MINIMUM VALUATION SCENARIOS ... $2 TO $5.60 PER SHAREIn my previous post I have calculated the valuations for Verde based on the 3 phases proposed in the PFS up to 25 million tons per year, which as explained, I believe to be the most likely scenario under the circumstances and for all the reasons outlined.
Also you can certainly see now that the case for supply security, as was previously discussed, is becoming a more pressing issue now that we have a trade war under way and increased political and economic tensions all around.
However, I would also think it prudent to consider the alternatives at the other side of the spectrum on the basis of taking into account only what is already in motion or what is very highly likely to happen knowing what we know today. In other words the certainty of 150,000 tons this year with permits already in hand, and the near-certainty of 600,000 tons next year.
As such, due to the vast resources compared to these relatively low production figures, and for simplicity's sake, I have opted to use a calculation method used for perpetuities which are perpetual annuities; that is a set annual payment, such as a dividend, for ever. The discount rate used is 5% which I consider to be quite reasonable in this instance.
SCENARIO 1 : 150,000 tons / year
Let's just consider that Verde will only produce 150,000 tons every year since that has already been approved and it is now gearing up for production. It should have no problem selling this insignificant amout of 25,000 MOP-equivalent tons.
How many years will it be able to sustain this with a 3.3 Billion ton resource ? Well, it works out to 22,000 years which I think you would agree is a very very long time. A perpetuity.
A profit of $24 / ton would yield US$3.6 million i.e C$4.65 million which is about C$0.10/share.
Note that I am not deducting taxes in this particular case because Verde would not have pay any for 15+ years at least due to the deduction of $50+ million in expenditures already incurred.
So, 3.3 BT @150,000 tons / year for 22,000 years @ $0.10/share @5% NPV = $2.00 / share
SCENARIO 2 : 600,000 tons / year
Now let us consider the very likely scenario that Verde will ramp up production and sales in 2019 to 600,000 tons which is not unreasonnable. After all, this is only equivalent to 100,000 tons of MOP, which, in a 6 million ton market, is a drop in the ocean.
The production run would however be a little shorter: only 5,500 years. I am certain that you would also agree to call this a perpetuity especially in view of the fact that bishop Ussher's date for the creation of the universe is 6,000 years ago on 23 October 4004 B.C.
So 3.3 BT @ 600,000 tons / year for 5,500 years @ $0.275/share @5% NPV = $5.60 / share
Therefore in considering the 2 " worst case " scenarios above we obtain a share valuation of C$2 and C$ 5.60. I think you would agree that knowing what we know today the phase1 scenario of 600,000 is most likely to happen next year and so, the most favored "worst case" valuation number here is $5.60.
Either way we can see that in both scenarios the share price today of around C$ 0.80 is grossly undervaluing the company which should provide a great deal of comfort for those buying at these greatly discounted levels, like me.
P.S. You can also try the perpetuity calculation yourselves; just plug in the numbers you feel are appropriate in the link below:
https://ultimatecalculators.com/present_value_perpetuity_calculator.html