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Peak looks incredibly undervalued
One year valuation of A$1.30/share, 5.5x the current share priceThe current valuation is based on valuing the rare earths project at 50% of attributable NPV, andpotential phosphates and fluorspar businesses at 25% of attributable NPV based on indicativefinancial modelling. The rare earths business, which has a post-tax NPV8 of A$584m in the BrokerConsensus Scenario in the November 2023 FEED Study, represents A$1.05/share (81%) of thisvaluation. Initial modelling of a potential phosphates business suggests an attributable post-tax NPV8of A$144m, or a current valuation of A$0.13/share (13 cents per share) based on 25% of NPV. Similarly,modelling of a potential fluorspar business suggests an attributable post-tax NPV8 of A$132m, or acurrent valuation of A$0.12/share (12 cents per share) based on 25% of NPV.Notably, while rare earths underpins more than 80% of the valuation, taken together the valuation ofphosphates and fluorspar is A$0.25/share (25 cents per share) which is more than the current shareprice.
Valuation of A$1.93/share to A$2.54/share as production commencesAs Peak enters production the market is likely to value the company on its earnings. The project isexpected to generate average annual EBITDA of US$175m including US$134m from rare earths,US$20m from phosphates and US$21m from fluorspar. Upfront capital expenditure is estimated atUS$287m for the rare earths project, to which an additional US$100m has been assumed as aconservative estimate of required working capital for a total upfront rare earths financing need ofUS$387m. Capex for the potential phosphate and fluorspar operations is estimated at a furtherUS$100m. Assuming this total upfront capital requirement is financed 60% debt and 40% equity withnew shares issued at A$0.50/share (about 16% of post-tax NPV8) and applying an EV/EBITDA multiplerange of 8x to10x, Peak could be valued at A$1.93/share to A$2.54/share. This represents 8x to11x the current share price.Although this valuation looks high in the context of the current weak market for junior miningcompanies and Peak’s much undervalued share price, it appears undemanding compared with thecurrent market valuations of rare earths producer Lynas Rare Earths, which is trading at an FY23EV/EBITDA multiple of 15x based on consensus earnings forecasts.