I have held RCO before (sold in to the Anglo bid), and am now...

I have held RCO before (sold in to the Anglo bid), and am now dusting it off again. Anyone else hold? My thoughts:

1. Weeks Royalty. Look to have paid a very high price. $8.5m (plus costs) for $0.8m per year dividend flow. Running an NPV on this for 30 years of cash flows, I calculate:

- Discount rate of 8.5% required to derive an NPV of $8.5m (nominal, post tax cash flows)
- At a more appropriate discount rate for the investment – 11% - I calculate an NPV of $6.8m – or $0.10 per share
- At a discount rate of 11%, annual income of $1m is required to derive an NPV of $8.5m – some 25% higher than current income rate
- Either RCO are using low discount rates in their valuation, or they have been very bullish on revenue assumptions and paid for the upside exposure

2. Reefton. Next likely revenue stream. I am not familiar with the project and have modelled cash flows as reported by RCO:
- $5m in FY2016, and then $2m/yr for 9 yrs
- I have risked the cash flows by 35% to account for dropping metals prices
- Derive an NPV of $5.7m of $0.11 per share (14% is more appropriate for the less certain Reefton)

So, ignoring corporate costs and other assets, Weeks (0.10) plus Reefton (0.11) plus cash (0.09) = $0.30 per share

Alternatively, without escalating the revenue stream, derive: Weeks (0.08) plus Reefton (0.09) plus cash (0.09) = $0.26 per share

Accounting for the cash burn between now and FY2016, for my mind this stock is worth a buy around the 0.15/share mark.

Any other views?