Just getting back on that news article in 2006 when Sagey put a valuation of $70 oz on IGC.
Having combed through the available broker research and done some simple arithmetic comparing market caps/resource ounces of IGC and NKP, the valuation of the share issue to the Black Empowerment Group for its 59% of Tubatse and the value of the sale of the sale of the De Wilt project to Xstrata, looking at a table of comparable market valuations, I have absolutely no doubt that Sagey was talking bullshit to the media. The 100M ounces “potential” is also probably an over the top estimate pulled out of the arse of the consultants doing a non JORC estimate.
The only companies that you would attribute $70 oz to as a valuation (Enterprise value) are the largest producers such as Lonmin which has substantial reserves inside its resource inventory, has the infrastructure in place and is a producer.
If you are talking resources only, with no reserves, no infrastructure (including access to power or water) then the price being paid by NKP is actually a very good price.
IGC has an attributable resource of 3M ounces with a potential of 6M (and thats a big rubbery if). That’s what it has or could have if it keeps spending money and keeps drilling and succeeds at getting to the full potential. Think lots of cap raisings and dilution along the way as part of this process.
The reason the market does not usually pay more than $4-$10 a resource ounce, is because there is a large number of major hurdles to get over and this happens over a very long time. As they say, Platinum is the hardest game in mining bar none. Few nake it into production.
Without a major like Xstrata, NKP & IGC would be going nowhere fast. It is simply not possible to get to production without a major carry the load.
If the BFS had been finished and Xstrata had exercised its option to joint venture then we could talk higher amounts but there are still significant risks to Xstrata actually moving forward. NKP is actually funding the BFS, Xstrata only reimburses if it goes ahead from what I can gather.
Xstrata can potentially solve the power issue by diverting surplus power from its Chrome processing operations but even Xstrata can’t solve the water issue. The dam that will supply this project with water will not be finished before 2013. To get access to water earlier, then an acquisition needs to be made for a company with water rights in the region and guess what, one of the 2 likely candidates is Platmin (17% held by CopperCo).
Sagey is clearly not one to wait around and take the risk (have you noticed he is actually quite risk adverse and hence he never mines, he just drills and sells) and thus grabbing his share of the $60M cash is actually a good risk adverse result. The price of $10 a resource oz (current inventory) is at the high end of the range. The valuations, although we haven't seen them, actually tie back to real live market facts.
Punters who want to stay the course can simply take the cash and buy NKP but the better analysts put a maximum valuation of 45 cents on NKP last year using a medium Platinum price of $US1,600 oz. The $7.50 a share is a work of fiction in my opinion (read all the broker research and you should come to that conclusion as well I reckon).
Once the project is fully operational and producing over $1M ounces a year (a big if) then a share value of $7.50 would seem to be at the very high end of the spectrum although I would not see it as a huge issue during another bull market for the metal.
I’m going to take the cash when it comes but not switch into NKP. Well yet anyway.
I’ll have a look at it at BFS completion time and this is likely to be sometime in the first quarter of 2010 now. It will certainly get a decent kick in price on a positive BFS AND Xstrata exercising its option.
By the way, it became bleadingly obvious to me why there has been a delay in the completion of the funding package for NKP. The funders are simply waiting for the infill drilling to achieve a certain reserve target (the actual amount I have no idea)
I believe that this will be resolved as at 30 April 09 with the release of NKP’s end of March quarterly results.
NKP already has 4.5M oz in the lowest reserve category and this should be further increased in the coming quarterly.
Its reserves you use as security for you loan, not resources. Mystery for delay solved, it simply has taken more time to achieve the reserve target (the bankable security) required by the lender/s and/or investors who are chipping in the $60M.
Unfortunately Sagey was just bullshitting the media back in 2006 to get interest in the stock I afraid (or he believed that bullshit himself). The $70 oz value was pure 100% bollocks. It doesn’t remotely marry up with market evidence.
PS. By the way, when you look at the resource size, you need to shave off say 20% up front to adjust the resource size in the ground down to the actual mineable resource (1.2M width is what is used).
The 40 cents is a good deal, what I have just finished reading has just further cermented my original intention of grabbing the cash and moving on.
IGC Price at posting:
24.5¢ Sentiment: Buy Disclosure: Held
