Valuation of Four Mile and Arkaroola

Thought I might have a crack at valuing the project...most of the assumptions are based around previous company announcements and some old notes from 2007. This is a basic DCF based on my own opinion and comes with all the usual disclaimers about subjective assumptions, not constituting financial advice, and doing your own research...


Happy Hunting,
Xavier

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Modelled project value for Four Mile assuming total extraction of 168.1m lbs over the next 25 years:

Note: exploration is assumed to another 7 years or approximately 50m lbs of extraction - using just the existing delineated resource, mining ends in FY2033 and the total project valuation falls to ~$600m.

Present value of total project as at 1/7/15: A$725.0m:
Present value of 25% share: A$181.3m
Present value of 15% share: A$108.8m

+ AGS share of stockpiled Uranium estimated to 30/06/15:
[Total project cumulative production of 2.593m lb @ US$36, USD/AUD 0.75]
Using full 25% share, AGS' share (~648,000lb) value: A$31.1m
Using dilution schedule (25% to 15%), AGS' share (~607,000lb) value: A$29.2m

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Total valuation of AGS interest in project and stockpile:
   Carried at full 25%: (add A1 and A2) = $212.4m
   Carried at stage one dilution to 15%: (add B1 and B2) = $138.0m
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Here are the assumptions:

> Annual Uranium Production
   2016: 2.24m lb
   2017: 2.50m lb
   2018: 2.50m lb
   2019: 3.91m lb
   2020-2040: 7.47m lb /pa

>Total Uranium production FY2016-FY2040: 168.1m lbs

> Forecast increase in production from 2019 onward is due to a standalone 5m lb/pa plant being built at Four Mile, at a capital cost of $330m incurred over FY2018 and FY2019. With the addition of the standalone plant, assuming Beverley continues operating, total production capacity increases to ~7.5m lb/pa, and a 12.5% reduction in operating cost per pound is assumed (more conservative than ACE's scoping study released April 2011).

> Uranium Price
   Constant exchange rate of 0.75 USD/AUD
   Base Uranium price of US$45 from 2016, increasing by 2% p.a.
   5% reduction for royalties and marketing
   5% reduction for tolling and management
  Applying these, the realised net selling price would be ~A$54.15 in 2016.

> Other Assumptions
   Operating costs are inclusive of wellfield relocation
   3.0% p.a. cost inflation
   Corporate tax levied at a flat rate of 30%
   Cashflows discounted at 10%
   Valuation includes $330m to build standalone 5m lb/pa plant at Four Mile in FY2019
   Model assumes no residual value after FY2040.

> Resource:
   The total extraction figure is based on
   - 71m lbs 4ME/4MW
   - 50m lbs 4MNE
   - ~50m lbs exploration upside from Four Mile and Arkaroola tenements

> Per unit economics for FY2016:
   A$54.15/lb realised net selling price
   A$30.24/lb all-in operating cost
   A$11.77/lb cash margin, after tax