Yes I was just looking at this today. It seems that ADN was well...

Yes I was just looking at this today. It seems that ADN was well ahead of itself based on the PFS numbers. That is, if the PFS numbers were re-released in the DFS then the current SP should have been closer to 6.5c than 17.5c:


The DFS number were not as good as the PFS but they were still in the same ballpark. That is, the problem is not that the DFS is really bad. The main problem is that the PFS was not that great in the 1st place - at least when compared to the current MC. The capex has increased considerably which has blown out the IRR from an excellent 175% to an average (but not terrible) 36% (on pre-tax basis), and reduced the NPV in the process. However, the Free Cash Flow is about the same between the PFS and DFS and this is how it will eventually be valued in production when running at full noise (although they need to go through a couple of ramp up phases to get there). So basically, the important number for valuing a company pre-production (the NPV - I always use post-tax numbers) has seen a reduction and it looks like the market must have been expecting something much more (I'm not sure on what basis they were expecting more). On the other hand, the post-production valuation hasn't changed that much - i.e. it should still be worth 25c after they ramp up fully.

I suspect that it will take a few weeks for people to digest this and for the SP to drop to more reasonable levels. Unfortunately I wouldn't be surprised if we saw 7c possibly lower (after capitulation). The good news is they are not that far from production so there is probably some good value to be had in the future depending on where the market sentiment takes them. I had to go through this with IXR recently and I have been watching FYI closely, it always seems to take much longer for these things to play out than what you initially expect. In the case of IXR I didn't give it long enough to play out and started adding to my position way too early.

To bring this back to QPM (refer to the table below), this serves as a good example as to why you need to have a good buffer between what you are paying for an investment and what the economics of the project tell you. Using the QPM PFS numbers the current SP is only 65% of what it should be once the DFS is released (in a couple of months) and only 16% of what we should be in production (in 2 years). Hopefully we get some significant improvements in the DFS which adds even more multiples of potential upside but even if we didn't get this there is still plenty of upside in the PFS numbers alone.



Lastly, while I'm saying that its good to have a valuation buffer, like what is shown in the table above, this is actually not that easy to find on the ASX. I think QPM is still in a unique position in this respect given its target market and ESG credentials. So the good news here is that at some point in this journey we will/should enjoy a premium to these valuations. There's no guarantee, but I find it hard to believe that we won't go through this phase at some point (I'm kind of amazed they we are not enjoying these premiums already).

Apologies for the ADN content in this post but I think the comparison demonstrates how good we have it over here.

Note: For ADN I have had to calculate my own post-tax NPV and post tax Free Cash Flow numbers for the DFS (so they may not be 100% accurate). You can tell that they knew this would be a problem for the market because they omitted these numbers from the DFS whereas they were included in the PFS (to make your numbers look better use pre-tax in the headlines and don't even mention what the post-tax is - which stops people using it or thinking about it).
ALL IMO DYOR.