I guess I was the last person from HC to contact Don before SDL tragedy. Something that are still fresh in my mind and all I can say is I owed Don so much for his help...
The figure of Capex2 should be around US$2,800m but not US$4,200m, which is given in nominal form from SDL IP (June 2010).
I have notified the above change through the following post...:
"....Just to give you an updated figures of my SDL modeling (June 2010). Note that while Don has not gone through my modeling in detail (I sent to Don my SDL Modeling last week), and whilst being limited to information already in the public domain, Don has kindly provided me with the following feedback in regard in my queries:
1. CAPEX2 for phase 2 Itabirite that I used in my first modeling is correct and it should be US$2,800m but not US$4,200m, which is given in nominal form from the last SDL IP (June 2010).
2. OPEX for Itabirite should be the one indicated in the Cashflow slides (re. SDL Nov 2009 AGM), which is US$37/t (expressed in real term), a value above my estimates of $US32/t.
3. Don indicated that interest rates of 10% I used, are reasonable if using traditional western project finance, however debt terms are achievable if strategic partners aligned with sovereign wealth funds are secured (e.g from China, Japan, or similar).
4. Don also indicated that the selling price assumption I used for concentrate is consistent with what SDL have published: recall the FOB price I used for Itabirite Concentrate = US$66.30/t. This is based on Sinter Fines FOB Price Forecast (SDL Investor Pesentation June 2010, P12),of US 102 cts per dmtu, and considering the Ore Feed concentrate of +65%Fe, the price per tonne can be determined as following: 102 * 65 = US$66.30
Based on the above, I have updated my modeling and came up with the following estimates, considering the following change in the assumptions:
1. CAPEX 2 for phase 2 Itabirite = US$2,800m (changed from US$4,200m) 2. OPEX for phase 2 Itabirite = US$37/t (changed from $US32/t)
To stay on a conservative side, I still consider using interest rates of 10%, until I know more about conditions of SDL funding.
Base DCF model NPV = US$1,693m (previously US$1,695) NPV per share = US$0.60 = A$0.67 IRR = 22%
Note: The benefit of having a lower CAPEX2 Itabirite (SDL Nov 2009 AGM) has been cancelled out from a higher OPEX of Itabirite. As a result, there is no change in target price for the base model (A$0.67)...."
Curiously I noted that SP hit its highest mark at A$0.665 on the 5 Jan, before a retrace.
Through my various DCF models and considering a Base case scenario, SP could go up significantly if SDL plan increasing its production tonnage as following:
