Everyone appears to be accepting the Target's Independent Valuation report at face value - I can tell you that a number of things in and implied by the technical report vs ASX announcements for Foxleigh do not add up.
1. In particular, take a look at the 2017 quarterly activities / production reports and average the ROM strip ratio against what SRK have reported (8.4:1). In September and December quarter of 2017 ROM strip ratios were in excess of 10 : 1 (11.3 and 12.4 : 1 respectively). Either Foxleigh is doing a lot of additional pre-strip while prices are high to relieve ratios for the projected easing of PCI prices in coming 18-24 months of the overall strip ratio for coming years is a lot higher than what has been projected.
2. The projected cost savings for the high side valuation are almost certainly overly optimistic as well - I'd stick to the base case (which includes the approved 3 year business plan case) for assessing any potential valuation. E.g. overburden UNIT cost savings projected of almost 19% without reasonable justification. Other opex savings levels of 4.5 - 8.2% are projected. However Woodmac and others are telling the market that generally costs are currently RISING for most operators (and are expected to continue to do so). The only reasonable basis for UNIT cost reductions will either be through increased productivity for overburden and coal mining and/or increased ROM / product tonnes or throughput for the other areas - and this latter aspect is NOT included in the 3 year business plan forecast by management.
3. Coal price, inflation and forex assumptions - these are clearly stated in the expert report. I often refer to the forex and coal price by coal type concensus reports compiled by KPMG :
https://home.kpmg.com/au/en/home/insights/2018/02/coal-price-fx-market-forecasts.html for assessing the "reasonableness" of anyone's assumptions. Comparing the Independent report to the December17/January18 KPMG concensus range and average then the Independent valuation attributes a much higher 2018 - 2021 value to PCI coal than the concensus but 2022 and LT pricing is OK / similar. Essentially the independent valuation IMO is OVERVALUING the near term production 2018 - 2021 which materially inflates NPV.
4. Basic multipliers. If you add the mine and it's associated exploration tenure together then you end up with the independent expert valuation of A$341-412 for 70% basis. This is A$487.14-588.57M on 100% basis. 100% JORC Resource is 154.3 Mt, Marketable Reserve 49.1 Mt. Implied Resource multiplier is then A$3.16-3.81/t (3-4 x precedent transactions) and Marketable Reserve multiplier A$9.92-11.99/t. These are well above some of the more recent exorbitant transaction multipliers. Another indicator is the transaction price per annual ROM or product tonne - the business plan forecasts around 4.6 Mtpa ROM and 3.2 Mtpa product, and so multipliers would be A$106-128/annual ROM t or A$152 - 184 / annual product tonne. Assuming that you accept the projected production forecast, then for PCI coal this is at the higher end of the reasonable range, with the risk of any production shortfall against plan raising the transaction multiplier into the "too much" range.
In summary, my view is that Taurus offer is definitely too low, but Target's independent valuation report values are too high (Enhanced Base Case) or at the absolute top of the valuation range (Base Case), and that something in between is far more reasonable.
