Ann: Quarterly Activities Report, page-12

Agreed - the first layer of corporate thinking and advice given would be to convert the money into cash as early as possible, however sufficient liquidity still needs to be maintained so Delta is sustainable through economic cycles. Higher cash earlier may only result in slightly higher interest earnings if that cash still needed to be held as cover for low price periods. If the same discount rate is applied (and it is the same project) then mining the ore earlier would generate a higher NPV, shareholder value etc. BTW, if the intention was to mine through the price cycles then the simple arithmetic isn't quite as simple.

But that's where it gets interesting. If you look at the two time series below, they both relate to extracting 420 units of profitability. Between the two I've made one change and assumed there is 80 units worth of really cheap, early availability ore. In the mine first scenario these are used to get some early cash flow. NB: I haven't complicated it with differential interest earnings. When a period of low prices occurs in period 4 and 5, profitability crashes. I suspect the share market may take a boom-bust share price approach to the earnings and the share price would be trashed in period 4.



Under the delay mining those ore's period 1 and 2 are lower while period 4 and 5 profits are higher. The overall profitability series is more stable. By period 6, I'd suggest that the market would probably be applying a higher earnings multiple to the 2nd cash flow series than the first, despite being the same absolute total to that point because there is less variability and therefore less risk. What I'm not sure on is how much more valuation would accrue and whether that is enough extra to mean shareholder value is enhanced by delaying mining some cheap ore. Industries with "stable" earnings like utilities certainly get far higher PE ratios than mining stocks. Big mining stocks can have higher PE ratios than small one's because their multi-deposit/multi-commodity nature creates at least some earnings stability.

CE has created MinRes with five key areas (Mining services, Engineering & Construction, Iron ore, Lithium and Energy). What's less clear is whether these different divisions are because they work well as a group, or partly because they assist earnings stability as individually each can have up and down cycles, but collectively they are likely to generate more stable earnings and assist a earnings multiple and therefore share price.