As you may know, Z has taken over NGF in 2012 and perhaps there...

As you may know, Z has taken over NGF in 2012 and perhaps there is a learning from the past.

In fact, the Z offer in 2012 represented a c.46% premium to the closing price of NGF’s shares before the proposal was announced. The offer was close to DCF valuation of the project and considered fair and reasonable to NGF shareholders, although NGF was loaded with c.$47m in external debt.

So what does it mean to NKP?

Assuming that Z will make a fair offer to NKP shareholders, the NPV of the project should be the basis for valuation. Following the optimized BFS from June 2012, the NPV of A$622.5m representing 74% interest for Garatau farm alone and only Merensky Reef component. Assuming 900m registered shares the value per share is c.70 cents.

I assume Z will convert all $20m into 200m shares at 10 cents each and potentially buy some of G shares to further increase the stake in NKP.

At the time of the offer, Z will potentially own 300-400m cheaply bought shares. The cost to fully take over NKP (ex BEE shares) at 70 cents may appear to be unrealistic, but in fact the total cost is comparable to the NGF acquisition with significant upside for Z to add shareholder value.