@Tradeahead Post-AGM perspective on the value of NVOs business, updated through June 28th.
Conclusion: The market is missing the forest for the trees, and NVO should trade at a much loftier SP. Lets have a look at why.
The most pessimistic way to look at any business is derived from looking at its downside. Not because the downside is interesting, but knowing the downside, tells an investor whether he pays for hope, or for assets.
So in a back-of-a-napkin quick rundown of NVOs asset values, what is the business worth if just look at the assets.
We can value major balance sheet components as: (currency conversions skipped on smal assets).
New Found Gold stake 181,2 mill.
Elementum 3D, 12% stake 80,0 mill. (estimate of IPO value)
Calidus 2,0 mill.
Kalamazoo 4,8 mill.
GBM 1,2 mill.
14,000 m2 Pilbara 199,0 mill. (assuming the value held on the balance sheet should be conservative given upcoming bullmarket where gold rises significantly, assets will be revalued upwards)
Intangibles 50,0 mill. (NVOs ongoing projects have additional value, right of use assets, agreements, goodwill, data etc.)
Mill, Nullagine project. 120,0 mill. (refurbished mill).
---------------------------------------------------------------
Assets 638,2 mill. CAD
Using an enterprise value at 571 mill. (backing out liabilities) as against a breakup asset estimate of 638,2, we see that NVO trades WELL BELOW its breakup value/sum-of-parts.
BUT WAIT. NVO just held its AGM, and announced that BC is now cash flow positive for may already. 11,7 mio. in revenue, and 10,7 in costs in BC.
Now having accounted for the asset values above, including the mill, we will not in this calculation also give full value to the future cashflow. (20x free CF at 100.000oz/yr). That belongs in another separate analysis.
But we will add the gold assets being produced in 2021, as they are near term assets. RH stated they expected to boost production every month going forward. By how much we do not know yet, but lets use a 5% Koz growth expectation for an early estimate.
May 11,70 mill. revenue less 10,7 costs: 1,00 million.
Jun 12,29 mill. revenue less 10,7 costs: 1,59 million.
Jul 12,90 mill. revenue less 10,7 costs: 2,20 million.
Aug 13,54 mill. revenue less 10,7 costs: 2,84 million.
Sep 14,22 mill. revenue less 10,7 costs: 3,52 million.
Oct 14,93 mill. revenue less 10,7 costs: 4,23 million.
Nov 15,68 mill. revenue less 10,7 costs: 4,98 million.
Dec 16,46 mill. revenue less 10,7 costs: 5,76 million.
Total BC gold profit in this scenario for 2021 would be 26,12 million in this estimate.
This brings assets up to a total of 638,2 + 26,12, for a grand total of 664,32 million.
Compare this against the company trading at 571 million (debts subtracted), and as a buyer of the stock you get 93,32 million for free. Without counting the future valuation of the free cash flow, which is obviusly MUCH higher.
On top of that ZERO value is given in the above for the operational long term success of these factors;
A. ZERO value given for De Grey style targets which may extend to NVOs grounds. These afforded De Grey a 1,5 billion valuation.
B. ZERO value given for Fosterville style targets at Malmsbury. A potential Fosterville hit could be worth up to 2 billion dollars in an exploration stage.
C. ZERO value given to the wits 2.0 potential, and the option value that NVO represents with blue skies as far as the eye can see. The as of yet unseen is one of the more interesting parts here.
D. ZERO value given to the proper valuation for the future free cash flow from BC.
E. ZERO value given to the fact that New Found Gold is likely to continue to grow at a breakneck pace (already a 10-bagger for NVO! - and 34% of NVOs market cap is now New Found Gold). NFG just found its 2nd Fosterville style target at Lotto.
F. ZERO value is given to potentially revolutionary oresorting technology which may improve Pilbara extraction economics.
G. ZERO value is given to the fact, that as gold will explode in price in the coming years, so will the extraction economics improve dramatically across all of NVOs "gold fields", the known as well as the as of yet unknown.
H. ZERO value is given to the fact the systematic RC drilling combined with Chrysos tech., will provide QH with data to expand BCs 43-101 resource towards more ounces and more accurate targeting to ramp up cash flows.
I. ZERO value is given to the potential upside of a 12% ownership stake in Elementum 3D, with novel manufacturing technologies rapidly gaining favor with US military and NASA, and a high growth rate.
Meaning NVO is a win/win at current market prices. Reward vs. risk is EPIC! Or put differently, NVO trades at a way too low valuation by any standard, it does not even price in moderate success, let alone real success.
Think of an option with a nearly unlimited upside, a time-unlimited option even, priced at a NEGATIVE PRICE of estimated risk per share (as the downside, if the upside did not materialize as expected on all counts, is more than covered by its asset value net of liabitities).
Conversely, is it even likely for NVO to fail on all 9 counts NOT currently priced into the stock? No, that is in fact highly unlikely. Odds are very strong that the stock has nowhere to go, but up.
First target 7,62 USD (indicated by the reverse HSH pattern in NVOs stock, and a measured move from that, confirmed by @AUinvestors Fabonacci target, again confirmed by my seperate free cash flow valuation). That would also form a cup-and-handle pattern, pointing again higher. Further, an 18 dollar+ target can be hypothesized based on Elliot Wave analysis, with less certainty.
Disclaimer: This is not investment advice. DYOD. I am long NVO, this is a quick estimate, along Warren Buffets tenet "It is better to be approximately right, than precisely wrong."