RE:RE:RE:RE:RE:SeekingAlpha:Fission Uranium Game Changing Catalyst Pending Yeah Quakes, good points on what I would guess is muddy conditions/frozen later groundlake, and forest fires last summer. The challenges of last drill season and this one, climate-wise, seem a bit more signficant than in previous years....
Makes sense for the under lake drilling in particular with regards to ice...
They did only have a cash balance of $5-7 million prior to the CGN deal closing, so it would have been a bit irresponsible to go nutty on the drilling plan without 100% certainty the cash would be in the bank. The expansion of program for the new Western high grade pod at 840W is a nice bonus.
With respect to NPV, I have my degree in Finance, so the numbers side is always interesting (and manipulative) from a sensitivity analysis perspective. For example, the value (Net Present Value) is extremely sensitive to a large number of variables, particularly the longer out you are predicting.
Number of Years
Pounds mined/sold per year
Exchange Rate of US to Canadian
Spot Price in US Dollars - FCU or its purchaser will sell 20-35% of production at around Spot
Futures Price in US Dollars - FCU or its purchaser will likely sell some of production based on futures contracts
Then, there is the big question of what "Discount Rate" to use.
Traditionally, 8-12% is used in many stock, cash-flow analysis exercises. 10% was used in Seeking Alpha article.
BUT, arguements could be made, that since this is an explorer/miner/energy stock perhaps a higher risk premium should be accounted for, in which case it would be fair to increase the Discount Rate to maybe 12-15% in some cases. That would result in a lower NPV value.
On the other hand, we are in interesting times with respect to interest rates or discount %'s because the world is at historic low "risk free" interest rates, and the banking systems are actually facing "negative interest rates" or the potential thereof in many cases. So I personally think a valid counter arguement would be that the NPV of future cash flows could use a FAR LOWER discount rate, because realistically, returns of 8-10% are, on a net of risk basis, significantly higher when the cost of money is only 2-3%.
For example if you can borrow at 3% and invest and expect a return of 9% for 10 years, that is pretty good.
It is significantly better than borrowing at 8% and expecting a return of 12%
Which scenario would you choose?
You can see how NPV is hard to compare and calculate realistically due to the high number of assumptions needed. All you can do is compare to historical valuations and tweak according to current situation and informed guesses as to future over the period anaylsed.
The only thing FCU can really control is the number of pounds in the ground it discovers, and to a lesser extent how much it spends to prove them up.....
The more pounds in the ground, the more can be sold per year, and the longer the life of the mine, hence a higher NPV.....
So, of course, the more drilling done, assuming a continued good hit rate, means, better NPV and potentially economies of scale and improved strategies to minimize costs.......therefore drilling season is very exciting......
I agree, a "Mammoth" Summer Drill season might be in the cards.