Since I was mentioned by Unicrumba,
I really did write my previous post for regular people who don't know how to compute an NPV because this is something that I've recently learnt, and, I thought that it would be helpful for people who like myself are passionate about investing but still have a lot to learn (beyond the hype there are some really nice people on this forum). I wouldn't have invested in Kibaran previously or a number of other mining companies if I knew then how to compute an NPV manually (crude instructions here).
Let me give you an example. This is all my opinion, it could very well prove incorrect, and no-one should make any investment/speculative decisions because of it. I am not an investment professional, I am a student with a lot to learn.
My guestimate (using the future that I think will play out; everyone has a different view; it's a market) is that Kibaran's project has an NPV of $USD5,354,066-$USD40,116,197 depending on whether you use a discount rate of 15.04% (RFR + Tanzanian equity risk premium from Damodoran) or a discount rate of 10% which is arbitrarily used quite a bit.
Here are the assumptions behind my post-tax NPV guestimate:
CF0: -USD$77,500,000 capital expenditure on building the mine (2017)
CF1: USD$0 inflows (2017); I assume that the mine is built by the end of 2017.
CF2: USD$11,524,000 inflow (2018: Syrah has hit full production and is flooding the market; $1000 basket price, 40,000 tons with a margin of $430 (Opex of $570 - could be higher on diesel generators), tax rate of 30%, 3% royalty)
CF3: USD$3,149,000 (2019: Syrah has expanded output with FCFE, basket price of $900, 40,000 tons with a margin of $330 (Opex of $570 - could be higher on diesel generators), tax rate 30%, 3% royalty, minus $8.5M to construct the mains power line).
CF4: This is Year 3 on the graphic below (source):
In my opinion there won't be enough cash on hand (USD$14.67M to fund a mine at Merelani-Arusha so I don't assume that that occurs, I also assume that Kibaran won't have the funds or backers to build a battery facility (I could be wrong on all this especially if graphite prices rise significantly or there's some secret Sojitz plan). With Syrah continually threatening margins my guess is that management would expand output at Epanko to 80,000 tons and focus on lowering Opex. I assume that this is the status quo but that margins are continually under threat from Syrah who as the lowest-cost producer keeps increasing output with FCFE.
CF4 USD$0 inflow (2020: Assume that Kibaran uses $27.87M cash (cash balance plus this years inflow) to expand output to 80,000 tons, a capital raising may be required for additonal capex funding; no rationale for the figure just a random guess; it could be more it could be less; I'm not familiar with any ASX release that specifies how much expansion will cost)
CF5-14 USD$25,192,000 inflow p.a.(Proved & Probable Ore Reserves of 10.9Mt @ 8.6% TGC are depleted after a further 10.2 years. 80,000 ton output for 10 years, Opex lowered to $430 and graphite basket price remains at $900 (optimistic, with Syrah it could be $500-700 like 1999-2004), tax rate of 30%, royalty of 3%)
Post-tax NPV@10%: $USD40,116,197
Post-tax [email protected]% $USD5,354,066
Things that could raise the NPV (not exhaustive):
- A rise in the graphite price
- Merelani-Arusha coming online
- A battery facility coming online
- More offtakes
- Graphite reserves that increase above 10.9Mt @ 8.6% TGC
Things that could lower the NPV (not exhaustive):
- Further delays related to the RAP
- Further delays in financing
- Mine costs being higher than estimated
- A fall in the graphite price
- Opex being higher than expected
- Delays in commissioning the mine
So when Unicrumba implies that I'm trying to down-ramp Kibaran's shares and purchase them at $0.15, this is incorrect, there is currently no price at which I would purchase Kibaran shares based on my personal view of Kibaran's NPV and my risk tolerance. It's great that Kibaran has offtakes for 44,000 tons but it's the discounted cash flows that matter, I'll say that again, it's the discounted cash flows that matter!
I hope that Kibaran does better than I expect (my view is irrelevant and not authoritative) and that the shareholders do well. For what it's worth, I'm more pessimistic about Magnis Resources than Kibaran.
I'd be more interested in reading what everyone else's NPV estimates are and what the assumptions underlying them are. I'd be interested to see Unicrumba's NPV estimates to see what fuels his bullishness. I'd also be interested in seeing: Robbo24, Cazz69, Heeman, Mr Delta, and anyone else's estimate who wants to participate. All the best.
