RE:RE:RE:RE:RE:Further Discussion - History of ETG and Oyu Tolgoi My view is we are now watching the unravelling of the dilemma faced in 2009 - ETG couldn't be valued by either ETG or prospective take-out candidates (probably OTLLC) because the political situation didn't allow follow-up drilling to confirm the size of HNE or the value of potential game changer JV targets like the X-grid and Zone lll. And there are several other "high priority" targets.
$5 a share CDN for ETG would be approx $800 million USD. The buy-out valuation for TRQ ended up at $6.4 billion approx, so that would be 12.5% of the TRQ valuation.
You and I both think the TRQ valuation was low, first because it was at the bottom of the range of fair value TD calculated, second because they used such a thin price for long term copper - $3.50. Which might be great for a 50 year price, but it's the first 15 years where 90% of the value lies, and you can argue pretty convincingly the average 15 year price from here is likely to be more than $4 and closer to $5 lb/cu.
it's tough to accurately back out the relative weight of value in TRQ in Hugo North (non-JV) 66% after allowing for the Mongolian 34%, vs. Net 53% of HNE (80% less 34% of that to Mongolia). Plus the timing of the panels favours the non-JV ore for the first couple of years.
The Edison report using $3 CU and $1200 AU came up with $3.40 for ETG ... you can boost that with higher metals prices, the elapse of time since then (or advance of ETG cashflow), and possible reduction in attributable financing/development costs for ETG (which may be the subject of the arbitration). BUT, you may have to discount with some leverage on the Mongolian/Rio side to account for IA treatment and the Mongolian refusal to pay for any portion of the acquisition cost of 34% of ETG - a problem that might be avoided IF the purchaser was a third party like BHP and the Mongolians gave like IA treatment in return for the buyer giving up 34% of ETG's carried interests to Mongolia.
The big uncertainty is what additional NPV should be attached to HNE as it almost certainly has a larger Lift 2 valuation. And if they hit a valuable additional target, especially a shallow one where ETG is entitled to 30% on the JV, all bets are off. Then even $5 might seem to be way too low.
Right now we're all just guessing and tossing around potential outcomes ... what is more than clear to me is given strong copper and gold markets for the next 15 years, and even if there is a discount for Mongolian acquisition of 34% in return for IA treatment - $1.37 CDN is way below fair value to be expected today. But that is kind of a crutch for me because I have no interest in selling at this level, even though I am overextended and sitting on substantial unrealized gains. My hope is those best positioned to value ETG fairly - management, Horizon, Mongolia, Rio ... potentially a third party entrant to OT, can sit down and hammer out a fair value. Hopefully not until the drills have had a few good swings of the bat about those potential upvaluation targets on the JV?
It's such an obviously great proposition I'm expecting to see progressive grinding up in price ... towards $2 perhaps, way below a take out price, but where the calculations of risk and reward get a little dicey pending more drill data and exploration results.
It's all good. One drill result could blow up ETG's value way beyond $5. Dare to dream, it's still an extraordinary series of mineral deposits with lots yet unproven.
cg