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Created By nickg2 | Read the whole conversation
c31 - My broker "Barclays" say search for Bacanora within their website after 7am tomorrow
Hi nickg2
I have updated the current and potential resource value posted previously (4514) which includes two sections (2 and 3) on the net present value (NPV) and share price. It also contains a summary of the calculations in section 5.
REM CURRENT & POTENTIAL RESOURCES, NET PRESENT VALUE (NPV) AND SHARE PRICE ESTIMATE
I have managed to post this before DL makes changes to REM investment profile and it updates the 8145 post.
The size of this concession still continues to creep into my thoughts as I still cannot believe the massive potential of the Sonora Lithium Project.
At long last we are starting to be recognised as a great investment opportunity and now the share price is advancing in the right direction. All we need now is nice and steady progress and hope that the upward share price movement continues with each release of news.
With the new funding available to REM and shortly with BCN also, we will advance the required drilling to put the size of the concessions on the map. No doubt that REM will continue to increase their strategic holding in BCN.
It will start to become very interesting with all the news that will be released by REM, not only with the Sonora project but with the developments in Yangibana, which is at the phase 1 drill stage and looks good after 5 hole results and in Greenland, where they start exploring on the ground shortly this month.
The update reflects the fact we now have battery grade which increases the price from $6,000/t to $6,500/t and now have a 12.19% interest in BCN, an increase from 11.85% . (Not forgetting the 2.2% share in Western Lithium). A further increase for LCE to $7,000/t is likely and adds leverage to the mine valuation.
The respective resources for LV and JV#1 have been upgraded from (0.93 + 1.483) = 2.413mt to (1.273 + 2.01) = 3.283mt with JV#1 also in the ‘indicated' category.
Also REM have stated that they will be exercising the ‘Earn In' option to take it to 30% on JV#2. Having paid the initial $500k they have up to 26 Nov 2014 to settle the $1 million exploration costs to exercise the ‘earn in' option.
I have removed the ref to sp multiple as this may be misleading when we are talking about the resource value per share.
All of the other REM and BCN projects have been excluded for the present.
The post covers the following sections:
1. An update on the simple calculations of the current resource valuation (La Ventana and JV#1)
2. The potential resource valuation of the Sonora Lithium Project (JV#2). This is based on guesswork.
3. An estimate at the Net Present Value (NPV) and Share Prices over the cocessions based on the current and potential resources for:
a) La Ventana ('Indicated' resource)
b) JV#1 - Fleur / El Sauz ('Indicated' resource)
c) JV#2 - Megalit, Buenavista and San
Gabriel. NPV calc. for only one of the 4 parallel trending structures.
4. REM investments
5. Summary of calculations
1. CURRENT RESOURCE VALUATION (considering LaVentana and JV#1)
mt - is a million tonnes
bn - is a billon
- JV#1 (Fleur/ El Sauz) - REM own 30% and BCN own 70%.
- La Ventana (LV) - BCN own 100%.
- REM has now increased their interest in BCN from 11.85% to 12.19%.
- LV had 930K tonnes of LCE or 0.93mt indicated resource, which has now increased to 1.273 mt.
- JV#1 had a 1.48mt LCE inferred resource, which is now an INDICATED resource of 2.01mt.
- Battery grade confirmed, so rather than $6,000/tonne for LCE it is now $6,500/tonne
- Operating costs of $2,000/tonne as per BCN giving a resource value of $4,500 / tonne.
- Potential to increase the LCE price to $7,000 / tonne and adds leverage to the valuation of the mine
BCN's LV resource is worth 1.273mt x $6,500 /t = $8.2745bn
Op. cost is $2,000/t x 1.273mt = $2.546bn.
So allowing for Op. Costs, the La Ventana resource worth = $5.7285bn
JV#1 resource is worth 2.01mt x $6500/t = $13.065bn
Op. cost is $2,000/t x 2.01mt = $4.02bn
So allowing for Op. Costs the JV#1 resource worth = $9.045bn
Thus the combined resource for La Ventana and JV#1 is $14.7735bn.
Current resource values for REM and BCN from LV and JV#1 above are:
BCN is worth (0.7 x $9.045bn) + $5.7285bn = $12.060bn
REM is worth (0.3 x $9.045bn) + (0.1219 x $12.060) = $4.1836bn
Using an exchange rate of 1 USD = 0.595 GBP.
REM worth is $4.1836 x 0.595 = £2.4892bn (GBP).
REM shares in issue was 5,193,952,384 (21/5/14) and now updated to 5,453,375,717 on 12/6/14.
So REM current resource value per share is £2.4892 bn / 5.454bn = £0.4564 = 45.64 pence. (Resource value per share, not share price)
However there is significantly more resource potential in the ground if you check out all the news and we are obviously not finished exploring.
Regarding additional costs I assume that all costs are attributed to the mining cost of approx $2,000/tonne.
The actual operating costs of $1,958 / tonne stated by BCN in their PEA include all costs attributed to the mining process in the table 13 of Key Operating Cost Assumptions. So in fact no additional costs need to be considered.
Further these cost may reduce, as the cost of the Metallurgical process in the PEA was for Pugging with acid, whilst the confirmed Roast Leaching process, which gave battery grade, is thought to cost slightly less, so in fact the cost may come down. In their April 2014 presentation notes REM refer to possible lower costs of about $1,500/tonne for Fleur and El Sauz, if I read this correctly it was because of the higher grades, so the metallurgy is important. This means any reduction in costs will add leverage to the mine value.
As the lithium is at the surface the mining will be open cast and easy and inexpensive to mine. There will be local labour available as we are close to a town and this is likely to be fairly cheap
The operating costs in BCN report (PEA) include the following: mining at $2.50/tonne, mechanisation, trucking, supplying water from the river, natural gas, buildings, electricity, transportation, staff and labour and presumably other overhead costs. Roads were not listed and capital, which is listed, would have to be raised to build the mine and the processing.
On the concessions, REM have stated they are an investment company and their intention is not to mine the site but to fully explore the ventures and prove the extent of the resource value, then sell it to a miner.
This appears to be different to the BCN approach where it looks as if they are in it for the long haul. However this may well change if REM arranges an appropriate financial package agreement. REM may increase their BCN share so they have a controlling interest or REM may sell on to BCN if they are proceeding to mine themselves or sell to another miner or Tesla, Ford or a Mexican Co. Although REM may not be a miner they may well retain their investment strategy and add stability to the partnership in the medium term.
They may also have second thoughts given the massive potential of the Sonora project.
There is nothing wrong staying invested, when and if, BCN eventually start production. After all this is a large and valuable resource that does not come along every day. REM know where they are going with this, I'm sure as DL doesn't positively tweet for nothing.
As REM are funded for the Greenland exploration and now have $10 million available (YAGM) and have made an immediate draw down of $3 m, it would appear that further buying is most definitely on the cards. Also with the BCN proposed AIM listing and placing there will be adequate monies available to advance the exploration and take it forward to a definable and feasible project in order to declare real value / worth in the ground.
Although the concessions are large it is not just about the Lithium resource value, as there will be other rare metals discovered on the concessions as well.
The JV#1 above is now an 'indicated' resource following the latest 4th June update and we now await an update following the initial 5 drill hole results on the Megalit concession.
Slowly with each set of drilling the potential of the concessions will be revealed and a feasibility study which will upgrade to a measured resource will be the real highlight to the future share price after the anticipated rise when BCN have listed on AIM.
Continuation of post
2. POTENTIAL RESOURCE VALUE OF JV#2 (not yet drilled but has commenced with drill results due for the first holes)
The following is an attempt to value the resources from what we know; however essentially it still remains guesswork until it is drilled.
It has not passed unnoticed that there have been a fair number of indications from the BOD on the potential size of these concessions, particularly JV#2. So I think we have been getting plenty hints re the size of the Sonora Lithium claims.
As we have 10 concessions what are they actually worth?
On 4 June the respective ‘indicated' resources for LV and JV#1 were upgraded from (0.93 + 1.483) = 2.413mt to (1.273 + 2.01) = 3.283mt.
The recent upgrade gave no indication of length covered by the new drilling at La Ventana and Fleur / El Sauz, so the potential resource value will be based on the previous post 4514, for 10Km of drilling with a resource of 2.413mt (and a resource value of $10.66bn).
REM have indicated that the Megalit (JV#2) concession has 4 parallel trending structures extending for a 40Km length with Lithium clay identified on the surface. This amounts to an overall length of 160Km compared to the current drill length of 10Km. (It covers 234,291 acres with 247,451 acres covering JV#1 and JV#2 ). It is hard to comprehend that a resource can extend for 160km or about 100 miles. i.e.approx from Newcastle to Edinburgh.
So if these parallel trending sequences of the Megalit concessions are consistent and contiguous fields in line with what has been drilled and with similar Lithium concentrations, is it conceivable that we may be looking at a 16 fold increase on the previously calculated resources of 2.413 mt for the 10Km drilled length.
Assuming this is the case we have a resource tonnage of 16 x 2.41 = 38.56mt, which allowing for Op. Costs of $2,000, is worth (38.56mt x $4,500/t) = $173.5bn.
Potentially a very large resource value, but still only guesswork until drilled.
Allowing for an 80% recovery rate of Lithium in the metallurgical processing this still equates to resource of $139bn.
Currently the ownership on the Megalit (JV#2) is:
BCN own 90% and
REM own 10% with a view to 'earn in' up to 30% and first refusal to increase this to 49.9%.
REM have indicated in the 27May 2014 RNS that they desire to exercise the ‘Earn In' option, therefore based on this 30% value and ignoring REM's current 12.19% interest in BCN, the potential resource valuations become:
BCN resource is worth (0.7 x $173.5bn) = $121.5bn
REM resource is worth (0.3 x $173.5bn) = $52bn (USD) or £31bn (GBP).
For REM this is a resource value per share of £31bn / 5.4534bn = £5.68 GBP.
Allowing for REM interest of 12.19% in BCN ($14.81bn), this $52bn resource value increases to $66.8108bn or £39.73bn.
Combined with La Ventana and JV#1 this gives a REM resource value of $4.1836 + $ 66.8108bn = $70.994bn.
So that's an update on a guesstimate as to the resource value of the JV#1 Megalit concessions.
Note all other REM or BCN projects have been neglected but there may be some news re these resources shortly as progress is being made.
A simpler approach to estimating the potential resource valuation.
(Still uses $10.66bn and not the $14.77bn with the upgrade as unsure of the LV and JV#1 drilled length)
A much simpler approach is to consider that we completed drilling over a 10Km length across La Ventana and Fleur / El Sauz and now have an indicated resource worth of $10.66bn which is equivalent to just over $1bn per 1Km of length. Therefore with the Megalit structures of (4 x 40Km) = 160Km, we have a potential resource value of roughly $160 bn.
Nice and easy to remember a Megalit valuation of roughly $1bn per 1Km, but still only guesswork at this stage.
The foregoing valuations are only my opinion and may be well wide of the mark with the conjecture / speculation.
How wide of the mark is the guess?
Originally I thought this was pretty ambitious however listening to Kiran Morzaria's presentation at the Investor Show where he talks about the consistency across the parallel structures, he said they could be looking at a 10mt resource, then followed this up indicating it could possibly be the largest lithium find in the world.
Re the recent LV and JV#1 upgrade to 3.283 mt, if this was over 10km and we have 160km field or a 16 fold increase this would be up beside the top Bolivia mines which have a LCE resource of about 47mt.
So perhaps the 16 fold increase in the LCE resource is not actually that far off the mark.
Food for thought and no wonder DL said he had been waiting 30 years for this and they keep saying it is going to be big.
Anyway there is no question that the value of the Sonora concessions are worth significantly more than the current resource value and perhaps we are now playing the waiting game and how long will it be before a miner does a deal and gains a fantastic and profitable resource at a very cheap price Hope not just yet. Most probably if it happens, it will happen before REM / BCN completely define the size and value of the concessions; otherwise the miner / buyer will have to pay us a heck lot more. In the meantime onwards with the exploration.
The only problem I envisage with the exploration is the timescales involved in drilling to prove the extent of the resource. Of course there is nothing to stop them increasing the number of drill rigs deployed. Also once the requisite studies have been undertaken they may decide to commence mining earlier, if that was the chosen path.
Despite the fact REM are an investment Co, I would like to see the REM and BCN venture go ahead and come to production and realise the full potential of this claim. They may receive attractive contract offers for the ore and stay invested; alternatively it may depend on what price they are offered in the future for their interest and it would be nice if the private investors are consulted in the due process. Based on the potential resource value they should certainly have no problem raising finance to progress the mining or to make purchase or fund a merger deal with BCN. Regarding pre production, BCN have already commenced engineering design work to scope and design a lithium carbonate plant with the capacity for 35,000 tonnes to 50,000 tones per year of lithium carbonate.
It may be REM opt to sell all of the JVs or sell a majority share of the ventures and retain a part investment for the future as it is sure to be a big earner in the years to come and this will help REM to develop other opportunities and investments etc.
Retaining the 12.19% interest in BCN, or increasing this, along with the 2.2% share in WLC will certainly provide useful returns in the future and these are currently worth about $9.17m and $1.26m, a total of $10.43m, handy if we need the cash.
The foregoing is purely speculation on the resource value and is an attempt at valuating what the concessions are potentially worth at this point in time until it is drilled.
This is a biggie but the question is how big?
If it is not wide of the mark and we can assess with some degree of accuracy any other associated costs involved and we proceeded to mine it, what would the REM share price actually be worth in the market place? Section 3 takes a stab at estimating the share price from the NAV/NPV.
Needless to say the foregoing also highlights the potential of our JV partner BCN as an investment opportunity and it is not surprising that REM have increased their interest in BCN. It is also interesting to note that whilst the REM and BCN are on the up the WLC share price remains pretty flat.
However according to my post 1830 this showed the 'earn in' option to be better than buying shares in BCN for the same spend. It is understandable though that REM have sensibly chosen to buy shares whilst they are cheap, as the ‘Earn In' option (up to 30% of JV#2) will remain unchanged as the costs have been agreed upfront.
So why are REM buying an interest in BCN?
to get the increased revenue benefit?
to achieve a leverage strategy and go for a merger or takeover?
to get a seat on the BCN board?
to attain an eventual controlling interest in the JV's or even BCN.?
Any thoughts of raising funding through placing etc should not be seen as negative, but a necessity, in order to continue the exploration and realise the full Sonora potential, in addition to increasing our direct share in the JV and share interest in BCN and subsequent share value. - Update - They now have the money through YAGM facility to proceed further.
Also any dilution will be fairly insignificant given the potential resource value of the Sonora Lithium projects.
It just takes time and I would not be surprised in the future if REM negotiates an attractive financial package for the continued exploration and mining especially with potential contracts with Tesla / Panasonic and Ford in the wings (and now Fisker). - Update - They have already done so with $10m now available to draw on from YAGM and this could be the start of future financial sourcing if we decide to go down the production road jointly with BCN and / or deal with Tesla or Ford or whoever. Obviously the option to mine will require more finance than that, but at least it will be shared with BCN.
Remember there are other projects to also consider for REM and BCN which will further enhance the value.
Just think of the current worth obtained from the drilling results and consider the potential worth we have here given the size of the concessions and the potential value once it is drilled.
Food for thought and a little patience and having bought hold on if you can.
It's looking good for a change and we are now up to 1.7p, so still looking good.
Now that we have the upgrade to an indicated resource on JV#1, looking forward to the Megalit / Panasco drilling results and what else they decide to release such as news on the PEA.
Still trying to appreciate how large these concessions are, no wonder I never sleep.
Continuation of post
3.. ESTIMATE OF NET PRESENT VALUE (NPV) AND SHARE PRICE.
The Net Present Value (NPV) and Enterprise Value (which looks at the mkt cap, the debt and liabilities and cash) are economic measures reflecting the market value of a whole business. Price to earnings ratios P/E are appropriate for many companies, but as mining companies have shorter lives another way to look at the valuation is to examine the NPV. I'm no expert at this but the NPV tries to take into account all of the money flows in and out over a period, say the mine life, and work back to see what the present day value is. If this is worked out and a negative figure is achieved for the NPV, then the project is not worth doing.
So let's look at the Net Present Value (NPV) which attempts to value all of the projects future earnings by discounting it back to present day value.
Regarding the concept of present value, what would you rather have £100 now or £100 in a years time, of course you would rather have it now as it will be worth £110 in a years time at an interest rate of 10% say. So the discount rate takes account of the value of the potential investment opportunity.
A project study works out what the future project value is, now, at the present day value and discounts the figures over a period, the mine life, to allow for the potential investment which would give a return at a realistic % interest rate over the period. This discount rate includes an allowance for the degree of risk associated with the project and the discount is often set at 5% interest + 3% for risk, i.e. 8%.
For the La Ventana concession BCN based their NPV calculations on a LCE resource value of $6000 / t and $1985 /t operating costs over 20 years and at 35K tonnes per year (a 700k tonnes resource) and they calculated a NPV of $848m at a discount rate of 8%. The NPV was calculated for other discount rates also. They also considered a capital cost of $114million for plant, royalties of 3% and 34% tax and these are considered in the NPV estimates given below.
The indicated resource for La Ventana was 930K tonne and as at June it has increased to 1.273 mt. So with the calc based on 700Kt, a fairly large portion of the resource is unaccounted for in terms of value. If the indicated resource is accurate there is 573k tonnes remaining, effectively another mine with 16 years at 35Kt/year. BCN are already looking at a scoping study for plant to produce a capacity between 35k to 50k tonnes per year. Uncertain of whether there is a limit to the capacity of the plant or what is practical or possible in this situation.
Basing the calculations on the BCN information, for La Ventana, I estimated at an 8% discount rate, a NPV = $761 million (using what I thought they should be using for the royalty and tax figures) and with the figures they appeared to have used for the NPV, it gave a NPV of $801 million, which is still less than their £848 million value.
So maybe these are conservative values for all of the NPVs estimated and referred to below.
Share price estimate based on the NPV calculated by BCN and NPV estimates for LV, JV#1 and JV#2.
I don't think I have seen any attempts to value the project in terms of share price. I have worked out the resource value per share previously but not the share price. Anyway this is my effort as I see it and it is the end result of working out a fair number of NPV for different resources. I did these on holiday by hand which is a bit lengthy. Re the Net Asset Value (NAV) and NPV see comments at end of section.
a) La Ventana - Based on BCN's calculated NPV value of $848 million and allowing for REM's 12.19% interest in BCN this gives a REM share price of 1.128p. (This assumes that the working capital, investments, and liabilites etc are small, and so this NPV is equivalent to the NAV).
b) La Ventana - A calculation on the NPV for 36years at 35Kt / year for a 1.26mt resource, discounted at 8%, gave a NPV = $930.3 million. Assuming that the working cap, investments and liabilities etc are small, this is equivalent to the NAV and gives a REM share price of 1.237p, (allowing for REM's 12.19% interest).
c) La Ventana - Using different figures on LV for a resource of 1.25mt, over 25 years at 50Kt / year, this yields an NPV = $1,264 million. As above assumed to be the NAV, therefore this approximates to a REM share price of 1.681p (use for Final total as the calc. is based on the top end of the plant capacity of 50Kt / year).
So if the REM share price reaches 1.68p this reflects only the La Ventanna resources, or REM's share of it.
d) JV#1 - With an updated resource of 2.01mt, and for a mine life of 40 years at 50Kt / year, (resource of 2mt), the calculated NPV = $1,404 million. For REM's share, including 12.19% interest in BCN, this is equivalent to 5.904p per share.
So from above, based on the La Ventana (c) and JV#1 (d), both 'indicated' resources, the projected share price of REM = 1.681 + 5.904 = 7.585p.
So still great potential for the share price compared with the current REM share price of 1.7p on just these two resources.
Not bad with still the "the biggie" to evaluate, JV#2 made up of the Megalit, Buena Vista and San Gabriel concessions. This is approx. a quarter of a million acres and has 4 trending sequences extending for a length of 40km (a strike length extending for 160Km).
e) JV#2 - The drilling on the Megalit concessions has commenced and we await the assay results of the first drill holes. It is assumed that the 4 trending sequences are consistent and contiguous in line with what has been drilled, and they have similar Lithium concentrations, as indicated by REM. As these total 160km in length compared to the 10km already drilled on LV and JV#1, this is a 16 fold increase, so assume that the Megalit structures have a resource potential of 16 x 2.41 = 38.56mt.. But it is only guesswork at the moment.
(NB drilling has updated to 3.283mt but unsure of the drilled length, so use 2.413mt (0.93 + 1.483).
To estimate a NPV I have considered only one of the 4 parallel sequences / structures or in effect a mine that is one quarter of the potential resources and is equivalent to a 9.6mt resource. For a mine life of 48 years with a resource of 200K t / year, at an 8% discount, this produces a NPV = $5,751 million.
This assumes, rightly or wrongly, we have processing plant with 4 x the current planned 50K t / year max capability. (This could be treated as 4 plants / mines on the sequence involving the same capital cost for each). Not sure about the practicalities on the mining plant here, other than it gets the ore out of the ground quicker and therefore helps the share price.
This NPV, assuming w/cap, invests. and liabilities are small, is the NAV and gives REM a share price of 24.182p and is an estimate for only one quarter of the JV#2 concession. As indicated previously this is obviously guesswork at the resources until actually drilled, albeit we are getting a few hints at the size of the resources involved.
Therefore the REM share price for all 4 of the trending sequences of JV#2, would be 4 x 24.182 = 96.728p (assuming this multiple approach is reasonable, given the size of the concession).
So summing up the REM share prices for the 3 ventures (LV, JV#1 and JV#2) we have:
Total REM future share price estimate = 1.681 + 5.904 + 96.728 = 104.313 pence.
For interest if we multiply the combined resources of LV and JV#1 by 3, this is 9.849mt, close to a one quarter of the Megalit resource of 9.6mt. So if we multiply their total estimated share price by 3 we get 3 x 7.585p = 22.76p. Not far from the 24.18p above.
I am not an expert but assuming that the methodology is ok that is my attempt to estimate the potential resource values of the concessions and valuate the share price potential.
Everyone needs to do their own research on this, but on the face of it, it is sure to be a real biggie when the resources are fully defined.
A point of interest, mining stocks have a certain amount of leverage and the stocks are often valued at 1.5 to 2.5 times their NAV. One factor is the price of the commodity and any potential increase in the LCE price from $6,000 / t to $7,000/t would add leverage to the value of the mining.
For example assuming the operating costs stay the same, an increase to $7,000 /t would increase the resource value and corresponding profit margins by 16.7%. Therefore in the future a £1 share would easily re rate to £1.17.
A reduction in the operating costs can also add leverage to the resource value and increase the share price. REM have indicated that a reduction in op costs from $1,985/t to $1,500/t may be possible and this leverage adds about 10% on the resource value used ($4500).
I read in a post that the cost could be as low as $900/t but I think this seems rather cheap.
Of course any future valuation depends entirely on the strategy that DL et al have in mind as they now have access to a substantial amount of funding. Will they have a short, medium or long term viewpoint?
DL said it would possibly be sold in 2 years, but will it?
Remember and do your own research, as this is only my take on the current value, the potential value and where the share price is potentially going.
Background notes on the valuation
It is hard to take a company which is not producing and look at it objectively with a view to assessing if it is currently a good investment for others. It is easier when it is only for your own use, but nevertheless the exploration process still has to be done. In the first instance it is hard to evaluate an exploration company when they are not producing, but by their very nature miners tend to be speculative buys, that is until the ground drilling and later feasibility and bankable studies are undertaken that indicate otherwise.
Until this happens the Miners are often valued at levels well below the in ground value as they have no real resource identification. But rather than adopt the attitude that, as they are not producing, they are therefore not worth anything, perhaps it is worthy to at least attempt to assign a value on the share price, even if it is speculative due to the lack of exploration results. It may at least indicate that the company is progressing reasonably well with what has been explored and as the resources are slowly defined, or otherwise, a valuation update can be adjusted or re-estimated according to each set of assay results returned. So if they define across different areas we can add them all up to obtain a current valuation for the project based on their NPVs.
So this was all about attempting to attach some sort of potential value to the share price.
In the Current Valuation section the LV and JV#1 exploration are advancing and are at an 'indicated' resource stage with just over 10km drilled.
However remember we are not as far advanced in JV#2 and it was only my take on a guesstimate on the resource until it is drilled and defined and only when we achieve ‘measured' and ‘reserve' grade categories are we heading towards real value. The more we define the resources, the more we increase our valuation and potential price /worth to any possible buyers.
Note also in the Potential Value section it refers to the resource value per share and not the share price. My effort to value the share price was covered above in this NPV section.
Notes / comments on the NPV and NAV with regards to the above estimates
The NAV = aggregated NPVs + Working Capital + Investments + Hedgebook value - Liabilites.
Assume REM are fully costed for 2014 and that as they have working capital of £5m, there are no liabilities.
Also any increase in cash due to draw down from the $10m YAGM facility they have available eg $3m, is cancelled by an increase in the corresponding liabilities.
Assume BCN investment is included in NPV and estimate REM's 2.2% investment in WL is approx $1.3m (£0.775m).
Value of Hedge book is zero. (as unknown).
Then NAV = aggregate of NPV + £5.0m + £0.775m + 0 - 0 = NPV's + £5.775m
So a valuation of £100m for the NPV will only increase the NAV by 5.77%.
Therefore as the working capital and investments are low (as far as I know) compared to the NPV, the share price will only be slightly higher based on the NAV, hence the share price calculations above have been estimated using the NPV only.
Continuation of post.
4. REM INVESTMENTS AND WHAT ARE THEY SPENDING IT ON
What can REM spend the money available to them on?
REM currently have 2.2% of WLC shares and they now have 12.19% interest in BCN equivalent to 7,772,000 shares, assuming 63,780,812 issued.
Re the BCN offering, it started me thinking about the fact that REM have these monies available. If it is possible for REM to buy all of the £4.75 million offering of BCN at 33p / share, for a total of 14,393,940 shares plus their existing 7,772,000. This is equal to 22,165,940 shares or 28.35% of the total BCN shares in issue after the offering, (78,174,751).
This 28.35% combined with REM's 30% will give REM an economic interest of 49.85% in JV#1 and also in JV#2, that is, once they deliver on the ‘earn in' option and take the JV#2 share to 30% from 10%. This ‘earn in' option for a further 20% is cheap at $1.5 million or £892,500, at around 5.71p per share (new total) and will no doubt be the last cheap purchase.
So RM would have a half share of the JV#1 and JV#2 concessions and a 28.35% share in BCN's La Ventanna, not too bad a venture to be invested in..
In addition they still have the option to further increase their interest in both JVs by 19.9% from the 30% to 49.9%. To increase to 49.9% interest is thought to be a more complex affair and would be negotiated between BCN and REM and the costs involved may be more than the 33p per share placing price or even more than the $1.17 recent high. I suspect this will not be a cheap purchase.
At the recent high of $1.17CAD or 63.795p, this further 19.9% interest (15,556,775 of the new share total) in BCN would cost £9,924,444GBP. Perhaps they may be able to negotiate less than this or say the absolute minimum is the 33p share place price, which would be around £5,133,735, a £4.7 million or so saving on the current price. However it would be surprising if REM were able to negotiate anything that cheap and why would BCN sell cheaply when they know the mkt. value?
So assume to increase to 49.9% for the project would cost a $10 million. Anyhow if we forget about the cost and look at the percentages.
This option, taking REM to 49.9%, combined with the current share interest of 12.19% which becomes 9.94% after the placing, would give REM and economic interest of 54.88%.
So if we combine these and assume that REM were able to or could afford to purchase both of the above options. i.e.
a) spend £4.75 million as above to take them to 28.35% interest and
b) negotiate an increase from 30% to 49.9% interest in each of the concessions
this share of 49,9% combined with a 28.35% share of BCN would give REM an economic interest of 64.1% in the joint ventures.
This would cost REM £4.75 + £ 10 = £15 million say.
It may of course cost REM much more to increase REM's stake to these levels
These ventures are looking like they could be very interesting. Lots of money in both of the pots shortly to aid exploration, purchases, studies etc.and once REM pay their ‘earn in' for JV#2 then they will be sharing the drilling costs with BCN as they continue to completely define the extent of the concessions.
The approach that REM adopt has no doubt already been decided as they are in my opinion well and truly focused on their strategy regarding the Sonora project.
As REM and BCN appear to have a good partnership I hope it stays this way as they collaborate and continue to progress and develop the exploration and realise the full resource potential. Production is on the cards for BCN and I think REM will retain their investment interest and strategy for the time being as they know full well the value once out of the ground. Therefore in the short term hopefully REM do not sell at a huge discount just for a small multiple in profit and if someone wants their share they will have to pay at a decent price.
So that's it. Remember do your own research as this is just my opinion and take on valuating the resources of the concessions.
I hope we all enjoy in the development of this fantastic opportunity.
DL says it will blow your lights out, with the losses I had with the banks, I can't afford lights.
I am glad I saw the light with this one though.
Joking apart all will be revealed,
5. SUMMARY OF CALCULATIONS
A. Current Resources for LV and JV#1
i) We have a resource for LV of 1.273mt, after costs worth $5.728bn
ii) We also have a resource for JV#1 of 2.01mt after costs worth $9.045bn
iii) A total resource for LV & JV#1 concessions of 3.283mt, worth $14.773bn
iv) From these REM resource worth is $4.183bn and BCN is worth $12.06bn
v) From this REM has a resource value per share of 45.58p
B. Potential resource for JV#2 (the Megalit, Buena Vista and San Gabriel)
i) Potential resource is approx 16 times the 2.41mt (LV and JV#1 resource) which is 38.5mt (based on guesswork).
ii) At $6500-$2000 = $ 4500/tonne, this is worth £173.5bn
iii) BCN 70% resource is worth $121.5bn
iv) REM 30% resource is worth $52bn
v) REM resource including 12.19% interest in BCN is worth $66.81bn
C. Combined potential resources
i) For LV, JV#1 and JV#2, the resource is worth 41.783mt worth $173.5 + $14.773 = $188.273bn
ii) REM is worth $4.183 + $66.811 = $70.994bn.
D. Share price estimate from NPV (w/cap, invest. and liabilities etc, low cf NPV, so assumes NPV = NAV)
i) LV - For REM interest in BCN, using BCN's NPV of $848m, the share price is 1.128p.
ii) LV - For REM interest in BCN using NPV of $1264m, the share price is 1.681p.
iii) JV#1 - For REM interest (38.533%) using $1404m, the share price is 5.904p
iv) LV and JV#1 for REM the combined share price is 1.681 + 5.904 = 7.585p
v) JV#2 - For REM the share price is 96.728p but guesswork and needs to be drilled fully
vi) From the total for the 3 concessions, the REM share price is 1.681 + 5.904 + 96.728 = 104.313 pence.
E. REM investments
i) Re BCN offering - If they can buy £4.75m BCN shares, giving a total interest of 28.35%, this combined with REM's 30% this will give REM an economic interest of 49.848% in JV#1 (and in JV#2 once they deliver on the ‘earn in' payment).
ii) If they can increase to 49.9% from 30% for the JVs. This combined with the 12.19% (9.94% after placing) would give them an economic interest of 54.88%. But it may be costly.
The 19.9% is 15,556,775 shares (of the new shares total) and at $1 a share costs $15.5m or about £9m,.
iii) If it was possible to combine a JV share of 49.9% with a 28.35% share in BCN, this will result in an economic interest of 64.1%.
Food for thought and just think of what else may be in the ground; not to mention the possible resources at Yangibana and Greenland and the borate value for BCN, all still to come.
GLA
Gil
Tweeted By nickg2 | Retweet
in all the long year I have been trading never had a so called 10 bagger , could this be it . Just as interest have any of you had very large percentage gains as I don't think it happens very often
Phil, I'm interested too. Even finding a co that doubles is pretty rare. Someone once pointed out to me that if you start with £1000 you only need to find 10 doublers in a row to make a million...
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