Hi SDL holders,
Like many I've been pondering when is the buying signal or when is it safe to jump back in.
While SDL is a world class project but in the absence of funding there are risks. You can't argue against those sitting on the sideline.
However, IF SDL announces in the near future that EPC funding is achieved (via PRC sovereign loan) then the project will move towards being fully derisked.
Because EPC Finanancial Close DEPENDENT on Mine Financial Close, a funded EPC would mean mine funding (via equity sale) will also be achieved.
Regardless of the % of mine sale, SDL valuation could potentially soon be ascertained using the $$ value of Mbalam-Nabeba from equity sale.
With a derisked project via funding brokered between Africa and China, I start to think about the stock valuation (rough - back of the napkin variety).
While current real world data suggests Mbalam-Nababa being tier-1, strategic with huge growth potential and crucially ready-to-go could command billions because China and India are both running out of options (recently China was knocked back by FMG for a stake in Chichester reported to be $2 Billion at 20%, China's $1.4 Billion 50% JV with WPIOP mothballed, India dumped $11 Billion Afghan IO project, Simandou frozen in time and firece fight over Wologisi - an exploration target with no defined resource).
For the exercise, I want to use very conservative numbers even given the presence of the Friendly Countries (which I tip to be the Jindal fronted SAIL consortium supported by the Indian government).
India best effort to be $US 800 million (at just 7.4% of the Afghan IO project budget)
China trumping India by just 25% (rather than 100% as per doubling the incentives offered to Liberia over Wologisi) at $US 1 Billion
Note:
The China number is less than both the original and revised Hanlong bids of $US 1.7 and $US 1.4 Billion respectively.
It values Mbalam-Nabeba (with better grade, lower impurities than 90MTA Chichester and endless supply of Itabirite good for decades of high-grade IO concentrates commanding a premium) at just 10% of Chichester as per the reported failed deal between FMG and Hebei Iron & Steel.
Because now AUD is worth less than US 73c, the assumed China bid values the mines at $AUD 1.37 billion.
Having said that, SDL shares will be diluted given the various options and convertible notes. For simplicity, I leave the dilutive factor out because if a mine equity funding ouctome can be achieved imminently then some of the dilutive events may or may not possibly materialize.
Given SDL current market cap is just $AUD 37 Million, the rough "undiluted" valuation per share purely arising from a $AUD 1.37 Billion mine valuation is:
1370 / 37 = 37 TIMES or about 44.4 cents per share
You obviously need to apply an appropriate dilutive factor to the above as well as factoring the mine EPC funding obligation by SDL for the remaining stakes unsold (and possibly other costs that I haven't thought about).
You can be even more imaginative and think about could result from a winner-takes-all contest with respect to the ultimate % of equity sale.
If SDL can command the valuation ($US 3.5 Billion) that our former chairman George Jones indicated in better times, then it's a mind boggling set of numbers.
But the amazing thing is EVEN at $US 3.5 Billion, it's still just 32% of the Indian Afghanistan IO project budget, 35% of Chichester's valuation and Crikey just 70% of the "perks" China is promising Liberia just for the rights to develop Wologisi.
Good luck to holders.
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