I’ve been trying to work out what RES might actually be worthin...

I’ve been trying to work out what RES might actually be worthin a production scenario which now appears to be a foregone conclusion. I hadsome research reports years ago from Shaw Stockbroking and Macquarie but I musthave lost them somewhere along the way. My next reference point was the company’sIndependent Competent Person’s Report on the website:

http://www.resgen.com.au/downloads/send/48-2016/549-boikarabelo-coal-mine-cpr

It’s fairly out-of-date (15 December 2016) but obviouslystill relevant. On page 88 they indicate “an 87.9% probability for achieving apositive NPV with a mean value of R2,464M.” At a ZAR/AUD exchange rate of 0.099this equals $243,936,000 divided by 581m shares on issue equals $0.42 pershare. However, on closer investigation this looks extremely conservative tome. For example, page 91 illustrates the annual Net Cash Flow After Tax and theaverage over the first 20 years of production from 2020 to 2039 (admittedlythis is now more likely to be 2022 to 2041) is R5,256M per annum. This Net CashFlow After Tax is EBIT minus capex, royalties and corporate tax so it appearsto my limited intelligence that the only difference between Net Cash Flow AfterTax and NPAT is interest (ie the cost of the company’s debt). My guesstimate attheir debt is $400m ($60m to Noble, $310m for the coal handling and preparationplant and $30m for other items – I may have significantly underestimated thisfigure – not sure what they have to pay towards the power plant and the raillink??) at say 12% per annum = $48m per annum interest cost. R5,256M at aZAR/AUD exchange rate of 0.099 equals $520m minus $48m interest equals $472mper annum NPAT. Multiply this by a very conservative P/E ratio of 4 times togive a market cap. of $1,888m then divide by 581m shares on issue gives avaluation of $3.25 per share. Subject to my guesstimate of the company’s debtnot being way too low, then this valuation appears quite conservative to me onthe basis that a P/E of 4 times is low (WHC is trading on a P/E around 7 times,although this is forecast to be considerably higher next year as their earningsfall) and also the company’s report referred to above is based on an export coalprice of USD $53/tonne (see page 96) compared to a current price for SouthAfrican export coal of USD $72/tonne (this price is cited as being the variablewith the greatest impact on the company’s NPV and hence ultimately the shareprice and the current export coal price is way above what is factored intotheir calculations, meaning the company’s value could be way higher than thevaluations indicated above if the coal price remains at this level going into production).In a “goldilocks” scenario like FMG is experiencing currently where the coal priceis strong, the company increases its resources and reserves, pays down debtrapidly and starts to pay large dividends, etc I can easily envisage a scenariowhere the share price is $6 plus, but $3.25 per share as referred to above soundslike a nice place to start! Any further input from better informed posters regardingthese numbers would be appreciated. Cheers.