(cross posted)
I like Felix precisely because they are based in Australia. Country risk premiums for India and Indonesia are an enormous 11% and 13% respectively! Never mind that Indonesia has been nationalizing resource projects.
Flannery doesn't have any competitive advantage in India or Indonesia. He's just going to be some dumb cashed up westerner. If they need to do something with cash then buy back shares (selling at 1/3 of intrinsic value) or pay it out in dividends.
To understand the impact of the higher country risk. A $100 a year stream of cash in Australia over 10 years is worth $600 at Felix current cost of equity. The same stream in Indonesia is worth $375. To get that at 1/3 discount is about $125.
So if Flannery can buy $100 over 10 years for $125 outright in Indonesia - THAT IS THE SAME AS BUYING BACK FLX SHARES!
Is anyone in Indonesia going to sell a 10 year life mine at a 1.25 multiple?
(cross posted)I like Felix precisely because they are based in...
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