nmr valuation, page-17

Hi (Bigshareshead),

"One question for now - a small difference, but noted - "NMR stake at 65%"

Just a thought - can this be actually increased slightly if the bulk of the first stages are in the northern tenements. 70% ownership of this section (held by Wizard) I believe? May at least apply to initial start-up.

Better to go conservative I know - but every bit helps? Let me know if i am on the right track here."


You are right, and IMO NMR will develop resource using Takatokwane Project for the startup, where they earn 70%.

NMR share price will vary significantly depending upon different scenarios as per below, considering my base case projections are very conservative.

The following are example of outcomes where variations are applied against my base case projections:

1. Variation: Change NMR stake from 65 to 70%
You're right NMR could use in the short-mid term strategy the Takatokwane Project (NMR earning 70%) to develop a production of coal for domestic and regional markets, including the supply of coal to third party IPP (power stations). They can also use it for long-term strategy for the coal export market, which require a better coal quality (using seam 3 & 4).

Notice that SP changed significantly for Project2 as following:
Project1: NPV per share = $0.22
Project2: NPV per share = $0.82
Estimates of NMR SP for project1 and project2 = $0.22 + $0.82 = $1.04

2. Variation: Change of discount (WACC) from 10 to 8%
As we progress from different stages, i.e from pre-BFS to BFS and then to production, likewise the status of the resource changed from M&I to reserves, the discount price will be changing significanly as the degre of uncertainty
will be reduced.

As an example, if we model the DCF using the base case with a discount (WACC) from 10 to 8%, the estimates share price will be:

Project1 : NPV per share = $0.27
Project2 : NPV per share = $1.01
Estimates of NMR SP for project1 and project2 = $0.27 + $1.01 = $1.28

3. Variation: For phase 2 of project1, change in FOB price from US$25/t to US$33/t
Recall in my valuation that Project1 is assumed for the sales of washed coal to domestic and regional markets.
Phase 2 of this project will see its expansion to produce coal sales to power stations.

If we assume the FOB price for phase 2 of project1 to be in a high range of US$1.60 per MJ/kg, based on Wood Mackenzie consultant for the projected coal supplied to Southern African power station (refer to Helmsec valuation report for AFR, Nov 2011), this translate into an estimate sale price of circa US$33 per tonne for NMR if I assume, to be in a conservative side, that NMR coal CV (calory) is of circa value 20.8 MJ/kg based on my base case projection.

As you might noticed, I have aligned for the base case projection using a CV value of AFR Sese project using FOB price of US$25 per tonne, which translate into a coal CV value of 20.8 MJ/kg, a value well below NMR average CV of 23.0 MJ/kg

Project1 : NPV per share = $0.33

Note the project becomes very profitable with an IRR jumping to 76%, with an Net Present Value (NPV) = $178m (even using NMR stake of 65%)

The same model with a discount of 8% yields an NPV per share = $0.42

Project2 : NPV per share = $0.76 (unchanged)

Estimates of NMR SP for project1 and project2 = $0.33 + $0.76 = $1.09

Hope this will help.

Please always DYOR.

Cheers,