Net Present Value

In the recent interview KC talked a bit about the NPV of the PFS and how that might change in the DFS. Clearly there are many variables, but with my accountants hat on I thought some non accountants might find the following analysis interesting.

to simplify this example let’s assume that the PFS had costs per ton of $8k and price of $16k, so the difference (profit) is $8k, resulting in a NPV of circa $2b. Now increase the price per ton to $24k (which I see as the absolute minimum) and with the same cost per ton the profit and NPV double. So a 50% increase in price doubles the profit/NPV.

Now double production which is a possibility (some would say a probability). The profit now more than doubles again as many of the costs are fixed and do not vary with increased production.

So back to the variables. Costs in the DFS even after offsetting savings will be higher. Finance costs and taxes need to be clarified. And perhaps most important is the discount rate used which will be different to that applied by a financier or potential buyer.

But despite all that the overarching key variables are price and volume. From my example above the NPV goes from $2b to $4b and then with volume added $8b. These are huge differences, and I believe is why many on here believe a ten bagger is possible. The DFS will have to address the price issue, and possibly production volume, and as I see it a doubling of NPV would be a conservative outcome.

Plenty of risks of course, and the biggest is the go/no go associated with the EIA/permitting process. I am hoping that given the political support solutions will be found to the inevitable obstacles, but this is I feel the biggest single thing currently holding back the sp.

For transparency I am a long term holder of a largish number of shares. My own targets are 1GBP upon DFS at which point derisk and take some profit. A further increase to at least 2GBP upon permitting and FID when I would cash out, but may modify that view in the light of actual news. For context these sorts of figures were widely discussed a couple of years ago, since when price expectations have changed hugely, and we have clearer visibility of the path ahead.

So all about risk/reward, and each to their own. For my part I think that the second half of this year will be an exciting, and perhaps thrilling ride.

Good luck to all!