Intrinsic Value of Reserves - someone asked.Leading US Aggregate Companies - normally place a value on a ton of reserve (and generally split between what is owned and what is leased).
The calculation of intrinsic value assumes a royalty rate of $US1.00 per ton for owned reserves and $US0.40 per ton for leased reserves, representing the estimated per ton royalty rate that would be currently paid to replace reserves of the same quality, in the same geographic location and in the same competitive position.
The per ton rate for leased reserves reflects a reduction for the current average royalty rate paid for leased reserves. Intrinsic value for reserves, and therefore, the amount currently paid to acquire reserves, varies, sometimes widely, based on the nature and location of the aggregates acquired, among other things. The value of reserves is highly dependent on specific location, quality and other factors.
- When I examine Californian scarcity - most acute in the US - I would use $1.50/ton for owned reserves; and $0.70/ton for leased reserves.
- At Orca - there are 140M tons in the current permit, and my understanding is that adjacent properties add 200M tons.
- Orca - stand alone is worth $US 510M
- Eagle Rock has 757M tons of proven reserves) PLS own 70% interest - apply some discount (30%) as it is currently not connected to infrastructure and Eagle Rock is conservatively valued at $556M.
- The hard rock source adjacent to Orca - I make some assumptions - $0.70/ton x 200M tons reserve life - its worth $US140M (conservatively).
So you even leave Eagle Rock out of it - on a reserve basis you have $US650M in reserves or $765M (assuming long run 0.85 exchange rate).
You could apply some marine risk - but any acquirer wanting to buy PLS on a reserve basis alone would be paying in the range of $500-$765.
As time goes on and PLS move to being a 4M-to-5M-to-6M-to-7M ton p.a. business per year - then the reserve based valuation is totally justified.
It underscores why opening the market chanel at PoLB is so important - as it bring on the hard rock source adjacent to Orca. These initiative are huge pilars of valuation.