GREY:BNCIF - Post by User
Post by
Larry1952on Jan 18, 2014 7:26pm
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Post# 22108114
Peter Epsteins calculations, are these conservative?
Peter Epsteins calculations, are these conservative?Back of the Envelope Valuation Exercise… As a valuation exercise, I take a stab at the growing amorphous segment and then consider the potential value of the flake graphite operations. I assume that the margins on amorphous sales are about $125/tonne, (just my estimate based on a sales price probably close to $300/tonne). From a few hundred tonnes per month, I believe there’s demand for sales to grow to 500-1,000 tonnes per month by the end of 2014. By 2015, I assume the company could sell 12,000 tonnes x a $125/tonne = $1.5 million of profit. And by 2016, I assume sales grow by 50% to 18,000 tonnes and the margin grows to $175/tonne due to a combination of economies of scale, further on-site processing of the graphite (to upgrade quality) and cutting out the middleman in the sales cycle. Therefore, by 2016 Big North could be generating (my opinion only) annual profit of 18,000 tonnes x $175/tonne = $3 million. Moving on to the prospective flake graphite acquisition, large flake is currently selling for close to $1,500/tonne and fines at just under $1,000/tonne. Based on the historical mix of 80% medium / fine and 20% large flake, that’s a weighted average price of $1,260/tonne. Assuming a 50% margin ($630/tonne) and 4,000 tonnes of finished product in 2016 (vs. 4,400 tonnes of existing mill capacity), that would yield profits of 4,000 x $630/tonne = $2.5 million. From 2017 on I expect that the company would be able to expand significantly above 4,000 tonnes by upgrading the mill. Assuming a moderate scale operation of 8,000 tonnes, Big North could be looking at $5 million of profit per year. Combined, the two segments could be producing annual profits of $8 million within 3-4 years. Ascribing a 5x multiple to that high-margin earnings stream would value the company at $40 million. Big North has 55 million shares outstanding and 82 million fully-diluted. The options/warrants are out of the money. The company has no debt. Assuming that the company issues new shares and exercises options/warrants to end up with 100 million shares, the valuation would be C$0.40 per share, (assumes C$ parity with USD$) which would be a 5-BAGGER. If the company were to issue 50 million new shares and exercise all existing options/warrants the share count would be 132 million and the per share valuation C$0.30. Read more at https://www.stockhouse.com/companies/bullboard/v.nrt/big-north-graphite-corp#It8bqTEQGxxFZDFt.99