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IMPORTANT VALUATION CONSIDERATIONS
Important Valuation Considerations:
All, I wanted to post this today as we are getting close to the day where (I believe) the stock may start rising in anticipation of news, traders entering (not a great thing as they are short term), some ‘smarter’ shorts covering, etc. This will give you some time to consider these points over the ‘waiting’ period for what we hope is our JV news.
While I cannot tell anyone not to sell or when to sell, as you all have your own financial decisions to make, I did want make some comments here on value for all to consider.
NAK is severely undervalued CURRENTLY because of excessive shorting, do not forget that.
If you recall all of my daily posts on short volume, you should have taken away one key point, from approximately $2.50 down the data showed that very few longs were selling. The price decline was proven (from the data) as shorts selling to shorts and walking the price down. They took advantage of low volume, fear, and few buyers (or buyers waiting), but in the end, we know what the data says, that few longs sold. This matters, because its explains the current price is a fiction – this has been explained many times in my daily short reports – read those if you need a refresher.
So, consider this as it moves up. Why would you sell at a price that has been manufactured by shorts and doesn’t reflect real value, and that you would never have sold at when you bought? Just to assist shorts in covering? Such a decision makes no sense, you watched them walk it down (and know it from the data), then you sell when they need to get out, either at a loss, break even or small profit? Effectively, you let them sucker you into their game (the fatigue, impatience, buy high sell low, emotional retail investor mentality). The stock should be well into the $3-4 range right now (based on public comps). Had it not been for this ‘game’, it would be. But you’d sell at $2 or $3 post partner and post veto? Why?
I will remind you that insiders, insitutions, Stirling, did not sell when the stock hit $3.50 preveto and prepartner. Insider behavior is a MAJOR tell on value – clearly they believe(d) with all that risk still there, NAK was worth more than $3.50 a THAT TIME, so with all that risk gone you’d sell at, below, or even close to that level? Why?
If longs decide to hold out for value, guess what happens? Shorts are forced to PAY MORE for shares and you make a bigger profit and a squeeze starts.
We all know that TD and Gabelli have price targets in the $4-6 range and this was Preveto/prepartner, one would expect upgrades once more details come out on partnership JV, mine plan etc.
Cantor’s $3.75 Price Target was quite simple when you look at it. Despite the heavy math, NPV etc, it can be back of the “enveloped” very quickly. I am sure some are astute enough to have noticed that Cantor’s estimate was based on a $1.1bn contribution from partners, but stated if the contribution was higher that there would be “material upside” to their target, and that their view was ‘highly conservative”.
Basic math shows you that $1.1bn / 300 mil shares outstanding is $3.75, which coincidently matches their price target, odd that isn’t it? J
It is common sense, and I have (and many others) stated it repeatedly, that the commitment by partners IS THE PRIVATE MARKET VALUATION FOR 50% OF THE COMPANY. Obviously the consortium is made up of experts in mining and if both sides have agreed through negotiation that (example) 50% is worth say $3.7 bn, logically, that means the other 50% is valued at the SAME amount (with caveat that this is a PRIVATE MARKET TRANSACTION)
Note that a private market transaction is generally priced at a 15-20% discount to fair value (private market discount for illiquidity, minority positions (if not one party only), sweetener to invest/partner, etc). As a result, the PUBLIC market could and arguably should, value the public vehicle (NAK) even higher.
$3.7bn / 300 mil shares translates into $12.15 per share (example). REMEMBER THIS
Now some comments on what is and should be basic logic on the math above
The market may recognize the valuation fully, or MORE, or less. It depends on how short term traders react, how long term investors react (institutions and insiders buy?) or not etc.
There is potential for the market to value it HIGHER –why?
NAK is the only ‘pure play’ public vehicle for investing in Pebble (and as above the market is aware that partners paid ‘less than fair value’ for the stake).
Arguably, based on ‘financial theory’ it ‘should’ trade higher than that valuation – but as we have learned price and value don’t always align. So far it has been to the downside, let’s hope this time it’s to the upside! I prefer overvaluation when I own a stock! Ha!
Private market discount (for partnering) vs public market value as described above in #10.
NAK could be also be priced lower than that $12.15 (as per the example used) as well. There are no guarantees – no one can predict a stock price (as much as chart monkeys will tell you they can – funny how they never mention when they are wrong, which is 85% of the time! But what you can do is understand value and consider that before you sell.
Here are some other points to consider going forward.
Given the EPA WOTUS news, if WOTUS restrictions are removed in the next few months, NAK will have ‘effective’ permit approval. While not ‘officially permitted’, removing the only impediment to permitting removes the last major risk and makes permitting “procedural” or basically paper work.
One can expect the stock will rise heavily at permitting and could very well be bought out for multiples of the current valuation by partners at that stage. Since a WOTUS life would come very close to guaranteeing a permit, one would think major moves in the stock are likely and buy out odds dramatically increase. Most explorers are bought out at permitting by partners or another party – even better if a bidding war occurs.
The consideration here is then, by reading the tea leaves of the Alaska debt/deficit situation, Pruitt and the GOP proven support for this mine, the need for jobs, Trump’s focus on employment, does anyone REALLY think that Pruitt will not ensure that this risk is removed? Let’s not forget, Pebble is the POSTER CHILD of Obama EPA overreach, you don’t let the poster child lose.
If and when the WOTUS restriction is removed, what does that mean to NAK’s stock price and related buy out potential?
This could all happen within six months – there is no guarantee, but something to consider
Shorts will be getting margin calls on JV partner news if they do not exit, realize that many of them are going to be gutted, good for them –we warned them repeatedly
There will be momentum for days regardless, as shorts will need to cover, institutions should start coming in as partners lend credibility to the mine, the permitting process begins and the reality that these majors believe the mine will be built (especially given the history here) Think about that as you approach your decision to add, sell or hold
Expect upgrades that should help the stock in the coming days/weeks post the JV news, with more institutions coming in.
Those saying “I’ll sell at $3” should consider ALL of the above because I firmly believe that will be blown through on the halt. JV terms obviously will determine how much higher but in my view it will be materially higher (as Cantor suggested).
Key considerations on value (going forward) should then be
Partner Valuation (Implied valuation for whatever stake remaining that we own) we are assuming 50% based on the past deal.
As noted on Stocktwits by Litig8, the company has on its corporate presentation, suggested the Preliminary Feasibility Study should be available Q3. This is material to the market and should have an impact, although one would surmise partners have already seen/reviewed the data (as part of their data room review).
Assuming a positive PFS, (which given the interest of partners we hear from the CEO, we assume the PFS will be positive), this should further bolster the share price, as it further de-risks the project.
WOTUS restriction removal. The EPA has provided three months for comments, then perhaps another 3 for determination (just a guess). The first three month clock has started, in early October the decision clock begins. Again, should this restriction be removed, the MAJOR issue that could cause a problem in permitting will be REMOVED. Should that occur, logically think about what that means for the odds of the permit, the market will recognize this, it means the permit is therefore highly likely to be approved, and NAK is simply ‘going through the motions/procedures to get it ‘rubber stamped’. This is incredibly material in my opinion.
Comments are simply that, comments. If many of you recall reading the comments in the land use permit, you will recall how comments lacked scientific basis and for the most part were basically “Nimby” type complaints that the government basically put to rest-expect the same
Comments allow those who perceive themselves to be affected (which we know they won’t be as a scientific FACT), to feel like they are being ‘listened’ to. Nothing more.
Regarding that ‘opposition’, I will reiterate common sense facts that the environmental left keeps ignoring as they try to spread “FUD” about this stock
Science has proven there is no factual risk to the fisheries, EPA Peer review stated this themselves and this is why the EPA settled
Obama is no longer in office, this is something I think these groups ignore. Crying and nimbyism does not work, facts and science matter here and enviros see (i) above if you need another reminder as you probably forgot that fact already.
Alaska is BROKE – fisheries (even ignoring the FACT that they will NOT be hurt) never paid the bills, Oil and Gas did and that is no longer paying the bills and will not going forward given the secular decline in oil prices as the world moves to renewable energy and electric cars!
Doesn’t AK have a key component of electric cars and renewable energy generation? Copper? Indeed it does!
Is Alaska going to dive deeper and deeper into the abyss and not address this when they have JOBS AND TAX revenue staring them in face?
A little common sense always helps one realize how out to lunch these ‘bashers’ are.
Finally, be aware that ‘de-risking’ is what drives value here for institutional investors, the more information and data that comes out of the company that ‘de-risks’ this operation, the more institutions will enter and thus drive share price higher.
Please go back and read the long diligence post I made prior that talked about key risks for NAK. Consider how those factors are affected by the comments above and the news that should come out in the coming months.
Let all of this sink in, along with the diligence post I made prior (see link) and consider all of it before you decide to sell. At least once you’ve done ALL that reading, thought about it, you’ve thought through the upside and downside and are making a more educated decision, rather than simply looking at a chart or percentage increase! Charts don’t measure any of this, they don’t even account for WHY the stock declined, and THAT is a MATERIAL factor.
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