So this is actually a really unusual situation. I see how the project is needed by OZ, but my concern is how does Cassini get upside if this goes to production.
I looked at the OZ enterprise value to EBITDA and it is around 4 typically. Let's be generous and assume that the project EBITDA is equal to the cash flow and is $150M. So enterprise value is around $600M ~= 4 * $150M (EBITDA). Let's ignore the 30% issue and pretend like Cassini owned 100%.
If they financed $800M capex with debt, that debt would effectively wipe out all of the marketcap since EV = marketcap+debt = $600M = -$200M (new marketcap, which can't be negative but it makes a point) + $800M (debt).
If they finance by equity, the required dilution would effectively reduce existing shareholders to $0.
I realize the math is different if they only own 30%, but that does not in substance change the problem, only reduces the numbers by 70%.
You overcome this problem by getting the cash flow higher, or you get the capex lower. Rising commodity prices would rescue it. But if you hold constant prices to match their preliminary assessment, how do you make those numbers work for existing shareholders?
Some variation of this idea might explain why a project with such a high NPV is failing to lift the marketcap more than a small amount.
CZI Price at posting:
8.1¢ Sentiment: Hold Disclosure: Not Held
