CLE (ASX) Ann: Cyclone Metals and Vale execute Development Agreement

Originally posted by That Fundamental Guy: ↑

@Natalina - Whilst I like the comparison to RHK, my suggestion is to look at the value of the company first, then the number of shares on issue and then value per share. The value of the company can be referred to as its market capitalisation, being the share price times the number of shares on issue. The number of shares on issue will be different for every company.

RHK has approx 200M shares on issue and at FMG's offer of $1.20 per share, that valued the company at $250M. I note that the NPV of their Blacksmiths project was $523M (prefeasability study) and therefore FMG was prepare to pay around 50% of the NPV for the project.

Below is a copy of what I have previously posted (with a couple of small edits) which includes comparison to Champion Iron CIA that you refer to also. Hope that helps.

--------------------------------
Here are some pretty rough back of the envelope calculations (only so it seems more than a bit of a guess).

@Inzaghi88- has crunched the numbers on the NPV of the ramp up to 100Mtpa on this post.https://hotcopper.com.au/posts/77045962/single

Inzaghi88 got to an NPV of $29.55B - whilst I don't think its in the post, but I am assuming US$. However, to be a bit conservative, let's call it AUD$20B (so basically halved the detailed estimates which seemed fairly reasonable without checking the math). I know that $20Bn seems like a big number, but to put it into context, CIA are producing 14Mtpa in the same region and have a market cap of AUD$3B, so not unrealistic something producing 7 times as much could be worth 7 times as much. However, that $20B is the market cap for a producing mine.

If the NPV works out to be $20B, then at a decision to mine stage (after completion of BFS etc), the project could be worth 50% of that, so $10B.

At that stage, Vale will have 75% of the project, so CLE's 25% could be worth $2.5B. But we are far some that stage. To get there, Vale will first spend $18M before deciding if they wish to spend another $120M to get to DTM stage (Decision to Mine). I read somewhere that Vale and CLE have already been working together six months (prior to the MoU). Therefore, I think reasonable probability given Vale's experience that they intend to proceed unless there is some significant and unknown factor that has not been covered by their due diligence. To support the probability of a decision to mine, I note the high purity iron that it will produce is needed for green steel and the Canadian government have recognised high purity iron as a critical mineral - so the demand will not go away for the product.

Therefore, if you give the project a 1 in 5 to 1 in 10 chance of getting to a decision to mine, then 10% to 20% of $2.5B is $250M to $500M - I note that I would not normally give that probability of getting to a DTM for a project at this stage, but given Vale's involvement I think it is reasonable.

There are 1,066 million shares currently on issue, plus around 400 million options, so let's say 1,500 million shares fully diluted to a DTM.

Therefore, $250M to $500M market cap divided by 1,500 million shares on issue equals 16.5 cents to 33 cents per share being not unrealistic in the short term - especially after CLE have their booth at RUI Explorers Conference next week and words gets out.

Like I said at the start, a rough back of the envelope calculation, but some numbers are better than none.

Expand

I think $20bn is very optimistic. I also think Inzaghi88 NPV $29.55B is incorrect, I couldn't see any shipping costs in their workings.
Vale last quarter had all in costs to China for $63.30 USD. Which included $20.60 USD in shipping alone to China.

Cyclone still quotes $35.6 USD/t BF Concentrate OPEX from a 2013 Preliminary Economic Assessment.... 2013!!!
Champion Iron was operating around $100 USD all in costs to China last quarter.

I think investors should be a lot more conservative with their assumptions until more details are provided.

No.	Vol.	Price($)
2	68807	5.9¢

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68807

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6.0¢	344295	4

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344295

No.	Vol.	Price($)
2	68807	0.059
3	590000	0.058
1	412900	0.057
2	908901	0.056
5	300334	0.055

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68807

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412900

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300334

0.055

Price($)	Vol.	No.
0.060	343986	3
0.061	100000	1
0.062	200000	2
0.063	200000	2
0.064	116384	2

Price($)

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343986

0.061

100000

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200000

0.063

200000

0.064

116384

(20min delay)
Last 6.0¢		Change 0.002(3.45%)		Mkt cap ! $64.83M

Open	High	Low	Value	Volume
5.8¢	6.0¢	5.8¢	$111.6K	1.889M

I think $20bn is very optimistic. I also think Inzaghi88 NPV...

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