A few weeks ago I posted a few posts and I'll just take some extracts from them:
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In the exploration to becoming a miner stage (before first production) market cap tends to be in effect some % of Net Present Value derived from your PFS/DFS/forecast growth. At this stage the MC of ADN is about 72% of the post tax NPV of the 1 June 2020 PFS. This is actually a high % of NPV as it translates to MC, but it is likely to come from the following: 1) Market confidence ADN will achieve its 2022 production date with market confident NPV can be met or 2.) since the PFS a number of new potential revenue streams have come into the picture (i.e. concrete additive for example) or 3.) a combination of the two. "
My Comment: We are now above post tax NPV of the PFS.
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In mining, you move away from MC as a % of NPV concepts to Earnings Per Share and Price to Earnings Ratios."
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So doing MC at production date more in tune with calculation methodology and doing it properly this time round, as against high level as per previous post, using the PFS nominal total profit of $53.5 million per year in production (cash flow including return of depreciation) is generated. ADN share is $40 million (53.5 *75%), and at 2.15 billion shares EPS becomes 0.0187c per share. At P/E20 this becomes a SP of 37c and MC of $800 million for ADN. Assuming higher shares on issue (some equity raising/equity for offtakes), of say an upper end of 2.5 billion shares, SP becomes 32c per share, whilst MC stays the same. "
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My Comment: Our market cap is close to the MC I would expect from the PFS variables coming in production, meaning not doing anything else. So in effect the market has virtually fully priced in the PFS, or basically has said we are 90% - 100% certain ADN will be in production in 2022. I suspect also the market is also pricing in growth scenarios, meaning the market expects ADN to grow quite quickly, and looking at the Anns with the differing growth areas, like now the talk around concrete, is providing that context.
The big question is has the SP overshot, given where fair value would likely be at this stage of the production cycle based on the PFS alone. It is a difficult question to answer because it would appear too me the market is no longer just pricing the PFS itself. So I suspect the market is saying expect SP to stay at a decent level, but at some point expect a period of flat SP and SP consolidation at those levels etc etc I am pleasantly surprised where the SP is currently at, but optimism leads to wonderful things when it comes to the SP. SP is now been governed IMO by FA, so ADN hitting timings correct and hitting targets a key for SP to remain at these leels or continue to increase over the next 6 months to 1 year is my point. The market is backing ADN an obvious point given what the SP has done last two months, so ADN needs to deliver on stated timelines now is the point.
I also suspect the market is placing a 80% - 90% confidence level that Offtakes and funding will be secured within the next 6 months for the PFS itself, noting a DFS is yet to be released here albeit with a 175% pre tax IRR in the PFS there is no way on earth the results would change that much IMO IMO given a PFS itself is plus or minus 25%. Notwithstanding, it is highly possible the DFS itself will be scoped up with an even greater production level, which is looking likely IMO.
On the question of free carry for early holders or anyoneI know above in this thread there has been a lot of debate on free carry or not. In hindsight, as been one who free carried but got in early as have been here since around May 2019, yes it was a mistake to free carry
in hindsight but I am still well and truly happy with my profits with my remaining hold. Now, I am one who likes to free carry because there is always risks in any stocks where you are seeking to go from an exploration company to a mining company, as 1 in 100 exploration plays IMO ever get to mining. Obviously ADN will get to mining given where we are at.
Looking at things in hindsight is always a wonderful thing, but every stock has a risk/reward profile and given my comments above my risk profile is get in early, try to free carry and then have a risk free life LOL. Research is the key to get in early. Been burnt in the past with stocks I thought would go to the moon (i.e. mining within xxxxxxx timeframe) and then did not, as in a general sense most exploration companies have delayed development plans and/or simply don't find the right low cost resource despite earlier drill results and management glee at those results. The ASX is littered with such carcasses. Anyway, this is a different perspective on investment strategies, but everyone has a differing risk/reward equation.
For me, I'll also say another thing, really happy with my investment in ADN as it opens up continuing opportunities for me to enjoy my life, provide for family, and probably spend less time LOL on HC and looking at shares (depsite the fact I love writing essays whilst drinking VB on here). To give some perspective I sold some of my AVZ shares back in 2017 for lifestyle reasons and free carried the rest, and the SP since then retracted so things work both ways. The difference between ADN and AVZ is the kaolin and halloysite market is very tight with few suppliers, as against AVZ where lithium market is in current oversupply despite back in 2017 growth forecasts for lithium been over-the-moon etc etc In other words 'euphoria' is fantastic when things go well, but been on the other side where potential hasn't translated to production and falling SP (i.e. here not referring to AVZ as expect that to get to production but some of my other past plays in the past well not so good) tempers expectations and strategies to reduce risk, but also noting you can reduce rewards on the upside if SP takes off (but when your in 15 - 20 bagger territory it becomes semantics anyway, so again the key is getting in early regardless of strategy). The key thing is researching to get in early and letting what you run (even after you decide to take some of the table) if you are an long term FA investor is my point.
It is the spec end of the market we initially invested in, albeit I am now expecting ADN to be entering the ADN index in the near future before moving into say the top 300 stocks and onwards overtime. Very happy, so all the best to us (regardless of those who chose different strategies over the course of the journey).
@Pezz69 heartfelt congratulations on your investment and fortitude and conviction to hold all.
A different perspective, but ADNis one of those 1 in 100 exploration plays that will make to mining.
Another essay written.
All IMO
(20min delay)