Ann: Notice of Extraordinary General Meeting/Proxy Form, page-9

The expert reports are tick-box exercise to supplement the governance decision. The BDO report seems robust but has one main flaw in my view and hence is undervaluing the value of the put option:

1) For the valuation before the Put Option it is using the following assumptions:
a) A DCF based approach using a real WACC of 13-16%
b) A 15% haircut to the DCF valuation based on a discount for lack of marketability/control
c) A 20% haircut to the DCF valuation for perceived dilution and funding risk

2) For the valuation after the Put Option it uses the following assumptions:
a) A DCF based approach using a real WACC of 13-16%
b) A 17.5% haircut to the DCF valuation based on a discount for lack of marketability/control
c) Nil discount for dilution / funding risk

The overall WACC of 13-16% in the Put Option scenario seems too conservative. The cost of debt of that scenario is secured at SOFR + 5% so 9.5% all-in (nominal to ~7.5% real). Assuming 50% is funded with debt and 50% with equity would imply the equity return is 18%-25% in real terms which is probably on the high side.

The other point I would say, the WACC for Xanadu shareholders might be 13-16% real. One thing is certain, the WACC for Zijin is nowhere near that level. It's probably 8-10% real. One broker for example values Zijin at 8.7% WACC (nominal). So the value for Xanadu's share in Kharmagtai in Zijin's eyes is much higher as they will discount the cash-flows at a lower rate. Every 1% movement in the WACC in the post put option exercise is another $10m of value. So the range of value at an 8-10% real as opposed to 13-16% real would be: $133m USD at 10% and $151m USD at 8%. This is more where I expect things to end up, 10c-12c per share.