Hi
@marcus A, I imagine the concern you have about the metrics of the updated JV BFS, project finance and timeline are shared by many SFX watchers and probably the reasons why
the stock is trading at such a huge discount to its previously released NPV of around $1 billion. I am confident when the numbers are eventually released, the price of SFX will jump accordingly.
I think the market, while justified in drawing the conclusion that
@2ic has reiterated above (cost pressures), is not fully appreciating what Bruce Griffin, Gordon Cowe and the KMS team are doing in the background. While costs on most inputs are certainly up,
the market is failing to factor in the proposed wholesale changes to the Thunderbird Project which will result in capex savings in excess of the escalated costs. The net result is an upfront capital number equal to or possibly even less than the previous version ($478m).
Other items that were previously upfront capex costs to SFX may also be taken off the balance sheet (ie. built by a third party and form part of the opex instead). Given the impact of discounting on this future opex in the NPV calculation and the market's disdain for upfront capital at times, this may also yield a more favourable outcome for SFX investors.
This dovetails into the issue of timing of BFS release and what I believe is a definite benefit to shareholders of SFX (even though they may not realise it yet). As you may know, EPC contracts will often build in contingency costs to protect the contractor from risks associated with construction.
The more detailed engineering work SFX can complete prior to going to pricing with GR Engineering Services, the lower the risk and the lower the contingency buffer they will build into the price. The end result is that SFX/KMS achieve potentially significant upfront capex savings.Such engineering 'work' prior to pricing has only been possible due to pushing the BFS release date back to the end of this year instead of May when most had anticipated. SFX had already missed the window to commence processing plant construction in the current dry season but it provided them with valuable time to reduce costs in this way. Importantly, the time delay has not wasted this dry season as they have still been able to proceed with infrastructure works which always needed to be done prior to plant construction. This way everything will be ready to hit the ground running in April at the start of the next dry.
As a medium to long-term investor in value companies, I've come to realise that some amended timeframes can actually be to our benefit. Personally, I am not concerned even if SFX push back the release of BFS into Q1 2022 if it means capex is ultimately reduced, NPV is increased and the project funding is fully covered by the existing KMS JV equity and project finance. I also have some thoughts on the potential upside in relation to changes to project finance with NAIF but that's for another post at another time.
(20min delay)