DCF-valuation - an example (1 of 2)I don’t know if any of you are interested in understanding going concern valuations. If you are, you can study my modelling of Stora Sahavaara below. If not, you can ignore my posting.
Derivation of Discounted Cash Flow-calculation of Stora Sahavaara (USD 3,03 per NAUR-share per year end 2007):
145 mill. tonnes of magnetit: Resource base declared acc. to NI 43-101
105 mill. tonnes of magnetit: anticipated additional resource base in the future
=250 mill. tonnes of magnetit: anticipated resource base in DCF-calculation (going concern)
43% Fe: Iron content in-situ in magnetit
67% Fe: Concentrate grade in iron ore pellet feed (after beneficiation) (reference to NAU-message 2007)
10%: Iron losses during upgrading process (as for LKAB in 2006)
57,89%: Weight yield iron ore pellet feed = (43-10)/(67-10)*100
2%: Weight increase during pelletsing process (because of additive materials)
59,05%: Weight yield iron ore pellets (saleable weight) = 57,89*1,02
147.630 mill. tonnes of saleable pellets during anticipated mine life = 250*0,5905
29,5 years: anticipated mine life in DCF-calculation = 147.630/5 mill. tonnes pellets annually
65,6% Fe: Iron content in saleable pellets product (reference to NAU-message Oct. 2, 2007)
110 USc per Fe-unit (%): Iron ore product price (Blast Furnace-pellets similar to LKAB), average USc per Fe-unit over mine life expressed in the value of 2006-money, and nominal price increase is assumed to 2% p.a. 2007-contract price is 131 USc per Fe-unit (as for LKAB). Anticipated increase of at least 20% (could be 25-35%) to 2008 to at least USc 157 per Fe-unit. Current spot price of Indian iron ore exported to China is about 40% above Brazilian contract price for 2007 when the Indian price is converted to FOB-Brazil-equivalents. For Hannukainen the long term price assumption is a 10% premium on the Stora Sahavaara pellets because Hannukainen is assumed producing only Direct Reduction-pellets. If we assume a pellets price spot equivalent today is 40% above 2007-contract price, the long term price assumption in the DCF-model is 40% below todays spotprice equivalent (100%-110/(131*1,4)*100%= 40%).
72,16 USD per tonne of saleable pellets: Iron ore product price (average USD/tonne over mine life) expressed in value of 2006-money = 110*0,656
1,80 USD per tonne pellets: Net smelter royalty (2,5%) to Anglo American = 72,16*0,025
41,64 USD per tonne pellets: All operating costs excl. depreciation/amortization and net smelter royalty expressed in value of 2006-money. Equivalent to LKABs 2006-cost level in SEK adjusted for today foreign exchange rates (USDSEK= 6,50), open pit cost advantage for NAUR (the first 15 years) and lower in-situ Fe in Stora Sahavaara compared to the LKAB-average, and Northland’s cost level upped with higher freight costs (to a freight level of USD 5-6/tonne as indicated on AGM Sept. 18, 2007) and increased energy costs due to increasing energy prices. Consists of the sum of freight, cash costs in producing pellets and fixed expenses (sales, general and administration, R&D).
2,18 USD per tonne pellets: Capital expenses related to maintenence expressed in value of 2006-money
26,54 USD per tonne pellets: average net cashflow during mine life expressed in value of 2006-money = 72,16-1,80-41,64-2,18
132,7 mill. USD total net cash flow annually from pellets = 26,54 * 5 mill. tonnes annually
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