valuations by brokers, page-2

rebel,

have a look at the underlying assumptions when they calculate the net present value.

A lot have outdated commodity scenarios that have little resembalnce to the real world but the analysts are forced to use them as the 'house economist' says they are the figures to use.

Then there is a wide range in the discount rate utilised-5-10%. Few try and justify their particular rate and the rate selected may halve the value based on an historic 'whim'.

Then the lack of optionality-when you discount earnings at 10% there is little value left after 7 years, yet the project may have a 20 year minelife. There is an entrenched option value for the length of a project that the analysts rarely attempt to calculate. The nearest you get is something along the lines NCM is trading at a 2.5 times multiple to our net present value, which is the industry norm. That is gobbledegook.

It is the effect of this last paragraph that leads to decent Australian mining houses being taken over by North Americans-they (Nth Americans) value long life projects/market % of global production scenarios better than we do .

The OX has a number of projects with a minelife greater than 7 years so it invariably gets silly net present values thrown against it.

Cheers,TAS