Valuation: We have increased our valuation from $1.40 to $1.90 / share (share price $0.24). The major change in our valuation was updating our flake size distribution in-line with recent test work. And whilst we kept our flake graphite pricing assumptions largely unchanged, the significant improvement in coarse flake graphite material resulted in our basket price increasing from US$1,217/t to US$1,876/t.
Our valuation would have been higher however, we increased our discount rate to 16% (previously 12%) to account for country and JV completion risk. We will review our discount rate assumption once the JV becomes binding.
Finally, we acknowledge there is a significant disconnect between our valuation and Graphex’s current share price. One of the major drivers for our valuation per share is the limited future dilution for Graphex shareholders (Future shares on issue – 86m shares vs. current 69m).
As our valuation assumes that the JV proceeds, once the JV partner contribute their equity contribution (US$15 – US$17m) as well as debt financing (JV partner to arrange from China), Graphex’s contribution, therefore future capital raising requirement is minimal. Meaning that even minor changes to the projects NPV, can have a significant impact on a valuation per share basis.
