musings on a heemskirk valuation

I have attempted two completely separate valuation estimates for GIP's attributable share in the Heemskirk project.

I have used the eventual 30% attrib which is likely under the JV agreement.

First - a standard NPV using a 10% discount rate over 8 years of discounted cash flows, post 30% taxation. Using current price of tin set flat over the life of mine. Treatment rate of 600kt pa; ROM grade of 0.93%; 70% recovery into concentrate; OP cash costs of $12,780/t Sn; CAPEX of US$108m (all taken from the scoping study)

Post tax NPV(10) for the project works out at US$79.56m and IRR = 30% (which looks promising).

GIP's 30% attributable would therefore work out at c. US$23.8m which equates to c. 4.4c/share after allowing for new shares after the current Rights issue.

As a sanity check I also thought to try an estimate purely based on the current Sn resource in-situ valuation after applying what I thought were suitable discount factors, namely:

Sn(t) = 48,400t
Sn price = US$29,093/t
Gross in-situ value = US$1,408m
GIP's attrib in-situ value at 30% = US$422.4m
Value after 15% mining dilution = $US$359m
Value after 70% process recovery = US$251m
Potential profit at 20% = US$50m (20% is average for industry)

After allowing for total shares after rights issue (c. 800m) this equates to 5.83 cents Australian.

Bit of a variance between the two methods but both value the GIP share in Heemskirk at over twice the current market cap of the company.

Whatever one may think about current GIP management it has to be said that progress on Heemskirk is largely in the hands of Stellar who appear to be making a good fist of it so far and are independent of the internal machinations of the GIP BoD. However, as both companies are minnows there will clearly be an issue over raising the CAPEX of $108m.

Given the contrast between GIP and SRZ over promotion of the Heemskirk project, ie SRZ marked their announcement as price sensitive whereas GIP considered it NON-price sensitive and given the current rights issue, it would appear appropriate for holders of GIP to consider just how much this project could be worth to shareholders (no ramp intended!).

These are only my personal opinions and may well be in error - if so I apologise!

Regards to all long-suffering GIP holders.
CPDLC