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A couple charts:
I believe Niocorp is an event-driven name in the short term, especially given the path to FS we are on. So with that in mind, I also believe the recent events of increased interest in PP could be the catalyst for a move higher. In my opinion, we need to view NB.TO (as opposed to NIOBF) when checking out the technical analysis in this name.
Here is the short term chart:
You can see what appears to be a major reversal, corresponding to the PP time frame recently. Bounce off the lower bollinger band and major up swing out of the channel to .75. (At .74 currently).
Here is the long term chart:
Bounced off the lower bollinger band and made a run to the key point around .74CDN. Points to .85 as a resistance point in the near term. Price action had a similar look at the beginning of '16 - with a bounce off lower bollinger band and then a major upswing to the top of the channel.
Of course, this is all witch-craft and I don't necessarily buy in. But a lot of people do, so we should at least keep an eye on the levels.
-DP
LM,
I used historical prices for each of the three metals. Then I brought them into 2016 dollars, then looked at their trend over time as well as their volatility. Simple model to give me a guess on what the average price of the metals might be over the life of the mine. Nothing more than an educated guess. Thanks for taking a look.
-DP
Real Options Model - refresh
Hey everyone,
I'm posting this here as a point in time reference pre-FS. Also for public shaming purposes if this method ends up being dead wrong. This is a summary of my workhorse model of the Elk Creek project. It uses the real options valuation methodology we have touched on in this forum before. Typically I don't like to throw around future prices or estimates because they will almost always end up being wrong. But if any of you here are doing your own models, it might be good to share assumptions. If you would like to create your own, here is a spreadsheet that will guide you through the basics - Real Options. If this isn't your thing, disregard.
Each blurb is the component (in italics), the calculation or estimate in bold, then some brief notes.
Estimated annual after-tax cashflow after developing resources *** $239MM *** Using company production estimates @95%. Operating Margin @55%. NB@$43. TI@$7. Sc@$2200.
Standard deviation in the price of the natural resources *** 29% *** Historical variance of prices in NB, TI, Sc. Rolling volatility model.
Present value of the cost of developing the resource option *** $995MM *** Using company initial capex + NPV of debt cost @6% interest rate
Life of project in years *** 32 *** Company Est
Risk Free rate over life of project *** 4% *** US 30 year bond + 1%
NPV of the natural resource option *** $5,906MM *** Black-Scholes-Merton pricing method
Outstanding Shares *** 191.7MM *** Latest data as of 2/2017
Dillution Est *** 164.5MM ***GUESS*** Based on equity raise at a valuaton of 3.5x short run earnings = ~800MM (similar to market conditions today of other small cap miners).
Fully Dilluted Shares post equity raise *** 356.3MM *** Outstanding + Dillution
Potential Share Price at steady state production in $USD *** $17 *** NPV resource value divided by Fully Dilluted Shares
This is why I'm still here. This is a standard valuation model - based on market conditions and estimates from the company. If the FS comes back and validates these company estimates, NioCorp would be in a very favorable position moving forward.
-DP
LM,
Noticed that too, but I think the phrase he used: "non binding" is the tell there. For the NB offtakes, they are fully enforceable i believe. So he might be saying the company doesn't want to get in to non binding deals. I might be reading too far between the lines though.
-DP
I would be fine if the BFS matched the PEA. Validates the claims made by the company. The market might view that positively.
-DP
I really hope they know what they are doing. My initial reaction is negative. Need to do some research. Keep the posts coming, some good thoughts this morning.
-DP
Haha! Right you are. $21.3 all in. I'll take it.
-DP
If I am reading correctly, looks like removing $21.3MM in up front CAPEX. Plus removing 24% of that from contingency. So another $5.1.
Is that how you are all interpreting that last paragraph?
Agree, WS.
I think of it this way:
We aren't buying into a diversified mining company with a couple active projects and a few in the pipeline - we are buying one *potential* project. This company has one project. The share price of the company is based on one project. Not one product (alloy production via many mines), one project. This situation has many, many risks. If one link in this chain doesn't hold (Capex costs, financing, permits, etc) then chances are, the entire project will be set back significantly.
This is an example of "catastrophic risk" - where the probability of one single event going wrong might be small, but if it happens - you aren't looking at a 15% drawdown... you are looking at a near total loss.
So, if you are sitting on a gain in this stock - and you don't want to keep the downside risk in your portfolio going into the FS - it might be prudent to sell and lock in your gain. There are many reasons to exit a position if the situation changes from when you acquired shares.
For me, the potential gains outweigh the risks - but I'm not bashing anyone for de-risking their own P&L.
-DP
I'm with you PM. I find it unlikely that we will see any PP at these prices, especially so close to the FS release.
The M.S. loan, to me was a bridge to get through the FS. So why would MS put up another $2MM of his own cash? This is a signal to me that the fundamentals of the project have a good chance of boosting the SP enough to optimize the equity financing portion of the near-term CAPEX.
I'm speculating, of course. But why would MS loan $2MM just to have the company shortly do a secondary offering at these levels?
I could be 100% wrong, but just thinking aloud.
-DP
I like when this board gets a little chippy. Usually means we are at a pivot point.
-DP
Keep an eye on the USD/CAD FX conversion. Since we are TSX exchange, that *might* play into it. especially with a small thinly traded company. I could be wrong. Haven't thought too much about it to be honest.
Well said.
Let's break down that "Elliott Wave" claim a bit:
116 CAD = $87.21 USD (@ current 1.33 exchange rate)
$87.21 per share X 185,000,000 shares (latest data from company, which also assumes NO equity dilution - which the company itself has said will occur) = $16.1 Billion market capitalization.
This is not feasible from a valuation perspective. The company itself has targeted around $400M of EBITDA in their steady state assumptions for when the mine is in full production. From there, lets assume that after tax earnings are around $250M per year which would imply a Price to Earnings ratio of around 64 (!). The industry average P/E ratio is around 26 (P/E by industry).
Seems like a click-bait article to me. But if you believe it, I'll sell anyone on this board a ton of shares at $80 per share :)
-DP
Looking at the short term technical analysis in such a thinly traded name might not be as helpful as in some other situations (high volume momentum stocks, large caps for entry/exit points etc). However, I do like to take a look at the long-term chart for Niocorp every once in awhile:
Seems to show that downward drift towards the 200 day moving average. Low trading volume.
Just waiting on a catalyst or two in order to break the trend (To the upside, we hope).
-DP
Nailed it. Let's hope this is the case here as well.
After reviewing the release a few times today, I keep coming back to these quotes:
Hah! You guys are really running with this analogy... I love it.
After all this restaurant talk, now I'm hungry. I'm going to go get a snack.
Happy Friday all.
-DP
PM,
You raise some questions, which admittedly I don't have the answers to, and none of us do. I hope I'm wrong about the short term drift downward, believe me.
The factors which I believe are contributing to this dynamic are:
- Uncertainty about timing. There isn't a date to which investors and traders have to have their bets placed. So it would seem to me that in the absence of a deadline like that, everyone is positioned now for that event (FS release).
- So that means the majority people who want to own this name have their "bets placed" already. Also, given the public information we have now - these bets aren't going to materially change day to day, or week to week. This seems to be a binary situation, its a company with ONE main project. That one project is dependent on this ONE piece of new information being distributed to the market.
- So I think about it as if we are all waiting on line to a great restaurant that isn't open, and we don't know when it will open. Not many people are getting in line, but there are some who are leaving the line. Tired of waiting, maybe.
I know that is a silly example, and it's just my opinion. But I think a lot of different dynamics are going on here, and it's interesting to try to sort through.
-DP
PM,
Hang in there. The share price will probably drift downward until FS is released. We might see some volatility in the days before it is released as speculators take their positions (similar to a momentum stock before earnings release). Personally, I don't care if it takes until June to finalize and release the FS. We want it to be bulletproof.
-DP
Drico,
In general I think that management has been pretty good about giving updates. They just gave one on December 9th, less than one month ago-
Niocorp Executive Chair and CEO Mark A. Smith providing an update on the Elk Creek Project in a December 9, 2016 webcast.
Only my opinion here, but the fact that we are not being deluged with constant updates of each new non-material "development" is a show of strength and confidence. Counter-intuitive I know, but let me try to explain my thinking:
At this stage in the game, since the BFS is not finalized and publicly released, the company knows that any "non-material" updates will have a limited effect on the share price. In the past, we might have gotten some more exposure or trading volume based on a release, but probably not at this point.
Given this, if we were to see many releases of "non-material" news it would be a signal (to me) that the BFS is going to be delayed, or not meet expectations when released. This is especially true given the share price's downward drift this year. Most management teams in this situation would be feeling a lot of pressure, and trying any trick in the book to get a SP boost before a capital raise. This is where I think Mark's experience is a big key. He's been through this process and seems to have his eyes on a bigger prize than short term price appreciation.
Company "silence" while we are this close to a material event is another signal that the team is confident in the upcoming results of the BFS, and the domino's yet to fall on off-take, financing, and equity raise fronts.
Sounds like a cheerleader post, I know - but just my thoughts on this specific issue.
-DP
I think that the fall in share price we saw after the initial PEA corresponds to the "Reality Sets In" event on the standard chart.
But yes, at this point I also believe the overall market is in a "wait and see" approach with $NIOBF.
While we have some down time...
I wanted to post this report of methods for analyzing metals and mining investments. A little dry, I know - but it could help to explain why $NIOBF is stuck in a 'holding pattern' before the BFS. I'm sure many are fully aware of these dynamics, but for those who may be new investors - or unsure what the road-map is, it might help.
Valuation of Metals and Mining Companies
Specifically, check out Page 21 & Page 22. With the steady (and positive) developments over the past 12-24 months, the stock price has not appreciated. To me, this is a signal that the market is focused on the release of the Feasibility Study, and little else. We have seen this play out recently: we get a news release (Permits acquired, etc) and the stock is flat. To me, it looks like the last 36 months of $NIOBF price action is generally in line with the standard cycle of mining shares:
Skin in the game. Incentive alignment. That's what you want from the top of the house.
Spot on. They didn't just throw in that paragraph for kicks.
-DP
This is good info - some great insights to the way valuation comes into play in the real world. Although I certainly feel my spreadsheets and programs are real and true - the actual marketplace is much different :)
I am surprised that Mark didn't mention the Real Options technique for valuing a natural resource. That is my 'workhorse' model for this project, given the pre-construction phase we are in.
I'm sure many in this forum are familiar with it, but if not (http://www.realoptions.org/openconf2014/data/papers/25.pdf) & (https://www.finsia.com/docs/default-source/jassa-new/jassa-2007/4_2007_valuation_mining.pdf?sfvrsn=6).
-DP
Hey Jovko,
Thanks for posting your calcs. I don't want to get too far into the weeds here, but I've got a slightly differing view on the following:
Exactly. Well said.
DP
PG- thanks for the re-post. I've gone over your model a bit, and I appreciate you putting it up for the rest of us to review.
I like that you did a scenario analysis to show the sensitivity of pricing. The initial capex calculation for equity might have some room for debate, though.
Here is my thought process on that:
In any model that shows production, we are jumping ahead in the future and assuming that we have a BFS completed with results that confirm the viability of the project. If that happens, it is reasonable to believe that at that time the share price will be significantly higher than now- based on the removal of risk from the overall project.
As you stated, if the share price is higher at the time of an equity raise - the amount of shares needed to be issued in order to satisfy the equity component of the capex requirement would be lower, thus reducing the overall share dilution - and making the per share calculation of your NPV model much more attractive.
DP
The origin of the purchasing company wouldn't matter as much as the structure of the transaction. I think the question should be, would a transaction be a *cash* buyout, stock, or a combination?
Lets say today it is announced that XYZ corp in China has offered to buy out the company for $6 USD in cash. Well, $NIOBF would probably jump immediately to $5.XX per share. At that stage, you could sell in the market and take cash now, or wait and sell to the company and take cash later.
Now, lets say that same company offered to buy for $6 in cash, or exchange 10 $NIOBF shares for 1 $XYZ share. In this case you could sell in the market and take the cash now *or* wait and exchange the shares later (while keeping your interest in the project and potential future earnings).
But, lets remember who will be getting these potential offers: Mark Smith - who seems to have the same incentives as the shareholders. Those incentives will push the team to make the best possible deal, if there is a deal to be made.
Also, playing devil's advocate here a bit: $6 per share offer of a buyout today wouldn't be a "rip-off" would it? The market values this company at $0.6 per share- an offer at 10x the market rate certainly doesn't seem like a "rip-off." Especially considering that we would basically be selling mineral rights to a project that is still 99.9% on paper.
PPS = shares outstanding / market cap of the firm.
We know that the shares outstanding will go up - because we will need another $400 MILLION in equity to be issued (Mark Smith, Oct '16).
But, we also know that in order for us to get to that point, it means we have favorable financial projections as confirmed by BFS.
Speculation:
Next material step the BFS. If this comes back as a validation of all the figures we have seen published before - my opinion is that the share price could quickly rise to $2-$4 USD (*pre*-dilution).
From there, its buyout or break ground. Buyout scenario is a crap shoot - may be in the mid single digits per share (*pre*-dilution).
Break ground scenario relies on financing and share dilution, plus time and much effort. The share dilution would not come all at once, and would not all be at the same price. Which is why putting numbers to this stage is just an educated guess, really. However, if we got to this stage (Successful BFS, buyout rumors, increased attention) - the overall market cap of the firm would certainly be vastly higher than current levels.
Just my opinions. This could take years to play out.
DP
Well, back in October '16 Mark stated he would expect to raise 300MM to 400MM via equity. Given this need, I would think that a reverse split would be unlikely.
I'm surprised a few enterprising members of this forum haven't cornered the market on rental properties in the area. There cant be many available...
RJ,
Thanks for the reply. I am relatively comfortable digging into the financials and economics of the project. Where I need some help is making sense of the actual mining operation, which this board has been a great resource for. I think many who contribute here have a really good grasp on this project, and my original post was an attempt to add to that conversation.
So, if we want to talk company market capitalization or buyout prices we need to have an idea of what this project is worth. In order to *try* to come up with a number that is more than a guess, I used a few financial models (listed in my first post). It's more art than science at this stage, since we aren't dealing with an operating mine. As for financing and dilution, I honestly don't know. I could give you a guess, but it wouldn't be based on anything I could back up.
You asked where I see the share price going - I don't know. But my opinion is that if the BFS is executed well, that is when there will be a potential for the market to pay close attention to this company. If the company has been accurate with it's projections for production, costs, revenues, etc - than we are looking at a multi-billion dollar company operationally. Now, how does that filter down to individual shares post dilution, I don't know.
But would we ever get there? If the BFS comes back and the project looks good - I would say we have a higher probability of being acquired than actually getting the mine into production.
DP
Long $NIOBF since 2010. Fan of this forum.
Niocorp Valuation Q4 2016
Hi all,
I've been following this conversation for quite some time, since the old QREDF tag actually. Holding shares in NIOBF for the long term, I don't trade in this name at all - my bet has been placed.
I've put together some quantitative models of the valuation of Niocorp, based on the latest available data from the company, and the overall market where possible.
Valuation Model Price
Real Options: 4,225 MM
DCF: 4,214 MM
Comp: P/E: 3,295 MM
Comp: P / EBITDA: 2,595 MM
Comp: P/Tonne: 1,941 MM
Comp: P/S: 870 MM
Curr Market Price: 118 MM
Avg: 2,465 MM
Median: 2,595 MM
Now, each of these models has many variables which I will not list here. But, to those in this forum who also are modelling the valuation - have you used other methods? Have you used the same methods and come up with different results?
Again, this is more of a long term view of the company. Personally, I don't expect any major news soon. I also don't expect the Bankable Feasibility Study to be complete before Q2 2017. I also don't think this is a bad thing.