The update from NI states;
" Importantly, the Scoping Study was done using a fertiliser price of just US$357-482/tonne.
The current fertiliser price sits at US$700/tonne, so using some simplified calculations we could expect this to lift the projected project value into the ~US$400M+ region."
From what I have seen (see below - MAP CFR Brazil Futures), the current MAP price in Brazil, which is a good proxy for Angola is now over $1,000/t, not $700/t. I'm not sure where NI gets $700/t or if they have simply used an outdated price?
The price for MAP in Brazil was trading at around $150 above the US Nola DAP price back in June last year (see table below). Even back in June last year, the MAP fertiliser price in Angola was at $750-$755 and above the $700 quoted by NI as the current price.
According to the World Bank, the US DAP price averaged $747 in February 2022 (most of Feb was before the invasion). It is likely much higher now, three weeks after the invasion. At the US$747 Feb average DAP price, the MAP price in Brazil and therefore in Angola, would have been around US$900. It's likely much higher now in March, so the futures price in Brazil of US$1,025 seems about right. That's nearly 50% above what NI states as the current price. Even the US DAP price had a Feb average at $747 and the current price is likely much higher. Working back from the latest Brazil MAP price of US$1025, the US DAP price is probably now at least at $850/t. So again, I can't see what NI is referring to as the current fertiliser price of $700/t. Any thoughts anyone?
https://www.cmegroup.com/markets/agriculture/fertilizer/map-cfr-brazil.htmlEven at what now seems a conservative US$700, the estimated NPV of "US$400 plus" equates to around A$550mill. Despite the recent MNB sp rally, our market cap is still only $83 million at 16c. That's a big gap to a NPV of A$470mill (MNB's 85% share of project NPV).
To demonstrate how undervalued MNB still is, I find it useful to consider a worst case scenario of MNB raising all of the capex needed, using only equity and assuming it is all raised at the current low sp.
The maximum capex allowing for price escalation might be A$50million? The scoping study gave a range of US$22-28M upfront CAPEX (A$30-38mill) but we have seen price escalations since then. MNB now has significant cash on hand and will progressively raise another $13 million as options are exercised but assuming another $50mill is raised (at the current low sp), the mc would then be $133million or $157million fully diluted for all of the options. That worst case fully diluted mc of $157 compares to MNB's share of project NPV of $470 million. Including current cash, MNB would be fully funded to production (debt free) with over $15million excess cash for working capital (assuming all options exercised) and first cash flow in around one year. That should be as conservative as we need to be. Even valuing the green ammonia at zero for now, a fully diluted, fully cashed up MNB with a mc of $157million would then need the sp to rise threefold to reach the phosphate project's NPV. That's a 48c share price.
It's not quite that simple though because the NPV calculation allows for the negative cashflow for the upfront capex. If MNB has raised the cash as equity as I assumed above and doesn't need to repay the capex as debt, then the NPV should be increased by $50 million to $520mill. That would lift the sp target.
I also haven't factored in that the JV partner would need to repay their share of capex to MNB once cash flow begins, or that the project might be debt funded which would give us much less dilution and therefore more upside than assuming 100% equity. Even if it was 100% equity, the sp could be much higher before any future cr, again meaning much less dilution and a higher sp target than shown above. Using this scenario, a sp target above 55c looks reasonably conservative even at a worst case 100% equity funding. That's assuming fertliser prices don't drop by much more than around 30% from current levels. Any potential drop below $700/t in the longer term would likely be more than offset by the market starting to assign a reasonable value to the green ammonia project, so again a sp above 55c after phosphate production begins should be at the very least be maintained and then increased as the green ammonia project progresses.
Some would argue a discount should be applied but the current fertiliser price is around 50% above that assumed to get to the NPV above. Also, what about a premium to factor in some value for the green ammonia upside? I would argue even a modest initial premium for the green ammonia should more than offset any discount that might be appropriate for the phosphate project.
It's a shame that NI isn't yet having a stab at what a 200MW green ammonia project might be worth to MNB. It would be good to see the market start to factor in some value for that project. The green ammonia project simply has to be not just viable, but it should be very profitable and add a lot of value for MNB because of the world leading Green electricity prices of 1.5c/kw. That's around 10% of the price in Australia and Australia is considered a good location for green hydrogen and ammonia production.
