Why Syrah Resources is too Expensive, page-2

LOL

Chief Investment Strategist.............. umm! Very sad.

The discount rate is the value chosen for NPV analysis based on 2 main factors.

1. The time value of money
2. The cost of capital

The time value of money is reflective of the effects caused by inflation and the opportunity cost of missing interest earned on that amount of cash. Inflation and interest rates on deposits are very low at the moment in USD terms.

The cost of capital is reflective of interest rates and loan costs on capital borrowings; plus the costs related to any capital obtained through equity (both direct and indirect). That is called the weighted average cost of capital. There is also a risk factor that can be applied to moderate the discount rate up or down. Basically, that modifying factor relates to technical risk more than any other. Considering the low rates of interest in general around the world at the moment combined with the very low technical risk for SYR, it is fair to say that the old 15% rule for mining development does not apply in this case.

Additionally, the discount rate also needs to take into consideration secondary factors like the time period the NPV calculation is being applied too, plus a modifying decision depending on reasonable judgement relating to the payback period of any debt. funding. That is all 'management accounting' stuff that relates to in-house company accounting and ultimately Board decision making. It is called the capital budgeting process and is a discipline for 'Management Accounting'.

Finally, this Chief Investment Strategist does not make comment on the conservative basket price used for calculating the Revenue component of the NPV calculation. At $1000 per tonne there is good potential for the actual price obtained for the basket of goodies to be above $1000. That makes the NPV of the project even better than what this commentator is trying to suggest.

No denying there is still some market risk to overcome; but that really applies to the basket pricing, hence revenue estimates, rather than the 'discount rate' used in SYR's NPV calculations. The commentator might be able to make a better case if he addressed market risk rather than the misleading opinion about discount rate. The thing about market risk is that nobody in this whole wide world really knows the answer. It is all opinion and best guess and wild ass picking.

All this piffle is very tiresome. DYOR and don't rely on mouthpieces with their own agenda and likely to speak with fork tongue.

Cheers