@Kablooey I think we should be open minded about discussing other stocks here.
After all, any company on the ASX is only as good as the competition, and I'm a believer that these discussions help with context.
The IRR/payback period that
@HAC30 is focused on is an interesting one.
I spend a fair bit of time in my work unpacking and explaining financial metrics as they are often misunderstood. IRR is the discount rate that gives an NPV of zero. In an NPV calculation, discount rates heavily discount future cash flows. A high discount rate can be used to assess a cash flow if those future cash flows are considered highly risky or uncertain, and vice versa. Another way of looking at it, a high IRR gives your cash flow a fair bit of wriggle room to the downside.
In the case of NZC, stage 1 is a low capex 8yr mine with ~ 1.6yr payback. A short investment timeframe like this with fast payback will always give a high IRR because the cash flows only go out 8yrs - i.e. a relatively high discount rate can be used while still giving a positive NPV, because the future cash flow time horizon is relatively short. Another way of looking at is that an investor gets their capital paid back in the first 20% of mine life, and the balance of 80% mine life is upside.
If anyone wants a lithium mining comparison, look at Tawana - very fast payback and high IRR for a short mine life, despite having much higher cash costs (and that hasn't played out well for them for now btw).
Compare to ARL with a mine life of 25yrs, and just over 5 yr payback... investor gets their capital back in the first 20% of mine life, and the balance of 80% mine life is upside - exactly the same ratios at NZC, its just that the investor needs a longer time horizon. The only reason why IRR for ARL is much lower is because our cash flows go out 25yrs, and those future cash flows get heavily discounted in IRR/NPV calculations. When you consider the processing and LOM upside for ARL, to an investor with a long time horizon, it is a no brainer.
There are obviously a bunch of risks to consider in mining in general, and in particular where cobalt is concerned. Price, regulatory/political change, etc. By necessity, mining in the Congo actually
requires a much higher IRR to compensate for larger inherent risks there.
For an equity investor in the ASX, I believe you need to be focused on probable return on equity.
The market cap of mining explorers that become producers will gravitate towards the NPV of their mining operation, assuming discount rates are comparable etc, for the simple reason that once operational, with the market cap equalling NPV, they will be able to pay out 10% returns (the discount rate) for the life of the mine, assuming no upside exploration/acquisitions etc.
NZC has post tax NPV of $130m on their stage 1 (just going off their presentations). Its likely ARL post tax NPV is north of $2b on 2.25mt throughput.
Given NZC only own 85%, their market cap in $AUS is already approaching the post tax stage 1 NPV in $USA. And you could argue that the 10% discount rate used by NZC to get its NPV number, is far too low given the inherent risks of mining in that jurisdiction - i.e. NPV may actually be lower if priced appropriately for the risk. And so, you could argue NZC is approaching being fully priced for its proposed stage 1... maybe there is stuff going on about the company I don't know about, so lets be generous and say there is still 2-3x upside from here to production.
ARL share price can grow about 30x from here before hitting our NPV for the 2.25Mt scenario. And we know the JORC exists to go well past that.
Now, there are lots of other things to consider of course in comparing the two. Nickel upside vs Copper. Processing route, potential for dilution, cash in the bank, JORC thats proved up etc.
Given laterite are a growing % of nickel supply, and co credits for laterite are pretty well accepted as a game changer, and class 1 Nickel outlook vs copper, I would argue any processing risk sitting with ARL is more than compensated for, when comparing to something like NZC in the Congo.
With ARL having ~ 30x upside, and NZC maybe 2-3x upside on the share price from today, all things considered, I know what I would rather bet on when it comes to probable return on equity.
