Transcription of The Stock Network Interview with Metals Australia (ASX:MLS), CEO Paul Ferguson
Lel Smits: A new research note from Arrowhead has assessed Metals Australia and established a share fair value for the company, with Lake Cahill and its broader project portfolio underpinning the valuation. I’m joined today by CEO Paul Ferguson to respond to the research, discuss its valuation and provide management’s perspective on the company’s growth opportunities. Paul, welcome to the Stock Network.
Paul Ferguson: Thanks, Lel. Nice to be back again.
Lel Smits: Great to have you on.
Look, Arrowhead has established a share fair value for Metals Australia. What are your thoughts on the valuation and also the key assumptions behind this research?
Paul Ferguson: Yes, on one hand, I think it’s a conservative valuation. They are certainly recognising that we are being now valued as an integrated development company, not just a plain old explorer anymore.
We have material reserves in place now for our graphite project. This year, we’ve published two key studies laying out both the upstream and the downstream significant valuations. I think they’ve certainly taken on all of that information, run their own models, apply their own valuations.
Their fair share value estimate for us is just under $0.33 to $0.41 Australian with a base case range of $0.369. That would translate to $270 million market cap for us, which is still a much higher multiple than where we’re trading today. So Arrowhead, I think fairly conservative, they do some of the parts evaluation. So they look at a range of different valuation metrics in coming to their conclusion, and not just in the graphite project in our case.
They’ve looked at everything in the portfolio. But they identify the peer groups. So if we talk about the peer groups of graphite companies, notably our peer comparators are in Canada or the US or they’re in Australia.
And then they’ll make assessments based on companies that have resources and reserves and have studies completed and look at the enterprise value multiples for EV per resource ton, EV per reserve ton, enterprise value per net present value of your projects as declared by studies. And they’ll apply different weightings and discounting so that they don’t just take our models, they kind of build their own. They do a lot of discounting on those models, I would say.
I think where we have previously declared our valuations at sort of an 8% discount basis, they’ll be using 13 plus percent. So I still think that they’re quite conservative, but notwithstanding, I think they’ve not just looked at one metric, they’ve looked at a range of metrics, and they’ve looked at the whole of the portfolio. And they’ve got a number out there that would put us with a market cap of $271 million.
And I think all of our shareholders would be happy to see that today. They certainly would be. Look, the Arrowhead note also identifies Latkahil as an important part of the company’s value proposition.
Lel Smits: How does management really view the project’s potential and the valuation that’s attributed to it here?
Paul Ferguson: Yeah, so we’ve sort of looked at it from a study perspective. So the two studies that we published, the preliminary economic assessment for the downstream project in Bakermoe, and the pre-feasibility study assessment for the upstream project in near Vermont, and the combination of valuations on those have sort of, if you want, culminated in about $3.48 of net present value on an after-tax basis per share. So we see things sort of, I think, sort of more optimistically than Arrowhead do.
And so it bears pointing out that their kind of valuation is really only about 10% of that. And there’s some really good reasons for that. But one of the things we see is that whether you look at our valuations that we’ve put out, and I believe we’ve used some pretty conservative assumptions, whether it’s pricing or startup and so forth in projecting those valuations, and then you compare Arrowheads, I think the key point there is either which way you look at it, there’s a serious underperformance relative to our current stock price.
So either would say that we’re significantly undervalued and that a re-rate is a real potential for us. And look, we think that will come. I mean, it’s early days.
We’ve only just published those studies when you think about it in late April and June. And so it’s the first time people are starting to see or hear about the graphite projects and its value. And I talk to a lot of people all over the world about this project.
And most of them will say to me, oh, I haven’t heard of this project. So awareness is gathering momentum. And I think that’s true for what I would call kind of some of the strategic players as well, governments, not just in the US and Canada, but more broadly than that, are starting to take awareness of this project.
And certainly some of the people that you might think might be interested in off taking some of our product, awareness is building on that front as well. So we kind of say it’s a nice validation in terms of what Arrowhead have put out for us, 36.9 cents is a long way north of where we are. But we think there’s a long way to go beyond that.
Lel Smits: Absolutely. And Paul, Arrowhead also considers the company’s broader portfolio, including Menindee. How do you see these opportunities really contributing to the future value?
Paul Ferguson: It’s interesting.
Obviously, most of the valuation in that 36.9 cents is tied to the graphite project, unsurprisingly. But there’s around 2.2 cents that is related to their assessment of the Menindee projects and also Corvette. Menindee itself, as I’ve said before, is really two projects.
It’s the VTM, Vanadium Titanium Magnetite discovery that we’ve kind of identified and drilled out and more to come on that. And closely associated Zinc Copper Silver resource that of itself has 70,000 tonnes of Zinc metal in the ground, relatively shallow and amenable to open cut with a Zinc price of 5,400 Aussie dollars a tonne now overnight. So think about that 70,000 tonnes of Zinc and 5,400 dollars a tonne.
And Arrowhead will value that entire Zinc Copper Silver project at about 7 million dollars, which is less than nine tenths of one cent. And obviously, when you get to the VTM project, because we haven’t put out resources on that one yet, even though it’s a great discovery, I think their entire valuation on that project is about 6 million dollars. So, you know, of 1.8 cents of that 36.9 that they put out relates to the Menindee project and the rest is kind of rounding associated with Corvette.
So they do look at everything. But what we see is that when you look at those kinds of valuations, we see them as very conservative. And clearly, obviously, the potential where to grow those valuations over time is quite significant with some of the work we’ve got planned.
Lel Smits: Paul, thank you for the update and talking us through Arrowhead’s report on Metals Australia.
Paul Ferguson: No problems at all, Lel. Thank you.
Ends