On 17 May BCI announced the results of its PFS optimisation study at its Mardie salt and potash project in north-western Australia. Relative to its earlier PFS study (the results of which were announced in June 2018), the principal differences are an increase in salt and sulphate of potash (SOP) production, by 14.3% and 33.3% respectively, and the development of a dedicated port at the Mardie site. While this has increased the project’s capex estimate by 48.7% to A$498m, it has increased its pre-tax NPV10 by 67.2% and our estimate of post-tax NPV10 by A$111.2m to A$345.5m (or 86.9c per existing BCI share). At the same time, the project’s operational lifespan has been extended to 60 years (from 30 years previously).
In our report Gold stars and Black holes: Analysing the discount: From resource to sanction, published in January 2019, we observed that, excluding outliers, the average valuation of companies at PFS stage is 9.9% of attributable NPV. On this basis (and assuming a post-tax NPV of 70% of pre-tax NPV of A$560m), an average valuation for Mardie would be A$38.8m, or 9.76 cents per share. However, if the DFS on Mardie, which is underway, is completed on approximately the same terms, we would expect this valuation to increase more than threefold, to c 30.9% of NPV, or 30.46c per share. This excludes the 19.51c at which we valued BCI’s other operating assets in our Outlook report, BCI Minerals: Salt plus potash plus iron equals value, published on 7 February 2019. It also excludes the 2.43c value of BCI’s other non-operating assets – ie Buckland (see BCI Minerals: Increasing iron ore royalties supporting Mardie, published on 16 April 2019).
One additional consequence of its plans to develop a dedicated port at Mardie could be that BCI’s potential for concessional debt funding via Australia’s federal North Australia Infrastructure Facility (NAIF) is increased.
In the wake of its quarterly activities report, we value the stream of dividends payable to BCI shareholders from Iron Valley and the development of Mardie at 35.13c (cf 31.62 previously). To this should be added a further 2.43c for its Buckland assets to take the total to 37.56c. Further upside then exists if iron ore prices remain at elevated levels beyond June and/or the Australian dollar remains at its currently depressed levels.