WA1 (ASX) General discussion

Originally posted by PutSauce: ↑

One thing I've learnt in my investing journey thus far is that valuing a resource based on what is in the ground is fraught with issues. You get some companies that have better grade resources with a lower $/tonne than other companies due to location, CAPEX, OPEX issues. Sometimes a lower grade high tonnage resource prevails as the better investment. One thing I haven't seen here is a mention of taking a more financial approach, as this can help equalise all other factors. I won't do a deep dive into multiple companies but the Bell Potter analysis this morning gave us two key pieces of information, in the form of Lynas Rare Earths as a peer and $427m annual EBITDA.

Lets consider the following back of the envelope calculation. In general terms, an EV/EBITDA of below 10 is considered healthy.

Lynas
Oustandinding Shares: 933.8 million
Market Cap: ~5.49 billion as at 26th Feb 2024
Cash: 686.1million
Debt: 172.6 million
Current EV: MC + Cash - Debt = 6.0133 billion
1H 2024 EBITDA: 62.5 million. This is 125 million to account for full year.

Current EV/EBITDA = 6.0133bn/0.125bn = 48.09

This figure is way out of the "healthy range" because of the tough year across the board earnings wise. To give you an idea, the EBIDTA for 1H 2023 was 189m (This was the same in 2022). Which would be $378 million for the whole year. I know time value of money would have been included in the BP calculation for the WA1 EBITDA, but if we use last years figures we can get a comparable future project valuation.

2023 EV/EBITDA: (7.44bn + 0.9342bn - 0.1884bn) / 0.378bn = 21.65

WA1
If we use the 2024 Lynas figures and extrapolate (I don't know how useful that will be because the WA1 EBITDA is for future valuation) we get the following;

WA1 Current EV = 48.09 * 427 = 20.5 billion.

Using the 2023 figures we get the following;

WA1 EV = 21.65 * 427 = 9.2 billion.

Despite not having any direct peers, this is the closest we will get to it. This calculation also eliminates the conversation around the Tier 1 jurisdiction premium that we have to account for in Aus. Would have been nice to be able to calculate the EPS but without an NPAT figure this isn't possible.

As we can see, at even a ~$9bn valuation that's $147 in todays' share price. When we factor in dillution, this changes dramatically. Lets take a conservative approach and assume that we raise a further billion in order to get to production (assuming we get there) that would mean another 76 million shares on issue at todays price. In reality it will be a much higher raise price, but if we take this rough figure this would be 9bn/130m shares which is still ~$69. These are serious valuations even though I have been abit creative to the conservative side and bypassed the PV of future discounted value calculations entirely. Now, given that any T/O attempt always comes in at a discount to real value ("because we are taking the risk away from you"), based on these rough calculations, I wouldn't be surprised to see someone offer in the region of $50. Personally, this is the absolute MINIMUM I would be willing to entertain and I believe that should be the absolute floor that the board should look at.

Curious to hear thoughts on this.

Expand

Put Sauce
I think we can do a lot better than $50 takeover as we wouldnt have to issue too many shares as offtakers can get us bank finance,
also being a critical mineral can tap gvt funding and anybody taking us over will be a decent entity so wouldnt have issues debt raising the lot.Wouldnt surprise me if we do go to production we dont need to issue more than another 20m shares.Remember we have some very high grade zones (> 4.0% ).We can start with these to pay off the debt and scale up quickly from internal cashflow.

No.	Vol.	Price($)
1	276	$19.10

No.

Vol.

Price($)

276

$19.10

Price($)	Vol.	No.
$16.91	147	1

Price($)

Vol.

No.

$16.91

147

No.	Vol.	Price($)
1	276	19.100
3	263	18.750
3	450	18.740
2	1011	18.380
1	70	18.020

No.

Vol.

Price($)

276

19.100

263

18.750

450

18.740

1011

18.380

18.020

Price($)	Vol.	No.
16.910	147	1
16.950	894	3
16.960	3085	7
17.230	132	1
17.480	1200	1

Price($)

Vol.

No.

16.910

147

16.950

894

16.960

3085

17.230

132

17.480

1200

(20min delay)
Last $17.85		Change -0.330(1.82%)		Mkt cap ! $1.068B

Open	High	Low	Value	Volume
$18.00	$18.12	$16.86	$9.217M	527.7K


Last $17.62		Change -0.330 ( 2.92 %)
Open	High	Low	Volume
$17.64	$18.09	$16.90	11027
Last updated 15.59pm 04/06/2024 ?

General discussion, page-4530

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