SP, implied risking, fair valueNorthland Resources:
IMPLIED RISKING REFLECTED IN TODAY'S SHARE PRICE OF NOK 14.60 - FAIR VALUE TODAY OF NOK 22.50
Overall conclusion:
Today's share price of NOK 14.60 reflects a risking discount of 71.5% for the Swedish iron ore projects and a risking discount of 87 % for the Finnish IOCG projects. If a fair risking discount today is 43 % for the Swedish iron ore projects and 70 % for the Finnish IOCG projects, the fair value per share today is NOK 22.50.
Risked valuation as per June 30, 2011:
USDm
+ 250 Bank as per Dec. 31, 2010
+ 68 Outstanding and future options converted to share capital: DCF YE2010 USDm 65 (estimate) * 1.05 discounted to mid-2011 = USDm 68 & 30 mill. new shares (which has a dilutive effect)
+ 10 Barsele
= 328 Sum of bank, future converted options and Barsele
254m No. of shares pre-Hannukainen: 224m as per Dec. 31, 2010 + new shares due to conversion of options 30 m
945 Unrisked DCF mid-2011 of Swedish iron ore projects USDm 900 YE2010 * 1.05 discounted to mid-2011
A . Implied risking reflected in today's share price if the Finnish IOCG projects are fully ignored:
+ 328 Sum of bank, future converted options and Barsele 328 * risking 1.00 = 328
+ 359 Risked DCF mid-2011 of Swedish iron ore projects 945 * risking 0,38
= 687 Risked DCF mid-2011 if the Finnish IOCG projects are fully ignored
NOK 14.60/share = Risked DCF mid-2011 NOK per share = 687 * USDNOK 5.4 / 254 mill. shares
Conclusion: A share price today of NOK 14.60 reflects an implied risking of 0.38 of the Swedish iron ore projects, i.e. a risking discount of 62 %.
In my opinion a fair risking factor today could be 0.57 instead of 0.38. A risking factor of 0.57 would give a fair share price today of:
+ 328 Sum of bank, future converted options and Barsele 328 * risking 1.00 = 328
+ 539 Risked DCF mid-2011 of Swedish iron ore projects 945 * risking 0.57
= 867 Risked DCF mid-2011 if Finnish iron ore projects are fully ignored
NOK 18.43/share = Risked DCF mid-2011 NOK per share = 867 * USDNOK 5.4 / 254 mill. shares
B . Implied risking reflected in today's share price if the Finnish IOCG projects are included, which is justified:
+ 630 Unrisked DCF mid-2011 of Finnish IOCG projects USDm 600 YE2010 * 1.05 discounted to mid-2011 = 630
+ 168 Share issue YE2012 Hannukainen DCF YE2010 160 * 1.05 discounted to mid-2011 = 168
= 798 Unrisked DCF mid-2011 of Finnish IOCG projects and anticipated share issue Hannukainen
39m No. of new share issued due to Hannukainen
+ 328 Sum of bank, future converted options and Barsele 328 * risking 1.00 = 328
+ 269 Risked DCF mid-2011 of Swedish iron ore projects 945 * risking 0.285 = 269
+ 104 Risked DCF of Finnish IOCG projects and anticipated share issue Hannukainen 798 * risking 0.13 = 104
= 701 Risked DCF mid-2011 of Northland
259.07m No. of shares risk weighted: 254m pre-Hannukainen + 39m due to Hannukainen * risking Finnish IOCG projects 0.13 = 259.07m
NOK 14.60/share = Risked DCF mid-2011 NOK per share = 701 * USDNOK 5.4 / 259.07m shares
Conclusion: A share price today close to NOK 14.60 reflects an implied risking of 0.285 of the Swedish iron ore projects and implied risking of 0.13 of the Finnish IOCG projects, i.e. a risking discount of 71.5% for the Swedish iron ore projects and a risking discount of 87% for the Finnish IOCG projects.
In my opinion a fair risking factor today could be 0.57 instead of 0.285 for the Swedish iron ore projects and 0.30 instead of 0.13 for the Finnish IOCG projects. A risking factor of 0.57 for the Swedish iron ore projects and a risking factor of 0.30 for the Finnish IOCG projects would give a fair share price today of:
+ 328 Sum of bank, future converted options and Barsele 328 * risking 1.00 = 328
+ 539 Risked DCF mid-2011 of Swedish iron ore projects 945 * risking 0.57
+ 239 Risked DCF of Finnish IOCG projects and anticipated share issue Hannukainen 798 * risking 0.30
= 1106 Risked DCF mid-2011 if Finnish iron ore projects are fully ignored
265.7m No. of shares risk weighted: 254m pre-Hannukainen + 39m due to Hannukainen * risking Finnish IOCG projects 0.30 = 265.7m
NOK 22.50/share = Risked DCF mid-2011 NOK per share = 1106 * USDNOK 5.4 / 265.7m shares
Note:
YE2010 = Dec. 31, 2010
Mid-2011 = June 30, 2011
IOCG = iron ore, copper and gold
m = million
Nominal discount rate 10 % p.a. (real discount rate 8 % p.a.)