The US$155 spot price is perhaps optimistic as a long term assumption for an NPV calculation. Average of the last 10 years is less than US$100 for benchmark 62%. The producer cost curve has support at around US$70 per tonne because most of the magnetite producers have a cost based of US$70/t and the proportion of magnetite is growing which puts a long term price floor at around US$70 on average. Prices can go below $70 but only for short periods of up to a couple of years before magnetite producers shut down causing the price to spike higher. Personally, I think US$100/t is a reasonable long term price assumption inclusive of the high grade premium.
Also regarding the discount rate, this is normally based on the company’s WACC ( weighted average cost of capital) which for SRN will be quite high. Even for the majors, WACC is normally around 8%, so I think 10% would be a reasonable assumption for SRN.
This will lower the NPV considerably but it will still be a robust project by the numbers.
SRN Price at posting:
2.0¢ Sentiment: Buy Disclosure: Held
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