Canada Nickel Company Inc V.CNC

Valuation vs. Potential Acquisition

[Mike16]

Hi All! Mostly a lurker on this board but I really love the respectful conversation and really informative insights from those clearly much smarter than me. Y'all are awesome.

I've got a question I've been wondering about I saw on another board. Given the PEAs IRR and NPV, wouldn't an acquisition pretty significantly eat into how lucrative an acquisition would be for CNC? Pending MacDaddy and other drill results, if CNC were to be acquired right now, the upfront acquisition cost would affect the net IRR of the project, making it potentially less lucrative and more reliant on speculation of future drill results which would boost up the total NPV. So if a potential exit strategy for CNC would be against an acquisition, if we wanted, say a $1B pricetag and the buyer wanted a net NPV of $1B, we'd need an NPV of $2B+. Am I think about this correctly?

Thanks!

[apapas1973]

Sorry Mike16 I'm not quite understanding your question. If CNC gets bought out for let's say a billion now, then that would be a huge premium. The potential buyer is forecasting that theyre going to be able to justify that valuation with future sales. In other words there's value in it for them and in most cases they would also believe that they could further grow it or at least that

[Mike16]

No, I worded my question very poorly, but thanks for still giving it a response. Makes sense and much appreciated apapas.

[apapas1973]

Now that you have an idea of the NPV and IRR based on the numbers we were given, you should be looking at the picture as a whole. There's a lot of room to grow and a lot of room to run here.

[SeethingHedgie]

Yes, your thought process is reasonable. If one spends a billion on an asset with an NPV of a billion, then they're essentially breaking even. Though NPV calculations are so rife with assumptions that nothing is evrler completely know at the time a deal is made. From a potential acquirer's perspective, the purchase price can generally be thought of as additional capex. Basically up-front

[EndZonefor7]

Just to put it into perspective, Voisey's got bought out for $4.5 billion CDN when nickel was $3 a pound US and copper was $1 per pound US. Mines were shut down all over the place. The purchaser will have decades of profits which is what the majors are all about. A billion is nothing in this game.

[SeethingHedgie]

To be fair, it looks like the grade of Voisey is like 7x that of what we've seen so far from CNC?

[EndZonefor7]

Just to be fair, CNC is much larger than Voisey's (and will continue to add pounds) and it's all about scale, not grade. 

[Mike16]

Thanks--thinking of it essentially as an additional capex is a clear way of looking at it/helps me get the gist.