Not a big surprise that all approvals have now been granted to Adani for their coal mine. Why would anybody have thought that the Australian government would've blocked such a landmark investment by an Indian company that would result in local jobs and taxes?
Anyhow, now that there is no doubt about this any more let's revisit what Linc's royalty stream is worth.
The calculation below shows my assumption on coal production commencing three years from now (August 2017) and ramping up slowly to full production by 2021. I applied a 12% discount rate on the Net Present Value calculation and I think that is conservative given that the project now has all approvals and given the corporate worthiness of a giant like Adani.
According to my assumptions I work out that the Adani royalty is worth $556 million today. This is would be higher with quicker production assumptions or a lower discount rate (e.g. $674 million with a 10% discount rate and all else being equal).
Now given that this royalty is an asset that isn't encumbered by any debt, it is quite absurd that Linc's market cap is not worth much more that this royalty alone. That would mean that the UCG business, Alaska, Arckaringa and New Emerald Coal are all valued at close to nothing with last week's share price. Personally I think these assets are worth much more than nothing!
I hope that Linc don't monetise this asset and instead choose to keep it for the royalty cheques that we'll receive for doing nothing! In any case we can be certain that as of today this is worth much more than half a billion dollars to Linc and that value will increase as Adani gets closer towards producing coal.
|
Column 1 |
Column 2 |
Column 3 |
Column 4 |
Column 5 |
| 1 |
|
|
Tonnes |
$ per tonne |
Royalty NPV |
| 2 |
|
2014 |
- |
|
$555,814,514.85 |
| 3 |
|
2015 |
- |
|
- |
| 4 |
|
2016 |
- |
|
- |
| 5 |
1 |
2017 |
10,000,000 |
2 |
20,000,000 |
| 6 |
2 |
2018 |
23,000,000 |
2 |
46,000,000 |
| 7 |
3 |
2019 |
35,000,000 |
2 |
70,000,000 |
| 8 |
4 |
2020 |
48,000,000 |
2 |
96,000,000 |
| 9 |
5 |
2021 |
60,000,000 |
2 |
120,000,000 |
| 10 |
6 |
2022 |
60,000,000 |
2 |
120,000,000 |
| 11 |
7 |
2023 |
60,000,000 |
2 |
120,000,000 |
| 12 |
8 |
2024 |
60,000,000 |
2 |
120,000,000 |
| 13 |
9 |
2025 |
60,000,000 |
2 |
120,000,000 |
| 14 |
10 |
2026 |
60,000,000 |
2 |
120,000,000 |
| 15 |
11 |
2027 |
60,000,000 |
2 |
120,000,000 |
| 16 |
12 |
2028 |
60,000,000 |
2 |
120,000,000 |
| 17 |
13 |
2029 |
60,000,000 |
2 |
120,000,000 |
| 18 |
14 |
2030 |
60,000,000 |
2 |
120,000,000 |
| 19 |
15 |
2031 |
60,000,000 |
2 |
120,000,000 |
| 20 |
16 |
2032 |
60,000,000 |
2 |
120,000,000 |
| 21 |
17 |
2033 |
60,000,000 |
2 |
120,000,000 |
| 22 |
18 |
2034 |
60,000,000 |
2 |
120,000,000 |
| 23 |
19 |
2035 |
60,000,000 |
2 |
120,000,000 |
| 24 |
20 |
2036 |
60,000,000 |
2 |
120,000,000 |
