1.8bn market cap - no, but I suppose it is not impossible - whether it is possible or not really depends on what the 40m bank balance, the new tenements and a big drilling campaign can unearth, but any results here are highly speculative and as you say, would be based not on fact.
Lets have a look at some reasonable scenarios:
As I said in my last post, it appears that spod prices are about 30% ahead of where the company (and the industry) thought they would be and they do not look like they are slowing down. With only known results, I had an NPV of approx 240m and with current SOI had a share price of approx 19c. With current reserve upgrades expected, let's assume we make it to 8-10MT of reserves (total resource does not count for an NPV calc only reserves do) which I think is reasonable - this represents an approximate 35% increase.
So we have an assumed 35% increase in reserves and lets assume spod prices get to 40% increase (which I also think is reasonable given we are at 30% already). With some VERY round numbers and some VERY broad assumptions, we are looking at a 75% increase on the 240m NPV. I am then removing 5% of that due to exchange rate loss. To update my NPV calculations (in the interests of time) I have add 70% to CXO's net sales return (which is basically a calculation of revenue less break even costs per site produced by CXO in the 30 June release last year) at a discount rate of 10%. This returns an NPV of 473m (there is a compounding effect because break even is achieved) and a SP of 39c (market cap of 473m obviously). CXO (and the industry) has been using a discount rate of 8% recently which produces an NPV of 506m or a SP of 42c. A reminder this is based on reasonable assumptions as of right now.
So using NPV(8) we have a potential near term SP of 42c and a market cap of 0.5bn in the short(ish) term. If we look at this from a P/E perspective, and using very round numbers, I am currently working on approximately 60m in profit per year. If we add 40% price increases, less 12% of that in tax, with current pricing assumptions we will make approximately 28m additional per year, for a total of 88m per year. This creates an earnings per share of 7.3c, at a multiple of 10, we are looking at SP of 73c (market cap of 880m) when in production. In the current environment, multiples are running hot and we could see anything up to 20x earnings. Now CXO is not going to see 20x earnings multiples because the mine is only good for 9 years......this is where the 40m and the drilling campaign come in. If the upcoming drilling campaign can unearth a significant increase in resources and we can get to a mine life of 20-30yrs, we may very well get multiples of between 10-20x, which would but us certainly well into the bn market cap range - this could only be a few years away but is much more speculative than the NPV calculation.
The other (and most simplistic) way to look at it is to look at the track between the CXO and PLL SP's (they are very similar - see my last post). By my reckoning, we are about 20c behind them on current trend. They are about 90c (1.4bn market cap), and by that measure, CXO should get to about 70-80c (about 950m market cap) based purely on peer comparison and sector momentum.
No matter which way I look at it, CXO is currently undervalued and is going up, to what level? well that is where we all get to choose our own adventures....
Back to NPV (which is my preferred) and my current assessment: With current supply shortages, renewed interest in the sector, CXO being a major Australian project and the next company to go into production, so much liquidity in the market and very cheap money, our new tenements and a strong geologist team, not to mention heaps of news to come to keep the market interested, I think hype could push CXO well beyond the 40c range (which is fair value) and could very well approach the 800m to 1bn market cap in the next 6 to 12 months - I currently have a target of around 65c (780m market cap).
Obviously DYOR. GLTA
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