Critique of Offer
Corrected Paradigm Valuation should be $1.59 to $2.07
The summary of the offer is found on page c-30 where all the factors that were used in calculating the target prices. I have issue with their following assumptions.
P/NAV
This cost flow analysis which is a significant determiner for NAV calculation only included two and three years for life of mine of Irokinda and Zun-Holba and up to four years and six years respectively for these mines at the high side. This is substantially undervaluing this asset based on the recent technical report and as a result we should reject this valuation. Furthermore, there was no indication for adding Prognoz Silver as assets.
P/CF does not factor in the $300M of liquid assets that HRG owns. This adds about $0.35/share
Analysts Target Price is irrelevant to our valuation since they are out of date.
Historical Prices are also irrelevant to our current valuation. We are asking a firm to value HRG based on what exists currently, not what the market has valued it in the past.
Therefore, to ascertain the correct value using the numbers from Paradigm but taking out P/NAV, Analysts Target Price and Historical Price from the valuation and adding $0.35/share to the P/CF numbers produces the following:
| | weight | low value | high value |
| Transaction Premium | 15 | 1.81 | 1.94 |
| 2013 EV/EBIDTA | 10 | 1.42 | 2.02 |
| 2014 EV/EBIDTA | 5 | 1.59 | 2.29 |
| 2013 P/CF | 15 | 1.57 | 2.16 |
| 2014 P/CF | 7.5 | 1.49 | 2.05 |
| 2013 P/E | 5 | 1.51 | 2.37 |
| 2014 P/E | 2.5 | 1.41 | 2.3 |
| P/BV | 5 | 1.64 | 1.67 |
Target valuation between $1.59 to $2.07
Since Nordgold has a valuation of $4.04 to $6.00
HRG should be valued at a minimum of 1/3 the current Nordgold share price for a share swap.