In my view the reason that the share price is languishing is...

In my view the reason that the share price is languishing is because in order for institutions to invest in a company there needs to be an objective financial basis on which the investment is made. And we all know that many existing holders are overflowing with shares, having added to their holdings many times over.

A primary factor for an institutional investment decision is up-to-date financial data on the company's assets and earnings capabilities.

That financial data is not available for SFX at the moment because the existing BFSU is outdated, so institutional money is effectively prevented from entering the arena.

The upcoming release of the revised BFS will change this and provide a basis on which new money can enter the SFX market.

The theoretical valuations derived from the updated BFS will determine where the share price settles.

There are 3 primary variables that will determine what price can be justified.

- Net Present Value (NPV)
- funding capability
- discount factor applied due to risks associated with BFS forecasts not eventuating

Given the project variables which have changed since the last BFSU was released I think it's fair to say that we don't know what the new NPV will be. I re-iterate that in this zone of uncertainty, committed buying from institutions will be limited, and they will tend to wait and buy after uncertainty is removed, even if they have to pay a higher price for the less risky asset.

However, for the sake of making a more meaningful post maybe it's also fair to say that the NPV in the new BFS is likely to be in the range of +/- 20% of the previously stated $980 mil.

To hypothesise further along these lines, some more detailed ‘back of the envelope’ analysis of these changed variables have suggested that in the wash-up of all the changes we will end up with more or less the same NPV as previously, ie $980m. An important point here is to acknowledge that only the BFS will confirm this with any certainty.

NPV is one thing, and very important, however the final capital requirements also plays a just as significant role in determining how the SP will reflect the NPV, ie how much dilution will there be and is it fundable, because as we know an NPV of $980m on an unbuilt plant delivers no actual profit.

It is quite feasible that even if the NPV stays the same the capex may increase, in this scenario the NPV would stay the same with an increased capex if some other profit related numbers also changed leading to higher net cashflows.
So, these are the two most important factors in my mind, NPV and funding.

For arguments sake I'm going to pose a hypothetical scenario, if it pans out this way I can envisage a share price holding 65c comfortably, and then having a base to move over $1 from.

Let me make it clear, I'm putting forward a scenario which accounts for a CR, but I'm doing so not because I think this is an inevitability, but rather to demonstrate that even if this eventuates, it is not value diminishing relative to the current SP.

Let's say the BFS offers up an NPV of $980m same as the previous, however with an increase in capital requirements of an additional $25m. This would become known at the point of the BFS is released on the ASX which is imminent.

The next question is how much debt financing will the banks and NAIF agree based on the BFS, and how much equity Gap does that leave.
If the banks are willing to cover the extra $25m capital requirements then there is no new equity GAP. If on the other hand there is a new equity GAP, even of as much as $25m this is not necessarily an issue to existing shareholders or the sp. I'll explain my reasoning:

Once it's known that TB has a freshly calculated NPV of $980m and $478m of the $503m capital is in place, then the last $25m will be raised in a couple of hours over a weekend. I say this because at that point TB is a very different proposition to what it has ever been, and that is just the entry point that institutions are looking for.

So, if it did come to a point where raising $25m is needed (which is only $12.5m for SFX), at what price would $12.5m need to be raised? If we assume all CRs are the same then we might say, it will get sold down to 32c ahead of any announcement and then they’ll want a nice discount so, 25c it is.

But I don’t think this is just any capital raising, it would be the final piece of the enabling process. The current institutional holders won’t be the only form of CR funding once the numbers stack up, many will want a bite of the cherry, the field would have opened up, and on top of that any CR may well be underwritten by YS. This would be a CR which would lead to a sp rise and not an sp drop.Before going further into the potential pricing of any potential capital raising we need a better understanding of what a theoretical fair sp value might be.

The sp expectations I have at various points along the path is based off a core NVS of circa $1.37 (50% of $980 mil / 358 mil shares (assumes additional project equity requirement of $25m, hence a CR in SFX of $12.5m at 55c, ie additional 23m shares)

So, at the point of FID I could understand a sp being let’s say half of the NPS (50% of $1.37 = 68.5c), which leaves room in the sp for a steady climb towards the NVS of $1.37 as production gets closer.

So, if it does come to a CR of $12.5 mil at a time when institutions want to enter the stock, a discount of 15%-20% to my fair value estimate of 68,5c results in a placement price of circa 55c-59c. The above calculations are assuming an increase in capex and a new equity gap, I can see many options, which frankly I see as just as likely, where no equity gap exists, primarily because all capital requirement get covered by debt, or because there is no net increase in the capital needed. Under circumstances where no new equity is required the picture I’m painting becomes even stronger still.

So on this basis, after holding the shares for 10 years, and seeing that in 1.5 or 2 years the price could be $1.50 p/s (or much higher) due to a TO or because the forecast mineral sands supply squeeze eventuates, I'm a very happy holder at 40c, I would not considering selling at 40c regardless of what a stale and information restricted market is doing to the share price short term. And I would say to any interested investor, given my outlook SFX is a strong buy at 40c.

The buying and selling we are seeing at present is likely not much more than those who can’t see the long game upside in this stock and see a rally from15c as a pretty good get out of jail card, especially given the stock seems to have stalled even after good news. Or, the selling is from those in need of capital for other things, those taking money out of the market, or someone trying to trade the stock and make money by selling and buying back in lower because that’s proved to be the way to go in SFX, or, some selling because an online forum post embeds a sense that at 40c SFX is expensive because they will need to raise money. None of these reasons are wrong in themselves, but none of them reflect the potential sp if things unfold as I hope, i may not be reflecting what will happen, but it a realistic way things can unfold.

I am expecting the BFS to be announced imminently, I expect the numbers to impress the market or at least not to disappoint to the extent that the current sp is proved to be expensive. I’d then expect a final divvying up of the capex requirements amongst the financiers (Taurus, NAIF), and only if needed an CR to existing shareholders and institutions at 55c, I could even see YS underwriting such an offering.

I'd like to think the share price after the placement, if one is needed, would open strongly at 65c, and over the course of construction strengthen to over $1 as more construction milestones are met.

Incidentally, regarding corporate costs, my understanding is that all corporate costs for running the JV have been included in the total capital requirements. That means that SFX will have minimal out-goings as they are now effectively a holding company owning a 50% interest in Kimberley Mineral Sands JV. Kimberley will be fully funded through to construction (including all corporate costs, ie management salaries, rent, overheads etc).

In closing, I wouldn’t underestimate how an unloved share price that trades 200T a day, sometimes 35T, can transform overnight and look nothing like it did a day before. The long suffering holders, of which I know @2ic is one of many will hopefully get to enjoy such a transformation sooner rather than later and look back at the unloved days of the SFX share price drifting back in the unending wait for updates, and feel vindicated.

Good luck all, the above is not investment advice, but a transparent account of my relative outlook on the current SFX playing field.