share valuation, page-8

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Results – Total Project

The results of the financial analysis are shown in Appendix 2, Table 1. Appendix 2, Table 8 presents a complete print of the financial model over its whole life, from which the results for the total project and the partners are calculated. These are summarised in the tables.

Australasian Resources: Results for Total Project 1B

Return on equity before tax (%) 48.7
Return on equity after tax (%) 41.0
Earnings after tax in:
first year of full operation ($m) 370
first 10 years of full operation ($m) 4285
NPV after tax at 8% in Year 1 ($m) 3534
NPV after tax at 8% in Year 5 ($m) 5340
Market valuation in:
first year of full operation ($m) 4437
Year 10 ($m) 5379

The total project shows a rate of return on equity of 48.7% per annum before tax and 41.0% per annum after tax.

The table also shows the financial results of the operation. This indicates profits after tax of $370 million in first year of full operation and cumulative profits after tax for the first ten years of full operation of $4285 million.

Net present values (NPV) are also shown. These are the net present value of equity cash flows after tax calculated at various rates of discount. For example, at 8% discount the NPV after tax in Year 1 is $3534 million. If the NPV after tax is calculated at Year 5, it increases to $5340 million.

Financial ratios are also shown in Appendix 2, Table 8. The long-term debt service cover ratio2 over the life of the loans is generally in the range of 4 to 9 and is positive in all years after construction. The loan life cover ratio3 is generally 7 to 13 and not less than 7 throughout the remaining life of loans. These are very strong financial ratios indicating that long-term debt can be comfortably serviced.

If the shares of the project company were traded on a stock exchange, the company would have a market valuation equal to the number of shares multiplied by the share price. In order to estimate a reasonable share price for a company, it is normal to consider the price/earnings ratio for companies of the same type and to multiply that ratio by the earnings of the company after tax. In late 2004 leading financial analysts were expecting a price-earnings ratio for major mining companies of 12.0 over the period to 2008 Using that ratio and the forecast earnings after tax of the project company, Appendix 2, Table 8 shows that the project company would have a market valuation of $4.4 to $8.1 billion over the first 20 years of full operation.