Appreciate your detailed response. Just letting you know I do disagree with your assertions and stand by my first post. I'm definitely not trying to change your mind, but re: share valuation metrics, all I can say is recommend a deep dive into Damodaran's standard valuation models, importance of FCF-E and much more. Honestly, its hard replying to all of this stuff and keep it succinct and also simultaneously not come across as potentially kind of condescending, abrasive or a know-it-all, which I would never want to claim to be. Constantly learning, investing dubiously etc.
But I will add some colour/thoughts. I think it's really worth getting into detail and creating your own financial models - not relying on an out-dated DFS (!) That way you can update all the input variables (things have changed a lot on a year to two!), include a proper cost of equity (discount rate) that the market is likely to pay, and so forth. Then you can try and add all the fun extras regarding additional mining commencement risks etc. Speaking of discount rates, I know more than a few African projects that used a 8% discount rate in their DFS. By your logic, the market automatic pays/assumes that equivalent discount rate on those too, no questions asked (!). So no, the market cost of capital/discount rate is not automatically dictated by what an entity chose to report in a DFS some 3 years earlier - it's a banking model to see if the borrower will get the debt repaid reliably (more or less), not what a prevailing share price will be mandated to be.
I will reiterate that your stance on EBITDA is the same as earnings is backwards logic... Just think that through. I mean, yes DA is expensed, but you still need to know the value of it to calculate the actual 'E'. There is of course taxes and interest to pay over the mine life too that don't disappear, even if they are modest early on for SFX. But I also sense there is a degree of maybe talking past each other, as you are relying on SFX's cashflow graph, and just getting twisted on what their quoted 'EBITDA' really means from a final cashflow (FCF-E) perspective. Also, for reference,. EBITDA multiples are commonly quoted for ballpark share price valuations (and some dodgy sell-side research), but nobody serious (buy-side) uses them in a financial valuation, why would they? The I, T and DA components are different for different companies. Enter FCFE (or NPAT at least), of course, the leveller.
P.S Your 6-8 EV/EBITDA is too high in any case, even for mining giants, currently, let alone a small company. SFX is a relatively small project, one mine, 50% foreign owner, ~one customer, opaque-ish, niche-ish market elements etc. You just have to be honest with that profile. Doesn't mean it's not a potentially great little company! I'm a brief-ish former holder and still watching for a reason. But the actual market is not at all likely to put this on 12-13x forward FCF /8% discount rate. Not anytime during Stage 1, imo. If it does, it's bucking the trend elsewhere!
Also, you need to keep in mind on-going (maintenance-related) capex costs. Capex can be significantly different to the DA costs. FCF-E is your friend for mining projects - it's better for mining project valuations because the Capex (used for resultant FCF-E) can be quite different to the DA component (used for NPAT). It's okay if you don't believe much of this, but all you just need to do is read up further and start building a basic model yourself.
Final waffle - I can also meekly suggest that the "40% of the DFS NPV" etc stuff never cuts it, there are so many things wrong with that approach, it's just too simplistic and doesn't capture details that matter. Institutional money isn't resorting to that. You're up against sophisticated market participants (compared to us retailer's) that have constantly updated financial models and smarter risk-calibrations. With my own personal models, I'm still constantly evolving them, and suffer from all the same shit-in, shit-out errors that all models do and I'm constantly learning through experiences. Pricing in risk is hard and a lifelong learning curve. I currently have 60-70 input variables in my overall mining valuation model - too many, as quite a few don't shift the needle too much compared to some glaring variables regarding risk that really make or break a project's risk/reward proposition. As a retail investor, it's just my way/attempt to only get moderately fleeced by institutional money that knows more than me.
The institutional money ~controls the price (eventually) and humbly I suggest it's why you seem to have over-estimated the risked share price valuation for the considerable amount of time that I've read this forum.
All the best and hope SFX continues its success in de-risking the project further over the next 12-24 months. G
P.S. Stage 2 funding, worth another read - it's been a while since I've looked at the details, but I remember there is considerable cashflow currently modelled for funding it. There will hopefully be more scope for higher % of debt funding that with refinancing, all going well. It has the potential to add significant value to do so. I also remember the potential for additional debt funding point being mentioned in the SFX-commissioned research on their website.
SFX Price at posting:
61.0¢ Sentiment: Hold Disclosure: Not Held
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