buy at 6, page-20

From BBY's analyst.


My new MMX valuation is A$9.04/sh which includes the Mitsubishi deferred payment equivalent to A$3.97/sh.



My calculation is shown below.



MMX - valuation



Base case valuation at a discount rate of 9.88% (WACC of 7.88% plus 2% for approval and environmental risk) A$5.07/sh up from A$4.40/sh for its 50% share of the mining and infrastructure project.



Deferred payment - Mitsubishi has agreed to pay MMX to earn a 50% equity interest in the project before construction commences in Jun H.'09 a sum based on the NPV of the project less half the initial payment of A$150M. We value the project (100%) at A$4,158M at a discount rate of 9.88%. MMX could receive a payment for 50% as follows:



Project value (NPV) A$4,158M (Dec.H'08).

Initial payment A$150M

Equity contribution A$800M assuming a capital cost of A$2B for the project



Mitsubishi payment = (A$4,158-A$75-A$800M)/2=A$1,641M.



Discounting to Dec.H'07 =A$1,481M Fully diluted= A$3.97/sh.



Valuing MMX at A$9.04/sh.



However this valuation doesn't include.



Third party rail user revenues, which could provide significant new revenue for the partners.



Strong BUY