VR8 (ASX) Ann: DFS delivers A$1.9BN NPV confirming World Class Project

Originally posted by Scarpa ↑

Thanks @Jdmoney for picking it up so redoing post.

I am pretty stunned with the DFS, and probably more so with IMO lack of appropriate market response. Possibly it may because of the discount rate assumption of 7.5% in the DFS or $9.50 V205 price when the price is currently lower than that, but regardless even with a higher discount rate and lower price (as per sensitivity analysis) this project is highly profitable IMO assuming the capex and cost estimates come in as forecast.

On WACCs, maybe a better number to have used was 8% - 10% as per this post in another thread -
Post #:
63749800

Anyway, ultimately hitting milestones in production does have an element of luck in that variables/outcomes can change, but if the variables and project comes in as scoped then there is a lot to like here IMO (hence the risk reward equation for long term holders here)
.

A key will be the number of shares on issue here, so I took the Free Cash Flow and NPV assumptions and converted them to an annual basis using 25 year mine life here. I used initially 500 million shares (i.e. current shares on issue) and then doubled that as a hypothetical to account for say project funding etc etc

Note that DFS has US variables, so a key is also to convert to A$ which I did as well. I have used 75c, instead of there 63c btw (which lowers the A$ value), as I suspect 63 c might be a bit low too. The EPS and NPV numbers as convert to SP are on the VR8 share of the project.

1... 500 million shares

2. 1 billion shares

I see a combination of probably debt/equity funding in terms of the capex, but this is the key, raising at a higher SP also reduces dilution but also if the market believes you will go to production.

Obviously the above just paints a picture and the key is around whether the market believes in these variables. In any event, with such a large IRR, my personal view is even if the IRR was reduced to say 30% meaning (through say a higher discount rate and lower price), the impact on SP will still be significant IMO if the cost and capex assumptions come in as is. The fact the cost assumption is US$3.24/lb, is a a clear positive here.

Maybe the issue here is market belief as well in that they may not think the project will get to production. Binding offtakes will change that perception. Right now IMO VR8 SP is essentially a function of NPV without any P/E ratios to that NPV which pretty well IMO shows the market has not fully digested this DFS (or doesn't believe VR8 will get to production, or in production in its assumed timeframe). Once the market believes the project is a goer, it will transition to a combination of NPV and EPS pricing or even NPV with P/E ratios running through it, which means a higher SP. Obviously if this project yields the numbers in its DFS i production SP will be multiples of where it is now. Obviously that is the risk reward equation here, and free carry strategies this side of the market are always a good thing IMO.

An interesting DFS and certainly looks good for VR8 but binding offtakes will certainly make the market believe here. Time for a nice cold VB, and actually I had one writing this btw. Still a way to go here but at face value remains an interesting prospect. Funding and shares on issue always a key to EPS calcs as well.

All IMO

Expand

I have been following a number of Australian listed vanadium explorers (hopeful producers like VR8) and had been waiting for this DFS.

The numbers are stonking.

One word of caution is that the USD/AUD exchange rate assumption is $0.64 and that is likely to be unsustainably low.

I will follow this with great interest. It seems VR8 may be in a race with AVL to be the quickest to profitable production .

For transparency I own SRN which has a reasonable vanadium project in WA though way off the pace to production.

Cheers....D

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