The post tax NPV is not great at USD220m (around AUD280m), mine life is a bit low for the extension of only 8 years after a capex spend of USD160-170m (versus the 2020 estimate of USD130-150m), payback period for capex looks OKish, IRR looks good, gold price assumption (USD1500/ounce) is reasonable to conservative given the time frame.
Obviously if the USD POG heads towards $2000 and stays there then this could be a pretty valuable asset. They should have provided a sensitivity analysis for the NPV based on different gold price assumptions. I note that MML used a gold price assumption of USD1750 in its most recent gold reserve estimates.
The biggest problem with this project is getting timely approvals from the PNG govt and certainty about the taxation/royalty levels for the mine.
SBM will have a big capex spend over the next few years with Simberi and Atlantic Gold mines - a lot of things will need to be juggled that will occupy management time and limit funds available for other M&A activities/dividends. A higher gold price would help a lot, and the Gwalia mine will have to be firing on all cylinders spitting out cashflow.
loki
SBM Price at posting:
$2.04 Sentiment: None Disclosure: Held
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