big c, page-30

Stefanis,

I "chose" 9.88% as it was a number my lecturer used when describing how to do a sp NPV calc. It really was that simple.

I agree that the WACC number can go either way.

I could "bump" up the risk free return from 400 to 600 bp. I can get 6% in a term deposit, which is what I used in one of my scenario's.

WACC has been described to me as the risk/return reward. i.e. if I had to put my own money in it, what return would I expect?

So, 6% could be much too low, but is 10% too high? In the base metal commodity game, we have all learnt that there is high risk (Rio and Alcan come to mind).

I keep coming back to a WACC number of between 6% and 10% for OZL. I am tending to the low side though for a number of reasons.

1. Sovereign risk is low - copper is not in the MRRT and SA is mining friendly. (from a Labor govt) - (I do not see the Libs changing that position. Both parties realise that mining and tourism is the state's future, not manufacturing)
2. P Hill is in the lowest quartile of mine costs due to the high Gold and Silver by products credits.
3. Although C will be an u/g mine, I am proposing that it will have C1 cash costs commensurate with P Hill due to the Gold, Silver and U by products credits. I am assuming that the U will not be a nuisance to the mine, but rather a valuable resource.

These 3 points, IMO, lower the risk for OZL. If copper tanks, OZL will be one of the last left standing. No debt, cash reserves, and P Hill is cash positive (total mining costs - D & A is $1) even when copper hit approx $1.20 during the GFC.

If they use cash flow to do the capital development, there is no debt risk. OZL may be criticised for having a lazy balance sheet, but I am not hearing any of that from the analysts.

So I do not know whether I have answered your question stefanis. I am happy to discuss more.

Readers of this thread though need to be aware of the sensitivities of the sp around assumptions that can be argued either way.

HT1