Its absolutely correct to consider what sort of financing costs we will be up for and how this affects our value.
I've used 10x EBITDA as my proxy valuation for a miner that is up and running, which I am confident is fairly safe/standard. Happy to stand corrected thought? If you are profitably mining metals with room to grow, it could be higher. If you are struggling for profit and have maxed out production, its going to be lower of course.
The multiple on NPAT would be much bigger, but perhaps useful to consider what ARL's NPAT would be to gauge the potential dividends, and again, work back from that to say if you expect 5% of NPAT to be paid out to shareholders, how much would this be, and what does it imply for our future share price.
In my original post, I've also placed a fairly healthy discount from a 2022 earnings scenario to a reasonable MC today, to give plenty of scope for high risk/high return equity investment to come along as our white night.
If you go back and look on the spreadsheet now, you will see I have got a financing costs column, and capex numbers that start off the $600m for 1Mt, and scale up linearly from there with a 10% discount for scale. ie. 4Mt is 4 * 600m * .9. Pretty conservative right?
You can't edit this sheet, but hopefully you can copy it across to your own and then play with assumptions.
I've thrown in finance terms of 10% interest over 15yrs - you will see that even in the worst case metal price scenario Ive got, earnings are still more than $100m clear of financing costs once we get to 1.5Mt or larger. At the bullish end of metal pricing, we are clearing more like $250-$300m for 2.2Mt upwards.
Hopefully didn't make any big mistakes punching this out this morning ! will come back to it later in the day
ARL Price at posting:
86.0¢ Sentiment: Buy Disclosure: Held
