Great summary and thanks.
The other key one is the internal rate of return. The IRR is the discount rate you apply to the cash flow generated year on year that makes the NPV = 0%. And that number is a whopping 174% in the SS (I assume here it is also pre tax as the NPV of $413 is pre tax as well).
The way to understand IRR is that if the IRR is greater than your hurdle rate of return then the project is a goer and you (been either the company, financiers etc etc) would be willing to invest in the project. The discount rate is in effect the opportunity cost you want met for investing in the project rather than you investing elsewhere.
In the SS they use a discount rate of 8% so it is obvious at a company level (i.e. it is their discount rate) that IRR is significantly significantly > than the 8%discount rate chosen, meaning the project will be funded.
From a private investor point of view (i.e. talking about potential financiers), historically hurdle rates were around 10% - 15% mark for them so again obviously a financier will also provide the finance here if asked. As, hurdle rates are generally derived from a WACC based approach (where you consider debt and equity) and given where the long term bond rate has been going most WACCs these days IMO would be closer to the 8% - 10% mark anyway, but historically WACCs of 10%- 15% have also been used -
https://corporatefinanceinstitute.com/resources/knowledge/finance/hurdle-rate-definition/And for the record IMO no need for ADN to ask for 'external finance from say bankers' as I suspect there will be equity for Offtake Agreements here. And also when the oppies here are converted, suspect these additional monies are likely to also go into the bucket for the overall $25 million capex spend ($9 million in year 0, and $16 million working capital to month 3 of year 1). In other words if they do require some external funding from say banks it won't be much IMO, but right now my gut feeling is they will not need any finance outside the equity for Offtakes (which includes the prepayment option if that is the way equity will be provided) and options conversions.
This data above is in Table 1 of the SS -
https://www.andromet.com.au/images/uploads/reports/20190930_Scoping_Study_FINAL.pdfWhich now takes me to what a post tax NPV and IRR might be. It would appear to me the pre tax NPV reported uses EBITDA, but given the capex costs here are low there wouldn't be much depreciation in a post tax based NPV for ADN. However, from a tax perspective, there will be IMO be some carry forward losses to considered, and or how you deal with capitalised exploration expenses incurred prior to production (i.e. what has been happening last few years). In addition, I am also referring to here how they may use some of their carry forward losses they have essentially accrued prior to first production. In other words, whilst pre tax NPV is $413 million, at worse I doubt it would be lower than $300 million on a post tax basis, infact will be higher than this given carry forward losses mean you don' pay tax in the first year or so here IMO when production starts (i.e. just a guess). At a high level, your post tax IRR would also be no lower than 122% IMO, a remarkable result here IMO.
All the above noting the conservative nature of the modelling itself in the SS, which many including James of ADN have spoken about.
The payback period here is exceptional.
Obviously in the short term (given production is slated for 2021) and these days investors wanting rocketing SP in the now the impact on SP is likely to be a slow upward trajectory IMO for the next 6 months or so with some peaks and troughs as the LOIs for example get converted to binding Offtake Agreements (with or without and equity injection). So between now and the date production starts I expect a number of emphatic debate on these threads around daily SP movements on a TA basis, which I will simply observe over a cold VB, but the FA basis here is strong IMO and IMO the DFS IMO will still certainly show strong results given where the SS NPV numbers starts from, which I posted about the other day: Post #:
40633288Longer term, when production starts, and assuming prices remain in line with the SS well those who hold through this period to then will be rewarded IMO IMO IMO. And this is before we talk of subsequent expansions into other areas not covered by the SS been HPA and nano in the future after DSO/kaolin processing operations start here (assuming that subsequent DFS's for HPA after production starts here also come in positive which IMO it is most likely to do given EV demand - Post #:
40473743).
Speculation on a Saturday and all IMO IMO
(20min delay)