To me, it all depends on which stage of studies and development we are talking about.
I tend to roughly value companies at : - 5-10% of NPV at PFS level - 10-20% at DFS level, pre-financing - 25-50% of NPV, post financing and FID
Of course, these are very rough numbers as there are several additional factors to take into account. Capex/NPV, Capex/EV, sovereign risks, cyclicity of the sector or overall macro-environment come to mind, for example.
I want to make it clear that my 12 months target of 30% NPV or 80c/share is based on the DFS being completed and funding being sorted. If the timeline gets altered and we end up in a position with the DFS out and still no news on funding, a 10-15% NPV or 30-40c/share target is more reasonable which is still excellent for a 12 months return.
Per their timeline, they intend to start the funding process from aug21 onwards so I wouldn't be surprised of we start to get details on how they plan to approach it. Most of the time, a DFS is required from the majors prior to funding commitments, but this can be mitigated by allowing them in the data room to progress both in parallel and save time.
QPM will require a substantial amount of capital relative to the market cap of the company and it is the principal risk at this stage I reckon, hence the big difference in my valuations with or without funding.
This should be mitigated by a combination of very resilient economics, excellence on ESG, hunger from the majors and superior process. If this was another HPAL project, I wouldn't give them much chance to attract that kind of funding. The car and battery manufacturers are so desperate to be able to claim they source from environment-friendly supply chains without paying a massive premium, that QPM is the exact thing they need right now.
The price of capital seems to be around 8% these days for small caps. I've seen about 20 PFS/DFS in the last 2 years using it as their base assumption, so it seems to be the norm or very close.
Regarding the demand, I have no doubt the demand for Ni, Co sulphates and Hematite concentrate will be there.
The big unknown for me is the HPA as it is a small and volatile market. At 8-10ktpa, QPM would supply almost 10% of the current global market. However it is forecasted to grow at 12 to 20% CAGR in the next 5 years depending on the analyst you ask, so there might be room for more supply to come online without a crash in prices. Hard to tell with these new markets.
What I like the most about QPM is that there's the potential for a true market disruption.
When you see that Vale has spent 4.5bn US$ on a 60ktpa HPAL nickel plant at Goro and suffered 2 years of ramp-up delays only to walk away after years of losses, I am amazed there hasn't been more interest in the DNI process and QPM.
If we achieve what we set out to, the entire HPAL industry will be obsolete and, in 20 years, ancient history.
There will be obstacles as always when you threaten an existing industry, but the potential rewards are immense and hopefully, we will be the ones benefiting from it.
QPM Price at posting:
11.0¢ Sentiment: Buy Disclosure: Held
