CIBC Report UpdateThanks Luxor,
Right away I can see where they made one crucial major assumption that no one else did. They assume the super profit tax (windfall tax) will reduce NAV by 20.4%. Is that reasonable?
Let's assume the feasibility study uses a base case scenario of $3.00 copper. According the the new mining law, this allows a taxation rate of 35% on revenue up to and including $3.75 (1.25 times the base case). Everything after that is taxed at 50%. So, $4.00 copper, would have a $3.75 component taxed at 35%, and a $0.25 component taxed at 50%. In other words, just 12.5 cents out of $4.00 is taxed at 50%.
How does that translate into a 20.4% reduction in the NAV?
Even $3.75 copper, the upper limit for the 35% tax, would be outstanding and send NPV8 soaring through the roof. We're currently under $3.20, well within the 35% tax bracket. While BMO and RBC came up with an 8 or 9% total overall adjustment, this single assumption that a proposed windfall tax would shave 20.4% off NAV accounts for the entire difference and requires explanation. It simply doesn't add up when you do the math. Did they believe the windfall tax would apply to the whole amount, instead of just any excess above $3.75? If so, I believe they're probably mistaken.
One other point, I noticed somehow they calculated an interim step where the original $5.25 share price target was reduced to $4.75, before being devalued further to $4.00. How did they go from $5.25 to $4.75? It's not at all clear. They have been very generous with the shears, slashing IVN's golden locks onto the cutting room floor. They need to provide more detail, instead of just a few broad strokes by way of explanation.