2018!
With just
5 weeks to go to the maiden auction commencing 27 October, the
21 September 2017 ASX announcement reveals forward production plans for the next 2 years. Based on the forward plans, I have run new cashflow projections using the following deliberately conservative assumptions:
- 2017 - 1 auction of 330,000 carats is assumed with an 85% clearance rate
- 2018 - 2 auctions of 350,000 carats are assumed with 90% clearance rate
- 2019 - 3 auctions of 350,000 carats are assumed with 90% clearance rate
Once we have more information on specific auction inventory size or production targets, the projections will be updated. Taking into account the above assumptions, share price and cashflow estimates are shown below. The remaining assumptions are at the bottom of this post.
My earlier
conservative analysis of inventory value determined an average of USD $201/ct for the first auction and USD $242/ct for the second auction.
This indicates a shareprice estimate at approximately $0.258 based on the first auction only (and
excluding graphite), leading to a market capitalisation at $185M. Assuming USD $200/ct is consistently achieved then based on auction plans and share price estimates
a Market Capitalisation of $1B to $1.2B is estimated for years 2018-19.
View attachment 740079
Cashflow projections through to the end of 2019 are below:
View attachment 740082
The first column of the analysis duplicates the assumptions used in the May 2017 Independent Investment Research Report. All assumptions about costs and overheads are based on rates and amounts used in the IIR May 2017 report., except for payments to artisinals. The Hartley’s report from July 2017 has USD $6/ct to USD $10/ct so I use $10/ct as a conservative figure.
The following are the other core assumptions:
- For each carat recovered by plant there is one tonne of ore processed to arrive at mining costs.
- Carat Recovery
- Year 1, 2017 - In year one, 90% of carat recovery is from Artisanal Development Program and 10% from plant due slow progress is ramping up plant operations.
- Year 2, 2018 - I use 90% from artisinals from auction 1 and 50% for auction 2 ( or 70% for the entire year).
- Year 3, 2019 - I use 50% of carats from artisanal development program.
- Mustang will use 3 tranches of finance and terminate the remaining finance. The cost of finance termination is only in the first year.
- Year 1, 2017 - I assume just 330,000 carats at the October auction with an 85% clearance rate by volume of carats. These are chosen as conservative estimates.
- Year 2, 2018 - I assume 350,000 carats tendered at each of two auctions with a 90% clearance rate by volume of carats. These are chosen as conservative estimates, however improved clearances are assumed as the buyers will be more familiar with the tender process.
- Year 3, 2019 - I assume 350,000 carats tendered at each of four auctions with a 90% clearance rate by volume of carats. These are chosen as conservative estimates.
- I have assumed dilution associated with the 3 finance tranches has already occurred and then I apply additional dilution for 2017, 2018 and 2019 based on the information in Appendix 3B.
View attachment 740085
These are the indicative figures I used for dilution. The highlighted cells are the ones used for 2017 (and 2018) and then 2019.
View attachment 740097
Any questions, just ask!
